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You are an expert at summarizing long articles. Proceed to summarize the following text: DOD is subject to various laws dating back to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as amended by the Superfund Amendments and Reauthorization Act (SARA) of 1986 that govern remediation (cleanup) of contamination on military installations. DOD must also follow federal accounting standards that establish requirements for DOD to recognize and report the estimated costs for the cleanup of training ranges in the United States and its territories. Increasing public concern about potential health threats has affected not only the present operations of these training ranges but also the management, cleanup, and control of this training range land that has been, or is in the process of being, transferred to other agencies and public hands. DOD defines a range as any land mass or water body that is used or was used for conducting training, research, development, testing, or evaluation of military munitions or explosives. DOD classifies its ranges into the following five types. Active ranges are currently in operation, construction, maintenance, renovation, or reconfiguration to meet current DOD component training requirements and are being regularly used for range activities. Examples of these ranges would include ranges used for bombing, missiles, mortars, hand grenades, and artillery testing and practice. Inactive ranges are ranges that are not currently being used as active ranges. However, they are under DOD control and are considered by the military to be a potential active range area in the future, and have not been put to a new use incompatible with range activities. Closed ranges have been taken out of service and are still under DOD control but DOD has decided that they will not be used for training range activities again. Transferred ranges have been transferred to non-DOD entities such as other federal agencies, state and local governments, and private parties, and are those usually associated with the formerly used defense sitesprogram. Transferring ranges are in the process of being transferred or leased to other non-DOD entities and are usually associated with the base realignment and closure program. Congress addressed environmental contamination at federal facilities under SARA in 1986. This legislation established, among other provisions, the Defense Environmental Restoration Program and the Defense Environmental Restoration Account as DOD’s funding source under the Act. The goals of the Defense Environmental Restoration Program include (1) identification, investigation, research and development, and cleanup of contamination from hazardous substances, pollutants, and contaminants and (2) correction of other environmental damage such as detection and disposal of unexploded ordnance which creates an imminent and substantial danger to the public health or welfare or to the environment. The Office of the Deputy Under Secretary of Defense for Environmental Security (DUSD(ES)) was created in 1993. That office has overall responsibility for environmental cleanup within DOD and includes the Office of Environmental Cleanup that manages the Defense Environmental Restoration Program. Carrying out any remediation or removal actions under applicable environmental laws, including SARA, would likely require the immediate or future expenditure of funds. Federal accounting standards determine how those expenditures are accounted for and reported. The Chief Financial Officers’ Act of 1990, as expanded by the Government Management and Reform Act of 1994, requires that major federal agencies, including DOD, prepare and submit annual audited financial statements to account for its liabilities, among other things. Two federal accounting standards, Statement of Federal Financial Accounting Standards (SFFAS) Nos. 5 and 6, establish the criteria for recognizing and reporting liabilities in the annual financial statements, including environmental liabilities. SFFAS No. 5, Accounting for Liabilities of the Federal Government, defines liability as a probable future outflow of resources due to a past government transaction or event. SFFAS No. 5 further states that recognition of a liability in the financial statements is required if it is both probable and measurable. Effective in 1997, SFFAS No. 5 defines probable as that which is more likely than not to occur (for example, greater than a 50 percent chance) based on current facts and circumstances. It also states that a future outflow is measurable if it can be reasonably estimated. The statement recognizes that this estimate may not be precise and, in such cases, it provides for recognizing the lowest estimate of a range of estimates if no amount within the range is better than any other amount. SFFAS No. 6, Accounting for Property, Plant, and Equipment, further defines cleanup costs as costs for removal and disposal of hazardous wastes or materials that because of quantity, concentration, or physical or chemical makeup may pose a serious present or potential hazard to human health or the environment. The Office of the Under Secretary of Defense (Comptroller) issues the DOD Financial Management Regulation containing DOD’s policies and procedures in the area of financial management, which require the reporting of environmental liabilities associated with the cleanup of closed, transferred, and transferring ranges in the financial statements.DOD has taken the position that the cleanup of these ranges is probable and measurable and as such should be reported as a liability in its financial statements. Under the presumption that active and inactive ranges will operate or be available to operate indefinitely, the DOD Financial Management Regulation does not specify when or if liabilities should be recognized in the financial statements for these ranges. The Senate Report accompanying the National Defense Authorization Act for Fiscal Year 2000 directed DOD to provide a report to the congressional defense committees, no later than March 1, 2001, that gives a complete estimate of the current and projected costs for all unexploded ordnance remediation. As of March 30, 2001, DOD had not issued its report. For the purposes of the March 2001 report, DOD officials had stated that they would estimate cleanup costs for active and inactive training ranges just as they would for closed, transferred, and transferring ranges. Thus, the cleanup costs shown in this report would have been significantly higher than the training range liabilities reported in the financial statements, which only include estimates for closed, transferred, and transferring ranges. However, in commenting on a draft of our report, DOD officials informed us that they would not be reporting the cleanup costs of active and inactive training ranges in their March report. As DOD downsizing and base closures have increased in recent years, large numbers of military properties have been, and are continuing to be, turned over to non-DOD ownership and control, resulting in the public being put at greater risk. DOD uses a risk-based approach when transferring ranges from its control to reduce threats to human health and the environment. DOD attempts to mitigate risk to human health on transferred and transferring ranges. In instances where DOD has not removed, contained, and/or disposed of unexploded ordnance and constituent contamination from training ranges prior to transfer, it implements institutional controls to restrict access to transferring ranges and to transferred ranges where risks are found. Institutional controls include implementing community education and awareness programs, erecting fences or barriers to control access, and posting signs warning of the dangers associated with the range. Figure 1 shows signs posted at Fort McClellan, Alabama, warning of unexploded ordnance. Fort McClellan has been designated for closure under the base realignment and closure program and, as such, is in the process of transferring base properties out of DOD control. DOD officials have estimated that approximately 16 million acres of potentially contaminated training ranges have been transferred to the public or other agencies. The risk to the public was further discussed by an Environmental Protection Agency (EPA) official in a letter dated April 22, 1999, to DUSD(ES). The EPA official cautioned that many training ranges known or suspected to contain unexploded ordnance and other hazardous constituents have already been transferred from DOD control, and many more are in the process of being transferred, and the risks from many of these have not been adequately assessed. The letter went on to state that risks correspondingly increase as ranges that were once remote are encroached by development or as the public increases its use of these properties. An example of the development of sites adjacent to training ranges is the planned construction of two schools and a stadium by the Cherry Creek School District adjacent to the Lowry Bombing Range, a transferred range, near Denver. Construction is expected to begin in May 2001. Most training range contamination is a result of weapons systems testing and troop training activities conducted by the military services. Unexploded ordnance consists of many types of munitions, including hand grenades, rockets, guided missiles, projectiles, mortars, rifle grenades, and bombs. Figure 2 shows examples of some of the typical unexploded ordnance that has been removed from training ranges. Risks from this unexploded ordnance can encompass a wide range of possible outcomes or results, including bodily injury or death, health risks associated with exposure to chemical agents, and environmental degradation caused by the actual explosion and dispersal of chemicals or other hazardous materials to the air, soil, surface water, and groundwater. For example, according to an EPA report, EPA surveyed 61 current or former DOD facilities containing 203 inactive, closed, transferred, and transferring ranges and identified unexploded ordnance “incidents” at 24 facilities. These incidents included five accidental explosions, which resulted in two injuries and three fatalities. According to an EPA official, the three fatalities identified in their limited survey were two civilian DOD contractors and one military service member. Although DOD reported its unexploded ordnance cleanup liability on training ranges at about $14 billion in its fiscal year 2000 agencywide financial statements, it is likely that the financial statements are substantially understated. Further, significant cleanup costs will not be included in the planned March 2001 report. DOD officials and Members of Congress have expressed concern over the potential liability the government may be faced with but are still uncertain how large the liability may be. Various estimates have shown that cleanup of closed, transferred, and transferring training ranges could exceed $100 billion. For example: In preparation for DOD’s planned issuance of the Range Rule, DOD began an analysis of the potential costs that may be incurred if the Rule was implemented. The Rule was intended to provide guidance to perform inventories and provide cleanup procedures at closed, transferred, and transferring ranges. The Rule was withdrawn in November 2000 and the cost analysis was never formally completed. However, a senior DOD official said that initial estimates in the cost analysis that was developed in 2000 put the cleanup costs of training ranges at about $40 billion to $140 billion for closed, transferred, and transferring training ranges. DOD estimated that its potential liability for cleanup of unexploded ordnance might exceed $100 billion as noted in a conference report to the National Defense Authorization Act for Fiscal Year 2001 (Report 106-945, October 6, 2000). DOD will not respond fully to the Senate Report request for reporting the costs of cleaning up unexploded ordnance on its training ranges. DOD officials informed us that due to time constraints, the training range liability to be reported in the March 2001 report would not be complete or comprehensive because the required information could not be collected in time for analysis and reporting. A DUSD(ES) official said that the March 2001 report will include a discussion of the limitations and omissions. DOD officials stated that they have deferred the collection and analysis of key data elements. Some of the items that were excluded are the costs to clean up the soil and groundwater resulting from unexploded ordnance and constituent contamination. These omitted costs could be significant. Further, the March 2001 report will not include information on water ranges. DOD’s 1996 Regulatory Impact Analysis reported that DOD had approximately 161 million acres of water training ranges, almost 10 times the size of the estimated closed, transferred, and transferring land ranges. In commenting on a draft of this report, DOD stated that the 161 million acres of water ranges are active training ranges, the majority of which are open-ocean, deep water, restricted access areas and most are outside the territorial waters of the United States. DOD also stated that the majority of water ranges are not likely to cause an imminent and substantial danger to public health and safety or the environment. However, until a complete and accurate inventory is performed, DOD will be unable to determine whether some water ranges meet the reporting requirement of SFFAS No. 5 and, thus, must be reported in the financial statements. The DOD Comptroller has revised the DOD Financial Management Regulation to clarify DOD’s fiscal year 2000 financial statement reporting requirements for training range cleanup costs. The revision includes guidance that requires the reporting of the cleanup costs of closed, transferred, and transferring ranges as liabilities in the financial statements. DOD has indicated that the costs to clean up these training ranges is probable and measurable and as such should be reported as a liability in the financial statements. We concur with DOD that these costs should be reported in the financial statements as liabilities because they are probable and measurable. Specifically, they are probable because DOD is legally responsible for cleaning up closed, transferred, and transferring ranges which were contaminated as a result of past DOD action. For example, under SARA, DOD is responsible for the cleanup of sites that create an imminent and substantial danger to public health and safety or the environment. In addition, these training range cleanup efforts are measurable. DOD has prior experience in training range cleanup under the formerly used defense sites program and has used this experience to develop a methodology to estimate future cleanup costs. However, as explained later in this report, DOD has not based its reported financial statement liability for cleanup of these ranges on a complete inventory or consistent cost methodology, resulting in estimates that range from $14 billion to over $100 billion. In addition, we believe that certain active and inactive sites may have contamination that should also be recorded as a liability in the financial statements because these sites meet criteria in federal accounting standards for recording a liability. The DOD Financial Management Regulation does not include instructions for recognizing a liability for training range cleanup costs on active and inactive ranges in the financial statements. Although cleanup of active and inactive ranges would not generally be recognized as a liability in the financial statements, there are circumstances when an environmental liability should be recognized and reported for these ranges. A liability should be recognized on active and inactive ranges if the contamination is government related, the government is legally liable, and the cost associated with the cleanup efforts is measurable. For example, contaminants from an active training range at the Massachusetts Military Reservation threaten the aquifer that produces drinking water for nearby communities. The problem was so severe that in January 2000, EPA issued an administrative order under the Safe Drinking Water Act requiring DOD to cleanup several areas of the training range. According to a DOD official, the cleanup effort could cost almost $300 million. As a result, the cleanup of this contamination is probable (since it is legally required) and measurable. Thus, this liability should be recognized in the financial statements under SFFAS No. 5. Although DOD and the services have collected information on other environmental contamination under the Defense Environmental Restoration Program for years, they have not performed complete inventories of training ranges to identify the types and extent of contamination present. To accurately compute the training range liabilities, the military services must first perform in-depth inventories of all of their training ranges. Past data collection efforts were delayed because the services were waiting for the promulgation of the Range Rule which has been withdrawn. DOD recently began collecting training range data to meet the reporting requirements for the Senate Report. However, as stated previously, DOD has limited its data collection efforts and will not be reporting on the cleanup of water ranges or the unexploded ordnance constituent contamination of the soil and water. The Army, under direction from DUSD(ES), proposed guidance for the identification of closed, transferred, and transferring ranges with the preparation and attempted promulgation of the Range Rule. In anticipation of the Range Rule, DOD prepared a Regulatory Impact Analysis report in 1996, recognizing that the cleanup of its closed, transferred and transferring training ranges was needed and that the cleanup costs could run into the tens of billions of dollars. To address inventories of its active and inactive ranges, DOD issued Directive 4715.11 for ranges within the United States and Directive 4715.12 for ranges outside the United States in August 1999. These directives required that the services establish and maintain inventories of their ranges and establish and implement procedures to assess the environmental impact of munitions use on DOD ranges. However, the directives did not establish the guidance necessary to inventory the ranges nor establish any completion dates. Although the directives assigned responsibility for developing guidance to perform the inventories, DOD has not developed the necessary guidance specifying how to gather the inventory information or how to maintain inventories of the active and inactive training ranges. Since fiscal year 1997, federal accounting standards have required the recognition and reporting of cleanup costs, as mentioned earlier. However, DOD did not report costs for cleaning up closed, transferred, and transferring training ranges until the services estimated and reported the training range cleanup costs in DOD’s agencywide financial statements for fiscal year 1999. Agencywide financial statements are prepared in accordance with the DOD Financial Management Regulation, which is issued by the DOD Comptroller and incorporates Office of Management and Budget guidance on form and content of financial statements. In an attempt to comply with the mandates in the Senate Report, DOD embarked on a special effort to collect training range data necessary to estimate potential cleanup costs. The Senate Report directed DOD to report all known projected unexploded ordnance remediation costs, including training ranges, by March 1, 2001, and to report subsequent updates in the Defense Environmental Restoration Program annual report to Congress. While the Senate Report did not expressly direct DOD to identify an inventory of training ranges at active facilities, installations subject to base realignment and closure, and formerly used defense sites, the data necessary to fully estimate costs of unexploded ordnance— normally located on training ranges—could only be attained in conjunction with the performance of a complete and accurate inventory that includes training ranges. Although the Senate Report’s directives were dated May 1999, DOD did not provide formal guidance to the services for collecting training range data until October 2000—17 months later. As a first step in February 2000, the Under Secretary of Defense for Acquisition, Technology, and Logistics assigned the responsibility to the Office of the Director of Defense Research and Engineering, in coordination with DUSD(ES), for obtaining the range data and preparing the report. On October 23, 2000, DUSD(ES) issued specific guidance to the military services instructing them to gather range information and detailing some of the specific information needed. Although DOD instituted an Unexploded Ordnance Inventory Working Group in March 2000 to work with the services to develop specific guidance, service officials told us that DOD had not clearly told them what was required or when it was required until shortly before the official tasking was issued on October 23, 2000. Once officially tasked to gather range information, the services were given until January 5, 2001, to gather and provide it to DOD for analysis by a DOD contractor. Lacking specific guidance from DOD to inventory their ranges, but recognizing that they would eventually be tasked to gather range information in anticipation of the Range Rule or for the Senate Report, each of the services developed its own survey questionnaires to begin gathering range information before the formal guidance was issued. The Navy took a proactive approach and began developing a questionnaire in late 1999. The questionnaire was issued to the Navy commands in December 1999. The Army and the Air Force also developed their own questionnaires and issued them in September 2000. Because the formal guidance was issued after the services had begun their initial data collection, the services had to collect additional data from their respective units or other sources. According to DOD officials, the training range inventory information gathered from these questionnaires for the March 2001 report will also be used in the future as a basis for financial statement reporting. Although the scope of ranges in the United States and its territories is not fully known—because DOD does not have a complete inventory of training ranges—DOD estimates that over 16 million acres of land on closed, transferred, and transferring ranges are potentially contaminated with unexploded ordnance. DOD also estimates that it has about 1,500 contaminated sites. Many former military range sites were transferred to other federal agencies and private parties. Training ranges must be identified and investigated to determine type and extent of contamination present, risk assessments performed, cleanup plans developed, and permits obtained before the actual cleanup is begun. These precleanup costs can be very expensive. For example, the Navy estimates that these investigative costs alone are as much as $3.96 million per site. Identifying the complete universe of current and former training ranges is a difficult task. Ranges on existing military bases are more easily identifiable and accessible. More problematic, however, are those ranges that were in existence decades ago, that have been transferred to other agencies or the public, and records of the ranges’ existence or the ordnance used cannot always be found. Special investigative efforts may be necessary to identify those locations and ordnance used. In preparing for World War I and World War II, many areas of the country were used as training ranges. In some instances, documentation on the location of and/or the types of ordnance used on these ranges is incomplete or cannot be found. For example, unexploded ordnance was unexpectedly found by a hiker in 1999 at Camp Hale in Colorado, a site used for mountain training during World War II and since transferred to the U.S. Forest Service. Because additional live rifle grenades were found in 2000, the Forest Service has closed thousands of acres of this forest to public use pending further action. This site also serves as an example of the difficulty in identifying and cleaning up unexploded ordnance in rough mountain terrain and dense ground cover. In addition to not having an accurate and complete inventory of its training ranges, DOD has just recently focused on development of a consistent methodology for estimating its training range cleanup cost estimates. However, DOD is using different methodologies for estimating cleanup costs for the annual financial statements and the March 2001 report. While DOD is using a standard methodology for estimating and reporting its cleanup costs for the March 2001 report, that methodology was not used to estimate the training range cleanup costs for the fiscal year 2000 financial statements. In addition, each of the services is using different methodologies for calculating cleanup cost estimates for reporting its liabilities in the financial statements. Without a consistent methodology, cleanup costs reported in the financial statements and other reports will not be comparable and have limited value to management when evaluating cleanup costs of each the services’ training ranges and budgeting for the future. Because the military services do not apply a consistent cost methodology to compute the liabilities for their financial statements, any comparison among the training range liabilities across the services will not be meaningful. DOD is reporting a liability of about $14 billion for fiscal year 2000 for cleaning up closed, transferred, and transferring training ranges. Of the $14 billion, the Navy is reporting a liability of $53.6 million. The Navy, based on limited surveys completed in 1995 through 1997, estimated the number and size of its training ranges and applied a $10,000 an acre cleanup cost factor to compute its liability. The Navy based its estimates on the assumption of cleaning up its closed, transferred, and transferring ranges to a “low” cleanup/remediation level. The low cleanup/remediation level means that the training ranges would be classified as “limited public access” and be used for things such as livestock grazing or wildlife preservation, but not for human habitation. The Army recognized the largest training range cleanup liability for fiscal year 2000. It reported a $13.1 billion liability for cleaning up closed, transferred, and transferring ranges. The $13.1 billion was comprised of $8 billion to clean up transferred ranges, $4.9 billion for the cleanup of closed ranges, and $231 million for the cleanup of transferring ranges.The Army used an unvalidated cost model to compute the $8 billion costs of cleaning up transferred ranges and used a different cost methodology for estimating the $4.9 billion for closed ranges. The Air Force reported a liability of $829 million for both fiscal years 1999 and 2000 based on a 1997 estimate of 42 closed ranges, using a historical cost basis for estimating its liability. According to DOD officials, DOD has standardized its methodology for estimating and reporting the unexploded ordnance cleanup costs that will be reported in the March 2001 report. DOD’s cost model used to compute the unexploded ordnance cleanup costs from its training ranges has not been validated. The original cost model was initially developed by the Air Force in 1991 and has been used by government agencies and the private sector to estimate other environmental cleanup costs not associated with training range cleanup. A new module was recently added to the cost model to estimate costs for removing unexploded ordnance and its constituents from former training ranges. The new module uses cost data developed by the U.S. Army Corps of Engineers from past experiences in cleaning up training ranges on formerly used defense sites. DOD officials told us that they believe that this model is the best one available to compute the cleanup costs. However, the assumptions and cost factors used in the model were not independently validated to ensure accurate and reliable estimates. DOD Instruction 5000.61 requires that cost models such as this must be validated to ensure that the results produced can be relied upon. We did not evaluate this model, but we were informed that DOD is in the process of developing and issuing a contract to have this model validated. A DOD official also informed us that DOD is currently considering requiring that the cost model be used as a standard for the military services’ valuation of their cleanup cost estimates used to report liabilities in the financial statements. Until DOD standardizes and validates its costing methodology used for estimating and reporting all cleanup cost estimates for training range cleanup and requires its use DOD-wide, it has no assurance that the military services will compute their cleanup costs using the same methodology. As a result, the services will in all probability continue to produce unreliable and differing estimates for their various reporting requirements. DOD lacks leadership in reporting on the cleanup costs of training ranges. DUSD(ES) was created in 1993 as the office responsible for environmental cleanup within DOD. However, this office has focused its principal efforts on the cleanup of other types of environmental contamination, not unexploded ordnance. Although requirements for reporting a training range environmental liability have existed for years, DOD has not established adequate or consistent policies to reliably develop the cost of the cleanup of training ranges and to oversee these costing efforts. Similar to the problems noted previously in this report concerning the inventory delays and lack of guidance, the Defense Science Board, in 1998, reported that DOD had not met its management responsibility for unexploded ordnance cleanup. It reported that there were no specific DOD-wide unexploded ordnance cleanup goals, objectives, or management plans. The report went on to say that unexploded ordnance cleanup decisions are made within the individual services, where remediation requirements are forced to compete against traditional warfighting and toxic waste cleanup requirements. This competition has resulted in unexploded ordnance cleanup efforts being relegated to “house-keeping duties” at the activity or installation level, according to the Board’s report. To address DOD’s unmet management responsibilities for unexploded ordnance cleanup, the Defense Science Board recommended the establishment of an Office of Secretary of Defense focal point for oversight of unexploded ordnance cleanup activities within DOD. This recommendation was made even though DUSD(ES) had overall responsibility for environmental cleanup under the Defense Environmental Restoration Program. According to the Director of DOD’s Environmental Cleanup Program, a single focal point for managing the cleanup of unexploded ordnance has still not been formally designated. A focal point with the appropriate authority could be a single point of contact who could manage and oversee the development of a complete and accurate training range inventory, the development of a consistent cost methodology across all services, and the reporting of the training range liability for the financial statements and other required reports. The Department of Energy (DOE) has been successful in its identification and reporting of thousands of environmentally contaminated sites, with cleanup liabilities reported at $234 billion in fiscal year 2000. Initially, in the early 1990s, DOE was unable to report the estimated cleanup costs. However, through substantial effort and support of DOE leadership, DOE was able to receive a clean, or unqualified, audit opinion, for its fiscal year 1999 and 2000 financial statements. DOE’s efforts provide a useful example to DOD in its efforts to identify and report cost estimates on its contaminated sites. After 50 years of U.S. production of nuclear weapons, DOE was tasked with managing the largest environmental cleanup program in the world. DOE has identified approximately 10,500 release sites from which contaminants could migrate into the environment. DOE has made substantial progress in defining the technical scope, schedules, and costs of meeting this challenge, and in creating a plan to undertake it. DOE officials told us that in order to build a reliable database and management program for contaminated sites, the process requires a significant investment in time and manpower. DOE officials stated that they began their data collection and management program process in the early 1990s and are continuing to build and update their database. However, they emphasized that their efforts, similar to DOD’s current efforts, started with an initial data call to collect preliminary information to identify the sites. They said the next step involved sending teams to each of the sites to actually visit and observe the site, sometimes taking initial samples, to further identify and confirm the contaminants, and to help assess the risk associated with the site contamination. The information gathered was entered into a central database in 1997 to be used for management and reporting purposes. In 1999, DOE completed entering baseline data for all known cleanup sites. In addition to the above steps, once a site was selected for cleanup, a much more involved process was done to further test for and remove the contaminants. However, until a site is fully cleaned up, each site is reviewed and cost estimates are reviewed annually and any changes in conditions are recorded in the central database. DOE officials told us that in addition to providing the necessary leadership and guidance to inventory and manage their sites, another key to this success was establishing a very close working relationship between the program office and the financial reporting office to ensure consistent and accurate reporting of their cleanup liabilities. As military land, including training ranges, is transferred to the public domain, the public must have confidence that DOD has the necessary leadership and information to address human health and environmental risks associated with training range cleanup. Also, the Congress needs related cost information to make decisions on funding needed. DOD’s recent efforts to develop the information needed to report training range cleanup costs for the required March 2001 report represent an important first step in gathering the needed data. However, accurate and complete reporting can only be achieved if DOD compiles detailed inventory information on all of its training ranges and uses a consistent and valid cost methodology. Because of the complexity of the data gathering process and the many issues involved in the cleanup of training ranges, top management leadership and focus is essential. A senior-level official with appropriate management authority and resources is key to effectively leading these efforts to produce meaningful and accurate reports on training range cleanup costs. We recommend that the Secretary of Defense designate a focal point with the appropriate authority to oversee and manage the reporting of training range liabilities. We also recommend that the Secretary of Defense require the designated focal point to work with the appropriate DOD organizations to develop and implement guidance for inventorying all types of training ranges, including active, inactive, closed, transferred, and transferring training ranges. We recommend that this guidance, at a minimum, include the following requirements: key site characterization information for training ranges be collected for unexploded ordnance removal; identification of other constituent contamination in the soil and/or water; performance time frames, including the requirements to perform the necessary site visits to confirm the type and extent of contamination; and the necessary policies and procedures for the management and maintenance of the inventory information. We further recommend that the Secretary of Defense require the designated focal point to work with the appropriate DOD organizations to develop and implement a consistent and standardized methodology for estimating training range cleanup costs to be used in reporting its training range cleanup liabilities in DOD’s agency-wide annual financial statements and other reports as required. In addition, we recommend that the Secretary of Defense require that the designated focal point validate the cost model in accordance with DOD Instruction 5000.61. Further, we recommend that the Secretary of Defense require the DOD Comptroller to revise the DOD Financial Management Regulation to include guidance for recognizing and reporting a liability in the financial statements for the cleanup costs on active and inactive ranges when such costs meet the criteria for a liability found in the federal accounting standards. In commenting on a draft of this report, DOD stated that it has made significant progress in estimating and reporting environmental liabilities on its financial statements; however, much work remains to be done. DOD’s response also indicated that as the department increases its knowledge related to this area, the appropriate financial and functional policies will be updated to incorporate more specific guidance for recognizing and reporting environmental liabilities. DOD concurred with our recommendations, but provided several comments in response to our recommendation that the Secretary of Defense require the DOD Comptroller to revise the DOD Financial Management Regulation to include guidance for recognizing and reporting a liability in the financial statements for the cleanup costs on active and inactive ranges when such costs meet the criteria for a liability. DOD stated that it revised Volume 6B, Chapter 10, of the DOD Financial Management Regulation to clarify instances when a liability should be recognized for an active or inactive range on an active installation. However, this revision of the DOD Financial Management Regulation does not address the recognition of an environmental liability at active and inactive ranges in accordance with the criteria of SFFAS No. 5. For example, as stated in our report, the total $300 million cleanup cost estimate on the active range at the Massachusetts Military Reservation should be recognized as a liability in accordance with the criteria in SFFAS No. 5. DOD further stated that since it intends to continue to use its active and inactive ranges in the foreseeable future, the removal of ordnance to maintain safety and usability is considered an ongoing maintenance expense. DOD stated that this expense is not accrued as a liability except in those few specific instances in which an environmental response action—beyond what is necessary to keep the range in operation—is probable and the costs of such a response is measurable. Although this position is consistent with SFFAS No. 5, it is not specifically indicated in the DOD Financial Management Regulation. Finally, DOD stated that as the Department gains additional experience in this area, it will review appropriate chapters in the DOD Financial Management Regulation to determine what, if any, additional specific guidance may need to be included regarding recognizing and reporting liabilities. While we agree that such a review is appropriate, we continue to recommend that the DOD Financial Management Regulation be revised to include guidance in those instances when active and inactive ranges meet the criteria in SFFAS No. 5. DOD also provided several technical comments, which we have incorporated in the report as appropriate. We are sending copies of this report to the Honorable John Spratt, Ranking Minority Member, House Committee on the Budget, and to other interested congressional committees. We are also sending copies to the Honorable Donald H. Rumsfeld, Secretary of Defense; the Honorable David R. Oliver, Acting Under Secretary of Defense for Acquisition, Technology, and Logistics; and the Honorable Mitchell E. Daniels, Jr., Director of the Office of Management and Budget. Copies will be made available to others upon request. Please contact me at (202) 512-9095 if you or your staff have any questions about this report. Other GAO contacts and key contributors to this report are listed in appendix III. Our objectives were to review DOD’s ongoing efforts to (1) gather and collect information on its training ranges and issues affecting the successful completion of the inventory and (2) recognize environmental liabilities associated with the cleanup of unexploded ordnance from its training ranges, including DOD’s efforts to develop and implement a methodology to develop cost estimates. The focus of our review was on DOD efforts to gather and collect information on its training ranges and the environmental costs associated with the cleanup of the training ranges. As a result, other sites containing unexploded ordnance were not included in the scope of our review. These sites include munitions manufacturing facilities, munitions burial pits, and open burn and open detonation sites used to destroy excess, obsolete, or unserviceable munitions. To accomplish these objectives, we: reviewed relevant standards and guidance applicable to environmental liabilities including Statement of Federal Financial Accounting Standards (SFFAS) No. 5, Accounting for Liabilities of the Federal Government; SFFAS No. 6, Accounting for Property, Plant, and Equipment; and DOD Financial Management Regulation, Volume 6B, Chapter 10, and Volume 4, Chapters 13 and 14; reviewed DOD guidance to the military services for performing the training range inventory survey; reviewed the military services’ survey documents used to collect information on training ranges; interviewed officials from the Deputy Under Secretary of Defense for Environmental Security (DUSD(ES)); Director Defense Research and Engineering; U.S. Army Corps of Engineers; and the Army, Navy, and Air Force involved in planning and conducting the data collection efforts and analyzing the data; interviewed an official from the Office of the Under Secretary of Defense (Comptroller); interviewed officials from the U.S. Environmental Protection Agency; interviewed environmental officials from the states of Colorado and Alabama; interviewed officials from the Department of Energy; interviewed the contractor selected by DOD, which assisted in planning and analyzing the data and preparing the cost analysis for the March 2001 report; and visited two locations—Lowry Bombing Range, Denver, and Ft. McClellan, Anniston, Alabama—to gain insight into the complexities involved in estimating liabilities for training range cleanup. We did not audit DOD’s financial statements and therefore we do not express an opinion on any of DOD’s environmental liability estimates for fiscal year 1999 or 2000. We conducted our work in accordance with generally accepted government auditing standards from May 2000 through March 2001. On March 29, 2001, DOD provided us with written comments on our recommendations, which are discussed in the “Agency Comments and Our Evaluation” section and are reprinted in appendix II. DOD also provided comments on several other matters, which we have incorporated in the report as appropriate but have not reprinted. Staff making key contributions to this report were Paul Begnaud, Roger Corrado, Francine DelVecchio, and Stephen Donahue. 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 also accepted. 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) Washington, DC 20013 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. A recorded menu will provide information on how to obtain these lists. Web site: http://www.gao.gov/fraudnet/fraudnet.htm E-mail: [email protected] 1-800-424-5454 (automated answering system)

Because of concerns about the long-term budgetary implications associated with the environmental cleanup of the Department of Defense (DOD) training ranges, GAO examined (1) the potential magnitude of the cost to clean up these ranges in compliance with applicable laws and regulations, (2) the scope and reliability of DOD's training range inventory, and (3) the methodologies used to develop cost estimates. GAO found that DOD lacks complete and accurate data with which to estimate training range cleanup costs. DOD has not done a complete inventory of its ranges to fully identify the types and extent of unexploded ordnance present and the associated contamination. Recently, DOD began to compile training range data, but these initial efforts have been delayed because DOD did not issue formal guidance to the services for collecting the information until October 2000. Because DOD has not completed an inventory of its ranges, the services have used varying methods to estimate the size and condition of the ranges necessary to estimate the cost of cleanup for financial statement purposes. As a result, environmental liability costs are not consistently calculated and reported across the services.

You are an expert at summarizing long articles. Proceed to summarize the following text: We reviewed RTC’s 1992 resolutions process to determine if it provided for compliance with the FDICIA least-cost requirements. We reported that three of RTC’s corporate policies raised compliance issues. These policies did not (1) ensure that uninsured depositors would absorb their shares of thrift losses if necessary to achieve least costly resolutions; (2) require RTC to evaluate other available resolution methods prior to selling the assets of thrifts in conservatorship; or (3) require RTC to estimate the cost of liquidating thrifts in conservatorship as of the earliest of three dates specified by the act, which is usually the date when RTC passes the failed thrift through a receivership and is appointed conservator. We also found numerous documentation shortcomings from our review of a sample of 1992 resolutions. For instance, RTC did not always fully document the bases of the evaluations of the resolution alternatives considered, including the consideration given to all nonconforming bids received from potential acquirers, as its procedures required. Further, RTC generally did not document the rationale for the marketing strategy it selected. We recommended that RTC evaluate the resolution methods that are potentially available before selling the assets of a failed thrift and make liquidation cost estimates at the earliest of the three dates specified by FDICIA. We also recommended that RTC document the consideration given all nonconforming bids and the rationale for the agency’s preferred marketing strategy for resolving a failed thrift. We made no recommendation concerning uninsured depositors, because RTC changed its policy in September 1993 to better ensure that uninsured depositors would absorb their shares of thrift losses if necessary to achieve the least costly resolution. RTC agreed to initiate actions to improve its documentation, but it maintained that its policies on asset sales during conservatorship and on the timing of its liquidation cost estimates were consistent with FDICIA. We said that unless RTC changed its policies in these areas, neither we nor RTC could assure Congress that RTC was fully complying with FDICIA’s least-cost requirements. Although over 1,300 savings associations failed from 1980 through 1992, failures since the beginning of 1993 have declined dramatically. Also, the December 17, 1993, passage of the RTC Completion Act (Public Law 103-204, 107 Stat. 2369)—which provided RTC the funds needed to resolve failed thrifts—has enabled RTC to resolve all but one of its backlog of thrifts in conservatorship as of December 31, l994. When a thrift fails, the Office of Thrift Supervision (OTS) or the thrift’s state chartering authority usually appoints RTC as conservator or receiver. As conservator, RTC operates a failed thrift pending its final resolution, and as receiver, it administers the closing of an insolvent thrift and liquidates all assets not disposed of in conservatorship or at resolution. However, some failing thrifts are resolved prior to being placed into conservatorship through the accelerated resolution program (ARP), which OTS operates jointly with RTC. This program enables OTS to place a thrift it considers to be in serious financial difficulty into ARP for the purpose of selling the troubled thrift’s assets, deposits, and other liabilities to a healthy institution before the thrift fails. During 1993, eight thrifts failed and were placed in RTC conservatorships, and one failing thrift was resolved through ARP. In 1994, no thrifts failed and two failing thrifts were resolved through ARP. Further, due primarily to funding provided by the RTC Completion Act, 80 of the 81 thrifts in RTC conservatorships as of December 31, 1992, as well as the 8 thrifts placed in conservatorships in 1993, were all resolved by the end of 1994. RTC officials told us they intend to resolve any further troubled thrifts via ARP or ARP-like transactions by selling the thrift’s assets, deposits, and other liabilities to a healthy institution prior to the thrift’s failure. They also said they expect few—if any—additional thrift failures through June 30, 1995, at which time RTC’s responsibility for resolving failed and failing thrifts ends. The Federal Deposit Insurance Corporation assumes responsibility for resolving troubled thrifts as of July 1, 1995. The primary objective of this, our second, annual review was to determine the extent to which RTC’s resolution process enabled it to comply with FDICIA requirements to select the least costly alternatives for resolving failed institutions. To address the objective, we judgmentally selected and reviewed three thrifts that were resolved between January 1, 1993, and June 30, l994. In each of these resolutions, RTC applied at least one of the three new resolution policies it established since January 1, 1993. The new policies involve (1) pro rata sharing of resolution losses by uninsured depositors when necessary to achieve the least costly resolution, (2) discontinuing the sale of performing loans during conservatorship, and (3) extending preference to minority bidders in making resolution decisions. We reviewed the three resolutions to determine whether RTC’s resolution process, as modified by these policy changes, provided for compliance with FDICIA’s least-cost requirements. We selected one of the three resolutions we reviewed because it was the only failed thrift that was affected by the September 1993 uninsured depositor policy change. It was also 1 of 14 failed thrifts in which RTC discontinued the sale of performing loans. We chose the other two resolutions because they involved preferences extended to minority bidders. In addition, one of the two failed thrifts was a major resolution with assets in excess of $1 billion. To address our objective, we analyzed the three resolutions, reviewed pertinent policies and procedures, and interviewed RTC officials and staff. We modified and used the data collection instrument we developed in our first review to document and evaluate the information from our three resolution cases, paying particular attention to the effect the three new policies had on the least-cost determinations. As in our first review, we collected data from the inception of resolution activity through the final resolution decision. We then compared the results of the three case studies with the results of our first-year case studies to identify any improvements or additional shortcomings in RTC’s resolution process. During our assessment of the three resolutions, we reviewed the accuracy of the financial calculations RTC used to estimate the cost of available resolution alternatives. However, due to the subjectivity inherent in the valuation of assets and in the estimation of future asset recoveries, we assessed the adequacy of RTC’s resolution process to select the least costly alternative. We did not determine whether, in fact, the least costly resolution alternative was selected, because the ultimate cost of a resolution cannot be identified until all remaining assets are sold and liabilities are paid by RTC as receiver, which generally takes several years. Further, the results of our review of the three resolutions are not generalizable to all of the resolutions done by RTC since January 1, 1993. RTC provided written comments on a draft of this report. The comments are summarized on page 8 and reprinted in appendix I. We did our work between June and October 1994 at RTC headquarters in Washington, D.C. Our work was done in accordance with generally accepted government auditing standards. RTC changed its corporate policies to require that uninsured depositors share in thrift losses if necessary to achieve least costly resolutions and to curtail its practice of selling performing assets during conservatorship operations. These changes brought RTC into compliance with FDICIA’s uninsured depositor requirements and enabled RTC to better conform with the act’s requirement that it evaluate other resolution methods before selling assets. In addition, RTC’s implementation of a policy to extend a preference to minority bidders when making resolution decisions appeared consistent with FDICIA’s least-cost requirements. Also, for the three resolutions we reviewed, RTC continued to select the resolution method it determined to be the least costly and took several actions in response to recommendations resulting from our first review that have enhanced its resolution process. Specifically, it improved the documentation of its marketing strategies, the consideration given to bids that did not conform to its preferred marketing strategies, and the bases for its resolution decisions. It also changed the timing of its liquidation cost estimates. Our review of the one resolution that involved the uninsured depositor policy change showed that consistent with FDICIA requirements, RTC paid uninsured depositors only that portion of their uninsured deposits equal to the expected pro rata share of the estimated proceeds from the resolution of the failed institution. RTC initially paid the uninsured depositors a 50-percent advance dividend, which was calculated by multiplying the book value of the assets by a percentage based on RTC’s historical asset recovery rates, and then RTC reduced that amount by an arbitrarily determined 18 percent to provide a conservative cushion. About 6 months later, RTC was able to pay an additional 24 percent on the basis of actual asset recoveries. This resolution also involved the policy change concerning the timing of asset sales during conservatorships. Prior to the change, RTC generally sold high-quality assets, such as marketable securities, investments, and performing loans, from thrifts in conservatorship through a process called “downsizing.” RTC believed this approach maximized returns on asset disposition and, as a general proposition, resulted in least-cost resolutions. However, we were critical of RTC’s downsizing policy in our report on 1992 resolutions, because the policy was at variance with FDICIA’s requirement that RTC evaluate other available methods of thrift resolution prior to selling assets. RTC’s March 1993 policy change generally required that high-quality assets be retained in conservatorships, although—except for certain performing assets such as one-to-four family mortgages—they could be sold within 45 days of the announced resolution date of a thrift. Thus, performing assets could be sold at or around the time the thrift was to be marketed, providing RTC greater opportunity to assess available resolution methods prior to commencing asset sales. RTC changed the policy primarily because it found that retaining high-quality assets provided conservatorships a better return than selling the assets and investing the proceeds in lower yielding securities. In our view, this policy change made good economic sense and enabled RTC to better conform with the FDICIA requirement that it evaluate available resolution methods before selling high-quality assets. Our review of the resolution case file showed that consistent with the revised policy, RTC retained high-quality assets in the conservatorship until close to the resolution date before selling them. We also found that RTC explored market interest in the thrift, selected the resolution alternative it determined to be the least costly, and adequately documented its marketing rationale and the bases for its resolution decision. RTC also made an initial liquidation cost estimate as of the date the thrift was placed in conservatorship to estimate the expected proceeds from resolution, which was necessary to determine the advance dividend to be paid to uninsured depositors. In addition, RTC made a second liquidation cost estimate, valuing assets based on its asset valuation review process, for purposes of determining the least costly resolution alternative. RTC officials told us they will follow this practice with future failed thrifts that are placed in conservatorship, but their intent is to resolve any further failing thrifts through ARP or ARP-like transactions. Either the new practice or ARP or ARP-like transactions will better provide for RTC’s conformance with FDICIA. We also noted improvements in RTC’s resolution process during our review of the case files of the two other thrift resolutions we selected. We found, for example, that RTC adequately documented the marketing rationale, the bases for its resolution decisions, and the consideration given to bids that did not conform to its preferred marketing strategy. It also selected the resolution alternative it determined to be the least costly. These two resolved thrifts were subject to RTC’s new policy, which gave a preference to offers from minority bidders for acquiring thrifts or their branches located in predominantly minority neighborhoods (PMN). This PMN policy, mandated by the RTC Completion Act, essentially required RTC to give a minority bidder the opportunity to match the high nonminority bid and thus become the winning bidder. The program’s premise was that the matching minority bid would result in the least possible resolution cost to RTC, since it is to be considered only after RTC has determined the least costly resolution alternative based on its review of all bids received. Our review of the two resolutions showed that RTC applied its PMN policy as designed, which was consistent with the least-cost provisions of FDICIA. In one of the resolutions, minority buyers were successful bidders for two of the five PMN offices of an entire thrift located in a PMN because their bids, considered with all other bids, produced the least costly resolution alternative. In the second resolution, the otherwise winning minority bidder for the thrift’s two PMN offices did not get the required regulatory approval, and thus its bids were disallowed. In both resolutions, RTC selected the bids that it determined to be the least costly alternative. RTC has made substantive improvements to its resolution process. It changed its treatment of uninsured depositors and now complies with related FDICIA requirements; it changed the timing of its sales of high-quality assets from thrifts in conservatorship and the timing of its liquidation cost estimates, thereby better providing for its conformance with the act’s requirements; and it improved various aspects of its resolution documentation, as we had recommended. RTC also continued to select the resolution alternatives it determined to be least costly for the three resolutions we reviewed, including the selection of alternatives for the two resolutions involving RTC’s new PMN program. As our review did not disclose significant noncompliance, and unless thrift failures accelerate by June 30, 1995, we do not plan to issue further reports on RTC’s compliance with the least-cost provisions of FDICIA. RTC, in its written comments on a draft of this report, agreed with the content and conclusions. RTC’s comments are reprinted in appendix I. We are sending copies of this report to RTC’s Deputy and Acting Chief Executive Officer; the Chairman of the Thrift Depositor Protection Oversight Board; the Chairman, Federal Deposit Insurance Corporation; and other interested parties. This report was prepared under the direction of Mark J. Gillen, Assistant Director, Financial Institutions and Markets Issues. Other major contributors are listed in appendix II. If there are any questions about this report, please contact me on (202) 512-8678. Jeanne Barger, Evaluator-in-Charge 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. 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 (301) 258-4097 using a touchtone phone. 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Pursuant to a legislative requirement, GAO reviewed the Resolution Trust Corporation's (RTC) compliance with a statutory requirement to: (1) resolve failed thrifts in the least costly manner; and (2) calculate and document its evaluation of alternative resolutions of failed thrifts. GAO found that: (1) RTC has improved its resolution process and curtailed its practice to sell performing loans during conservatorship in order to comply with the least cost requirement; (2) RTC policy to extend a preference to minority bidders when making resolution decisions appears consistent with the least cost requirement; (3) for the three resolutions it reviewed, RTC chose the resolution alternative it determined to be the least costly and, in response to GAO recommendations, adequately documented its marketing strategies and the bases for its resolution decisions; (4) where relevant, RTC has implemented changes to its corporate policies regarding the treatment of uninsured depositors and the timing of asset sales during conservatorships, which brought RTC into compliance with other statutory requirements as well as the least cost requirement; (5) RTC has changed the timing of its liquidation cost estimates so that it makes its initial estimate when a failed thrift is placed in conservatorship; (6) among other things, RTC initial liquidation cost estimates determine the amount of estimated losses uninsured depositors must absorb; and (7) RTC efforts to resolve failing thrifts through its accelerated resolution program have brought RTC into better conformance with the least-cost statutory requirement.

You are an expert at summarizing long articles. Proceed to summarize the following text: Customs and Border Protection. From November 28, 2009, to March 1, 2010, CBP officers working at the Saipan and Rota airports processed 103,565 arriving travelers, granting 11,760 (11 percent) parole. During this period, more than 80 percent of arriving travelers came from Japan or South Korea. Of arriving travelers from China and Russia, 86 percent (10,398 of 12,131) and 90 percent (1,027 of 1,146), respectively, were paroled into the CNMI only, under DHS authority. In addition, CBP signed right-of-entry agreements with the CNMI government that gave the agency access to the airports to prepare for implementation of federal border control. Immigration and Customs Enforcement. Since November 28, 2009, 10 ICE officials detailed to Saipan have identified aliens in violation of U.S. immigration laws and have processed or detained aliens for removal proceedings. From December 7, 2009, to March 1, 2010, ICE identified approximately 264 aliens subject to possible removal from the CNMI— including approximately 214 referrals from the CNMI Attorney General’s office with pending CNMI deportation orders and 49 referrals from the ICE Office of Investigations and the community—and requested immigration status information about these individuals from the CNMI Department of Labor. As of March 1, 2010, ICE officials had processed 72 of the 264 aliens for removal proceedings. As of March 26, 2010, ICE officials told us they had not deported any of the 72 aliens being processed for removal but that 31 were scheduled for immigration hearings by the end of March 2010 and 9 had agreed to waive their right to a hearing and to be deported after completing their criminal sentences. U.S. Citizenship and Immigration Services. In March 2009, USCIS opened an Application Support Center in Saipan and stationed two full- time employees at the center to provide information services, interview residents currently eligible to apply for lawful permanent resident status or citizenship, and process requests requiring biometric services such as fingerprints or photographs. For calendar year 2009, USCIS processed 515 CNMI applications for permanent residency and 50 CNMI applications for naturalization or citizenship, more than doubling the number of interviews conducted for applications for residency or citizenship from calendar year 2008, according to data provided by USCIS officials. By March 17, 2010, USCIS had also received 1,353 advance parole requests and approved 1,123 of them. USCIS also granted parole-in-place status to 705 individuals for domestic travel and granted 24 group paroles. Department of Homeland Security. To facilitate implementation of CNRA in the CNMI, DHS led meetings with the other departments charged with implementing CNRA; reported to Congress on the budget and personnel needed by the DHS components; and initiated outreach to the CNMI government. However, DHS has not finalized an interdepartmental agreement with other U.S. departments regarding implementation of CNRA and has not specified changes in its resource requirements as directed by Congress. DHS issued an interim rule for the CNMI-only work permit program on October 27, 2009, but a court injunction has prevented implementation of the rule. The interim rule establishes (1) the number of permits to be issued, (2) the way the permits will be distributed, (3) the terms and conditions for the permits, and (4) the fees for the permits. In issuing the interim rule, which was scheduled to take effect on November 27, 2009, DHS announced that it would accept comments in the development of the final rule but was not following notice-and-comment rulemaking procedures, asserting that it had good cause not to do so. In its November 2, 2009, amendment to its ongoing lawsuit to overturn portions of CNRA, the CNMI filed a motion for a preliminary injunction to prevent the operation of the DHS interim rule. The CNMI argued in part that DHS had violated procedural requirements of the Administrative Procedure Act, which requires notice and the opportunity for public comment before regulations can go into effect. On November 25, 2009, the federal District Court for the District of Columbia issued an order prohibiting implementation of the interim rule, stating that DHS must consider public comments before issuing a final rule. In response to this preliminary injunction, DHS reopened the comment period from December 9, 2009, until January 8, 2010. As of May 18, 2010, DHS had not yet issued a final rule, and as a result, CNMI-only work permits are not available. DHS received numerous comments on the interim rule from the CNMI government, a private sector group, and interested businesses and individuals. The CNMI government commented that the rule was incomplete and would damage CNMI workers, employers, and community. In addition, the Saipan Chamber of Commerce raised concerns regarding the economic impact of the regulations and made a proposal to make it easier for workers with the CNMI-only work permit to return from travel outside the commonwealth. DHS plans to issue a final rule for the CNMI-only work permit program in September 2010. On January 16, 2009, DHS issued an interim final rule for the Guam-CNMI joint visa waiver program, which went into effect November 28, 2009. The program is intended to allow visitors for business or pleasure to enter the CNMI and Guam without obtaining a nonimmigrant visa for a stay of no longer than 45 days. DHS’s rule designates 12 countries or geographic areas, including Japan and South Korea, as eligible for participation in the program. DHS considered designating Russia and China as eligible for participation, because visitors from those countries provide significa economic benefits to the CNMI. However, because of political, security, and law enforcement concerns, including high nonimmigrant visa refusal rates, DHS deemed China and Russia as not eligible to participate in the program. nt In developing the Guam-CNMI visa waiver program, DHS officials consulted with representatives of the CNMI and Guam governments, both of which sought the inclusion of China and Russia in the program. In May 2009, DHS officials informed Congress that the department is reconsidering whether to include China and Russia in the Guam-CNMI visa waiver program. On October 21, 2009, the Secretary of Homeland Security announced to Congress and the Governors of the CNMI and Guam the decision to parole tourists from China and Russia into the CNMI on a case-by-case basis for a maximum of 45 days, in recognition of their significant economic benefit to the commonwealth. Public comments on the regulations from the Guam and CNMI governments and private sectors emphasized the economic significance of including China and Russia in the program. Guam officials argued that tourist arrivals in Guam from traditional markets were declining and that access to the China tourism market presented an important economic benefit. CNMI officials noted that the CNMI economy would be seriously damaged unless the CNMI retained access to the China and Russia tourism markets. The regulations became effective on November 28, 2009. DHS plans to issue a final rule for the program in November 2010. In September 2009, DHS proposed a rule to allow a large proportion of CNMI foreign investor permit holders to obtain U.S. CNMI-only nonimmigrant investor treaty status during the transition period. According to the proposed rule, eligibility criteria for this status during the transition period include, among others, having been physically present in the CNMI for at least half the time since obtaining CNMI investor status. Additionally, investors must provide evidence of maintaining financial investments in the CNMI, with long-term business investors showing an investment of at least $150,000. In commenting on the proposed rule, the CNMI government stated that about 85 of 514 long-term business entry permit holders could not qualify if an investment level of $150,000 is required. The CNMI also reported that 251 of the 514 permit holders were granted at a $50,000 required investment level and were “grandfathered” in 1997, when the minimum investment requirement was increased. The CNMI projected that after the end of the transition period, only 42 of 514 long-term business entry permit holders may be able to meet the minimum investment level to qualify for federal investor status. DHS accepted comments on the proposed rule until October 14, 2009, and intends to issue a final rule in July 2010. CBP and the CNMI government have not yet signed long-term occupancy agreements that would allow CBP to reconfigure space that the CNMI government has provided in CNMI airports. As a result, the agency is operating in facilities that do not meet its standards for holding cells and secondary inspections. The current configuration of CBP’s space at the Saipan airport does not include holding cells that meet federal standards. As a result, CBP lacks space to temporarily detain individuals who may present a risk to public safety and to its officers. In addition, owing to a lack of adequate space for secondary inspections, CBP officers process parole applications at the airport in primary inspection booths, resulting in increased wait times for arriving visitors who are not applying for parole. U.S. law requires international airports to provide, without charge, adequate space to the U.S. government to perform its duties. However, the CNMI government stated that the port authority is not in a financial position to provide space to CBP without charge. In commenting on a draft of our report, the CNMI stated that the commonwealth is not prepared to enter into negotiations with CBP unless it is assured that the request for space has been cleared at least at the assistant secretary level at DHS and that the department has received the necessary assurance from Congress that the funds necessary to fulfill CBP’s space needs will be available. As of April 2010, CBP continued to seek access to approximately 7,200 additional square feet of space at the Saipan airport, and the two parties had not concluded negotiations regarding long-term occupancy agreements for space at the Saipan and Rota airports. Key differences related to cost have not yet been resolved. ICE has been unable to conclude negotiations with the CNMI government for access to detention space in the CNMI correctional facility. In March 2010, ICE estimated that it required 50 detention beds for its CNMI operations. Under a 2007 agreement between the U.S. Marshals Service and the CNMI Department of Corrections, the CNMI adult correctional facility in Saipan provided the U.S. government 25 detention beds at $77 per bed per day. As of September 2008, less than 30 percent of the facility’s beds (134 of 513) were filled. To obtain needed detention space, ICE proposed to either amend the 2007 U.S. Marshals Service agreement before it expired on April 1, 2010, or establish a new agreement with the CNMI government. As of March 2010, after a year of negotiation, ICE had not finalized an agreement with the CNMI government owing to unresolved cost documentation issues, according to a senior ICE official. Since January 2010, negotiations between ICE and the CNMI regarding detention space have been on hold. Given the current lack of needed detention space, ICE has identified three alternatives regarding detainees it seeks to remove from the CNMI while removal proceedings are under way: (1) release detainees into the CNMI community, under orders of supervision; (2) transport detainees to other U.S. locations; or (3) pay the CNMI’s daily rate for each detainee, if the CNMI provides appropriate documentation justifying its proposed rate. According to ICE officials, because of flight risk and danger to the community, ICE prefers to detain aliens with prior criminal records while they await their immigration removal hearings. However, since November 2009, ICE has released 43 detainees into the CNMI community under orders of supervision, including 27 with prior criminal records. According to ICE officials, orders of supervision are appropriate for detainees who do not present a danger to the community or a possible flight risk. In addition, as of March 2010, ICE had paid a total of approximately $5,000 to transport two detainees to Guam and one to Honolulu. Since January 2010, negotiations between ICE and the CNMI government regarding access to detention space have been at an impasse. As of March 1, 2010, DHS components lacked direct access to CNMI immigration and border control data contained in two CNMI databases, the Labor Information Data System (LIDS) and the Border Management System (BMS). The CNMI government assigned a single point of contact in the CNMI Department of Labor to respond to CBP, ICE, and USCIS queries from the database, most commonly for verification of an individual’s immigration status. DHS component officials have expressed concerns about the reliance on a single CNMI point of contact. ICE officials expressed the following concerns, among others: Relying on one CNMI point of contact to verify immigration status for individuals subject to ICE investigations could compromise security for ongoing operations. Because the CNMI point of contact is an indirect source, basing ICE detention and removal decisions on data provided by the point of contact could lead to those decisions’ eventual reversal in court. USCIS officials’ concerns included the following: Direct access to LIDS would allow USCIS to verify information provided by applicants for immigration benefits such as advance parole. Direct access to the data would facilitate the processing of applications for CNMI-only work permits and for CNMI-only nonimmigrant treaty investor status. In February 2010, CNMI officials reported that the point of contact assigned to work with the U.S. government had promptly supplied information on individual cases to U.S. officials from immigration and border control databases. A senior CNMI official also stated that if the point of contact is unable to respond to future DHS inquiries in a timely manner, CNMI officials would be willing to engage in additional discussions regarding more direct access to LIDS and BMS. However, according to ICE officials, the CNMI responses to ICE inquiries have not been timely and have not always provided sufficient information. We examined ICE records of 68 inquiries and found that CNMI response times ranged from 16 minutes to around 23 hours, averaging roughly 4-and-a-half hours. ICE officials reported that the responses contained first and last names and LIDS numbers but rarely included biographical or other identifying information. DHS has communicated, at the department and component levels, with the CNMI government regarding access to CNMI immigration data. During a September 2009 meeting between the Governor of the CNMI and the Secretary of Homeland Security, the Governor proposed providing restricted access to information contained in LIDS and BMS, for a fee and in exchange for airline flight entry data. On February 18, 2010, the Governor sent a letter to CBP reiterating the CNMI’s request that DHS share advance passenger information provided by the airlines. On March 31, 2010, CBP responded to the CNMI letter, stating that the CNMI’s intended use of the advance passenger information did not justify the data’s release to CNMI authorities. As of March 2010, DHS and the CNMI government were at an impasse regarding any exchange of passenger information for CNMI immigration and border control data. DHS components have taken a number of steps since November 28, 2009, to ensure effective border control procedures in the CNMI. Additionally, DHS and other agencies have taken steps to implement CNRA provisions for workers, visitors, and investors, although the programs for workers and investors are not yet available to eligible individuals in the CNMI. Despite the DHS components’ progress, however, their inability to conclude negotiations with the CNMI government regarding access to airport space, detention facilities, and CNMI databases has resulted in continuing operational challenges. Although the DHS components have made continued efforts to overcome these challenges without department- level intervention, in each case, their efforts have encountered obstacles. Negotiations with the CNMI government for long-term access to the CNMI airports have not been concluded, and key differences remain unresolved; meanwhile, negotiations for access to CNMI detention facilities and databases have reached impasse. Without department-level leadership as well as strategic approaches and timeframes for concluding its components’ negotiations with the CNMI, DHS’s prospects for resolving these issues is uncertain. To enable DHS to carry out its statutory obligation to implement federal border control and immigration in the CNMI, we recommended that the Secretary of Homeland Security work with the heads of CBP, ICE, and USCIS to establish strategic approaches and timeframes for concluding negotiations with the CNMI government to resolve the operational challenges related to access to CNMI airport space, detention facilities, and information about the status of aliens. DHS agreed with our recommendation. Madame Chairwoman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Subcommittee may have at this time. Begins with transition period start date and ends December 31, 2014, under P.L. 110-229, enacted May 8, 2008. May be extended indefinitely for up to 5 years at a time by the U.S. Secretary of Labor. Begins with transition period start date and continues permanently. In addition to the person named above, Emil Friberg, Assistant Director; Michael P.Dino, Assistant Director; Julia A. Roberts, Analyst-in-Charge; Gifford Howland, Senior Analyst; Ashley Alley, Senior Attorney; and Reid Lowe, Senior Communications Analyst, made key contributions to this report. Technical assistance was provided by Martin De Alteriis, Ben Bolitzer, Etana Finkler, Marissa Jones, and Eddie Uyekawa. 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.

This testimony discusses our work on the status of efforts to establish federal border control in the Commonwealth of the Northern Mariana Islands (CNMI) and implement the Consolidated Natural Resources Act of 2008 (CNRA) with regard to foreign workers, visitors, and investors in the CNMI. In May 2008, the United States enacted CNRA, amending the U.S.-CNMI Covenant to establish federal control of CNMI immigration. CNRA contains several CNMI-specific provisions affecting foreign workers and investors during a transition period that began in November 2009 and ends in 2014. In addition, CNRA amends existing U.S. immigration law to establish a joint visa waiver program for the CNMI and Guam by replacing an existing visa waiver program for Guam visitors. During the transition period, the U.S. Secretary of Homeland Security, in consultation with the Secretaries of the Interior, Labor, and State and the U.S. Attorney General, has the responsibility to establish, administer, and enforce a transition program to regulate immigration in the CNMI. CNRA requires that we report on the implementation of federal immigration law in the CNMI. This testimony summarizes findings from our recent report regarding (1) steps that the Department of Homeland Security (DHS) has taken to establish federal border control in the CNMI; (2) actions that DHS has taken to implement programs for workers, visitors, and investors; and (3) unresolved operational challenges that DHS has encountered. DHS and its components have taken a number of steps to secure the border in the CNMI and to implement CNRA-required programs for foreign workers, visitors, and foreign investors. However, the components face certain operational challenges that they have been unable to resolve with the CNMI government. Steps taken to establish border control: DHS and its components have taken the following steps, among others, to establish federal border control in the CNMI. (1) Customs and Border Protection (CBP). Since November 2009, CBP has inspected arriving travelers in Saipan and Rota. (2) Immigration and Customs Enforcement (ICE). Also since November 2009, ICE has identified individuals who may be in violation of U.S. immigration laws and has begun processing some aliens for removal. (3) U.S. Citizenship and Immigration Services (USCIS). In March 2009, USCIS opened an application support center. For calendar year 2009, USCIS processed 515 CNMI applications for permanent residency and 50 CNMI applications for naturalization or citizenship. (4) DHS. DHS has taken several department-level actions to facilitate implementation of CNRA but has not finalized an interdepartmental agreement regarding implementation of CNRA and has not yet specified its resource requirements for this effort as directed by Congress. Actions taken to implement worker, visitor, and investor programs: DHS has begun to implement CNRA-required programs for foreign workers, visitors, and foreign investors but has not yet finalized key regulations. As a result, certain transition programs remain unavailable. (1) Foreign workers. On October 27, 2009, DHS issued an interim rule to implement a CNMI-only work permit program required by CNRA for foreign workers not otherwise admissible under federal law. However, a November 2009 U.S. District Court ruling, responding to an amended lawsuit by the CNMI government, prohibited implementation of the interim rule, stating that DHS must consider public comments before issuing a final rule. As a result, CNMI-only work permits are not currently available. (2) Visitors. DHS has established the Guam-CNMI visa waiver program. However, the program does not include China and Russia, two countries that provide significant economic benefit to the CNMI. (3) Foreign investors. DHS has proposed a rule to allow a large proportion of investors holding CNMI foreign investor permits to obtain U.S. CNMI-only nonimmigrant treaty investor status during the transition period. DHS plans to issue a final rule in July 2010; until then, the program is not available. Unresolved operational challenges: DHS components and the CNMI government have not yet negotiated solutions to operational challenges regarding access to CNMI airport space, detention facilities, and databases. (1) Airport space. Lacking long-term occupancy agreements and adequate space at CNMI airports, the agency is operating in facilities that do not meet its standards for holding cells and secondary inspections. (2) Detention facilities. Lacking an agreement with the CNMI government regarding detention space, ICE has released a number of aliens with criminal records into the community under orders of supervision and has paid to transport several detainees to Guam and Hawaii. (3) Databases. Lacking direct access to the CNMI's immigration and border control databases, ICE officials have instead directed data requests to a single CNMI point of contact, limiting their ability to quickly verify the status of aliens and potentially compromising the security of ongoing operations.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Public Safety Partnership and Community Policing Act of 1994, as amended, authorizes grants to states, units of local government, Indian tribal governments, other public and private entities, and multi- jurisdictional or regional consortia for a variety of community policing- related purposes. Among other things, this includes the hiring and rehiring of law enforcement officers for deployment in community policing and developing and implementing innovative programs to permit members of the community to assist law enforcement agencies in the prevention of crime in the community. The act also requires that grantees not supplant state and local funding, but rather use the federal funds for activities beyond what would have been available without a grant. To administer the grant funds authorized by the act, the Attorney General created the COPS Office in October 1994. Since 1994, the COPS Office has awarded roughly $14 billion to advance community policing through its various grant programs. The COPS Office defines community policing in its CHP applications and Grant Owner’s Manual, issued annually, as “a philosophy that promotes organizational strategies, which support the systematic use of partnerships and problem-solving techniques, to proactively address the immediate conditions that give rise to public safety issues, such as crime, social disorder, and fear of crime.” The CHP grant applications describe some of these terms: community partnerships: collaborative partnerships between the law enforcement agency and the individuals and organizations they serve to both develop solutions to problems and increase trust in police; organizational transformation: the alignment of organizational management, structure, personnel and information systems to support community partnerships and proactive problem-solving efforts; and problem solving: the process of engaging in the proactive and systematic examination of identified problems to develop effective responses that are rigorously evaluated. A characteristic of community policing is its emphasis on proactive policing—an approach to preventing crime—which is contrasted with traditional, reactive policing—an approach that responds to crime—both of which the interactive figure 1 illustrates. Move the mouse over the icons to view more information. This additional information is also reproduced in appendix II for readers of printed copies. Reactive policing responds to crime after it has occurred. Proactive policing attempts to prevent crime from occurring. $ From fiscal years 2008 through 2012, the COPS Office managed 10 programs designed to advance community policing. As table 1 illustrates, these 10 programs provided funding to target crime issues, such as school violence, as well as to hire officers or develop crime-fighting technology, among other things. As table 1 indicates, CHP accounted for 68 percent of the funds awarded through the COPS Office’s various grant programs. The program provides these funds over a 3-year term, on a reimbursable basis, meaning that the COPS Office approves grants for a specified number of officer hires or rehires—in cases where officers have previously been laid off—but provides the funding to the law enforcement agencies once these officers are onboard. Grantees must use the funds to hire or rehire additional officers for deployment in community policing or can redeploy a commensurate number of experienced locally funded officers to community policing after the entry-level officers are hired with CHP funds. By law, each year CHP funding must be split in such a way that the total grant funding awarded to each eligible state—meaning the sum of the grants awarded to applicants in that state—equals at least one-half of 1 percent of the total CHP funding appropriated by Congress for that year. At the same time, the law requires that CHP funding be evenly split between entities serving jurisdictions with populations exceeding 150,000 people and those serving jurisdictions with populations of 150,000 or fewer. Specific award provisions, such as salary and benefit caps per officer funded; grantee fund-matching requirements; and other nuances, including a recent emphasis on the hiring of veterans, have varied each year since the CHP’s first authorization, in 1994. For example, in 2008 and 2012, pursuant to the statutory requirements for the grant program, grantees were required to match the CHP award with at least 25 percent of local nonfederal funds and salary caps of $75,000 and $125,000, respectively, applied. However, under the American Recovery and Reinvestment Act (Recovery Act) these requirements did not apply in 2009, 2010, and 2011. Table 2 highlights changes in the CHP during the past 5 fiscal years that affected the amount of funding available to applicants as well as which applicants received funding. To select grantees for CHP, the COPS Office requires applicants to respond electronically to closed-end questions and provide a narrative description of the crime problems they are facing, among other things, in their grant applications. For example, one of the close-ended questions asks applicants to add a check mark if their agencies’ strategic plans include specific goals or objectives relating to community partnerships or problem solving. Another close-ended question provides response categories for applicants to select the ways in which their agencies share information with community members. According to COPS Office officials, in consultation with the Associate Attorney General and the Deputy Attorney General, they establish weights for (1) community policing questions, (2) questions pertaining to the applicants’ fiscal health, and (3) reported crime levels. They then score the applications and award funds to those applicants with the highest scores. For example, in fiscal years 2009 and 2010, fiscal health accounted for 50 percent, crime rates accounted for 35 percent, and community policing activities accounted for 15 percent of the total score. To monitor grantee performance, the COPS Office requires, as a term and condition of its grants, that grantees participate in grant-monitoring and -auditing activities, which can include programmatic and financial reviews of their funded activities. Accordingly, COPS Office officials stated that all grantees are required to submit quarterly progress reports that provide financial and programmatic information, such as their progress in implementing the community policing plan they described in their grant applications for utilizing CHP funds to advance community policing. According to the COPS Office, the goal of its monitoring is to assess grantees’ stewardship of federal funding, performance, innovation, and community policing best practices resulting from COPS Office funding. In addition, according to the COPS Office, because of the number of COPS Office grantees, the COPS Office selects a limited number of grants to monitor based upon a grantee’s level of risk. In addition to the size of the grant award, such risk factors include, but are not limited to, whether or not the grantee has prior federal grant experience, has submitted late reports of its progress or failed to submit progress has requested grant extensions. As the interactive map in figure 2 illustrates, CHP grant awards were distributed throughout the United States from fiscal years 2008 through 2012. The interactive map can be accessed here: http://www.gao.gov/products/GAO-13-521 As figure 3 illustrates, 48 percent of the funding was awarded to grantees in six states—California, Florida, Michigan, New Jersey, Ohio, and Texas. Across all the states, grantees in California received the highest level of total CHP funding from 2008 through 2012. Specifically, total CHP awards in California equaled approximately $360 million, or more than 20 percent of the total CHP funding awarded. Officials from the COPS Office cited several factors that influenced the allocation of grant funds across the states and territories. In particular, officials pointed to the population-based statutory provision described previously, which requires the COPS Office to allocate 50 percent of available grant funding to jurisdictions with populations exceeding 150,000 and 50 percent to jurisdictions with a population of 150,000 or fewer. Officials noted that some states—for example, California—have more cities with populations exceeding 150,000 compared with other states. This enables a smaller number of states to compete for half of the total grant funding, while a greater number of states without cities of this size compete for the remaining half of the total. Further, these large cities tend to receive larger awards because they deploy comparatively more officers than smaller cities. Apart from a separate statutory provision, also described previously, which requires that each state receive at least one- half of 1 percent of the total CHP funding appropriated by Congress each year, COPS Office officials emphasized that a grantee’s particular location is not prioritized over the application categories of community policing, crime data, and fiscal health. Regarding fiscal health, officials noted that certain states have been disproportionately affected by fiscal distress, a factor that is directly reflected in the fiscal health component of the CHP application. Finally, the number of law enforcement agencies— and thus potential applicants—varies across states, which contributes additional variation in how funding is ultimately distributed. For grantees awarded the same number of officers, differences were driven mainly by variation across grantees’ respective entry-level officer salaries and benefits—the only costs CHP allows. However, this variation was more prominent during years when salary and benefit levels were not statutorily capped: 2009 through 2011. Thus, during the period 2009 through 2011, grantees with higher officer salary and benefit levels generally received more CHP funding relative to other CHP grantees to hire, rehire, or prevent layoffs for the same number of officers. For example, in fiscal year 2011, a grantee in California received a CHP award equivalent to its entry-level officer salary and benefits level of $150,753 per officer. In the same fiscal year, a grantee in Connecticut received a CHP award—also based on its entry-level officer salary and benefits—of $64,459 per officer per year. As a result of these local variations in per officer cost, this particular Connecticut grantee received and used 57 percent less federal funding to support each officer it hired or rehired compared with its California counterpart in this example. According to COPS Office officials, geographical differences in the cost of living could partly contribute to wage differences. Additionally, the availability of state and local budgetary resources to support law enforcement salaries and benefits may have affected wages. Further, COPS Office officials stated that other factors unique to certain areas of the country could account for the wage disparity that drives CHP costs. For example, some agencies may participate in more expensive state retirement systems or may not be able to set wages that align with market conditions because of union labor contract obligations. Figure 4 displays the average annual CHP-funded officer salary and benefit levels, by state and territory, for awards made from fiscal year 2009 through 2011—the years in which CHP grants awards were not capped. In contrast, statutory salary and benefit caps were in place for fiscal years 2008 and 2012; thus during these years, each grantee was limited to receiving the same per officer maximum, irrespective of local differences in salary and benefit levels. Any officer-related expenses over and above the cap were the independent funding responsibility of the grantee and were not covered by CHP funding. As a result, less variation in award amounts occurred in fiscal years 2008 and 2012—when there was a cap—as compared with fiscal years 2009, 2010, and 2011—when there was no cap. According to DOJ officials, some additional variation in average award amounts occurred in 2012 as a result of the COPS Office exercising statutory authority allowing the COPS Office Director to waive the $125,000 salary and benefit cap, as well as the matching requirement when awarding grants. In 2012, the COPS Office granted 41 local match-and-cap waivers out of the 248 applicants that had requested them. Our analysis shows that interest in CHP funding remains high with the $125,000 per officer cap. From fiscal years 2008 through 2012, the COPS Office received more requests for CHP funding in grant applications than it could accommodate. The cap for fiscal year 2013 is $125,000, and in the President’s budget request for fiscal year 2014, the cap remains at $125,000. The CHP application solicits information from applicants in accordance with statute, but the COPS office may realize benefits by revising the application to clarify for applicants that CHP-funded officers are required to be the personnel specifically engaged in the community policing activities described on the application. The statute authorizing COPS Office grant programs requires applications, including the CHP application, to gather information from applicants related to several items, including, but not limited to the applicant’s explanation of how the grant will be used to reorient its mission toward plans for obtaining support at the conclusion of federal funding, and detailed implementation plan and long-term strategy that reflects consultation with community groups and appropriate private and public agencies. community policing or enhance its involvement in or commitment to community policing, specific public safety needs, inability to address the needs without federal assistance, The statute does not further specify the content of these items, particularly the content of the detailed implementation plan and long-term strategy. However, the 2012 CHP application requires applicants to provide related information, such as how applicants plan to reorient their mission toward or enhance their involvement in or commitment to community policing. Specifically, COPS Office officials reported that the Law Enforcement & Community Policing Strategy section of the application is intended to obtain information from applicants to address the requirements of a detailed implementation plan and long-term strategy. For instance, this section requires applicants to include information on the crime problem that will be addressed with grant funds, information sources that will be used to improve the understanding of the problem and determine whether the response was effective, and the partnerships the agency will form. The application further requires applicants to indicate the community policing activities their entire agency was currently engaged in as well as those activities their organization intended to enhance or initiate with CHP funds. The fiscal year 2012 application notes that the COPS Office recognizes that CHP-funded officers will engage in a variety of community policing activities and strategies, including participating in some or all aspects of the applicant’s implementation plan. However, the application does not specifically ask applicants to explain how CHP-funded officers will be deployed in community policing—the primary purpose of the CHP program as expressed by the statute. For instance, the application does not ask applicants to provide information on what community policing activities, such as attending community meetings, CHP-funded officers will be undertaking. The Domestic Working Group’s guide for improving grant accountability provides best practices for designing grant applications, including specific elements that are recommended to be addressed in grant applications. The Domestic Working Group, composed of federal government inspectors general and chaired by the Comptroller General of the United States, created the guide to share useful and innovative grant management approaches with government executives at the federal, state, and local levels. Specifically, the Domestic Working Group’s guide recommends that agencies require applicants to submit a detailed narrative as evidence of proper work planning to obtain and evaluate information from applicants when making award decisions, and include information to link grant activities with results, which is often referred to as logic modeling. As part of the logic model approach, applicants should, among other efforts, identify the need for funding, their approach to using the funds, specific activities that are crucial to the success of the program, and desired objectives and benefits anticipated—and then logically connect these efforts to a plan for measuring results. We found through our analysis of a systematic random sample of 103 CHP-funded applications for fiscal years 2010, 2011, and 2012 that the application could be enhanced by applying these best practices to clarify for applicants that CHP-funded officers are required to be the personnel specifically engaged in the community policing activities described on the application. According to our analysis of the application sample, we estimate that less than 20 percent of the applications funded in these years contained evidence showing how additional officers would be deployed in support of community policing. Several of the questions in the 2010, 2011, and 2012 applications ask for information on the agency-wide actions grantees plan to undertake to facilitate community policing. COPS Office officials reported that individual CHP-funded officers are expected to implement the items indicated in the implementation plan. These actions could include implementing recruitment and hiring practices that reflect an orientation toward problem solving and community engagement, enhancing information technology systems, and implementing organizational performance measurement systems that include community policing metrics. COPS Office officials agreed that the application could be clearer by stating the requirement that CHP-funded officers should be the ones who are specifically engaged in CHP-funded activities. Revising the application to clarify for applicants that CHP-funded officers are required to be the personnel specifically engaged in the community policing activities described on the application, consistent with best practices, would better position the COPS office to ascertain from applicants how these particular officers’ activities would advance community policing. To help ensure that grantees are implementing the activities and meeting the financial requirements they committed to in their respective applications, the COPS Office is required to monitor at least 10 percent of its open, active grant funding annually. According to the Domestic Working Group’s guide for improving grant accountability, it is important that agencies identify, prioritize, and manage potential at-risk grantees. Consistent with this best practice and to fulfill its statutory monitoring requirement, the COPS Office uses a risk-based approach to select which grantees to monitor and visit using its Grant Assessment Tool (GAT), which is currently used by the COPS Office to assess grantee risk. The GAT uses criteria to generate individual risk scores, as illustrated in table 3, and a final, comprehensive risk assessment score is computed for grantees. Once the monitors review what the GAT has generated, they are to develop a plan for monitoring those grantees with the highest risk scores. According to the COPS Office’s monitoring standards—a guide that describes the responsibilities of grant monitors—the COPS Office monitors these grantees in a number of ways, including, but not limited to, on-site monitoring, office-based grant reviews, and complaint and legal reviews. During on-site monitoring visits, monitors are required by the monitoring standards to review and compare the proposed projects and activities contained in grant applications and quarterly progress and financial status reports with those of the grantees’ performance and progress in carrying them out. Upon completion of their visits, monitors are required to document their observations and assessments in a grant- monitoring report and cite any grant compliance issues, which may be cited in categories including community policing, retention, allowable costs, and the source and amount of matching funds. Office-based grant reviews, which are used to provide detailed monitoring for those grantees that are not selected for on-site monitoring using the GAT, are similar to on-site reviews in that monitors are required to review grantee documentation, including the application, and follow up directly with the grantee to collect any additional information and documentation on how grantees are using funds. This type of monitoring, according to COPS Office monitoring standards, allows the COPS Office to monitor a larger number of grantees than would be possible through on-site monitoring alone. In addition to these monitoring methods, the COPS Office also uses complaint reviews to investigate internal and external complaints, such as those raised by the media and citizens, regarding grantee noncompliance. The COPS Office’s Legal Division also conducts additional monitoring related to, among other things, supplanting—using federal funds to replace state or local funds—and DOJ IG investigations of grantees involving fraud. According to the monitoring standards, all of these monitoring efforts help the COPS Office determine whether the grantees are complying with the requirements of the grant and that funds are spent properly. Accordingly, the COPS Office uses these various monitoring methods to identify any grant violations, such as not using the funds to hire officers for deployment in community policing, and recommend resolutions to these violations. In cases where the grantee has failed to remedy violations identified by the monitor, the grantee, according to the monitoring standards, may be faced with adverse current and future determinations regarding its suitability for receiving grant funds, the suspension or termination of grant funds, repayment of expended grant funds to the COPS Office, and even criminal liability in the event of fraud. The authorizing statute for the COPS grant programs, including CHP, requires that grantees not supplant state and local funding, but rather use the federal funds for activities beyond what would have been available without a grant. As a condition of accepting COPS Office funding, grant applicants must certify they will use grant funding only to increase the total amount of funds available for the hiring or rehiring of law enforcement officers and not supplant state and local funding. To identify supplanting risks, the COPS Office developed standards for monitors to use in assessing the potential for supplanting, which is one of the compliance issues monitors are required to evaluate. Monitors can use these supplanting standards in all forms of monitoring, including on-site, office-based desk, complaint, and Legal Division reviews. The standards contain clear guidance for identifying potential noncompliance with supplanting standards. For example, according to the COPS Office’s grant monitoring standards and, as illustrated in table 4, there are four major patterns of risk associated with supplanting. The CHP supplanting standards also require grant monitors to conduct an analysis and review of supporting evidence to ensure grantees have not engaged in supplanting. Some of the acceptable documentation, according to the COPS Office, can be: budget documents that can show the replacement rate of officers has documentation that shows the grantee has experienced fiscal distress, or city council minutes showing there has been difficulty in local hiring. The standards do not specify how monitors should document their analysis and conclusions about potential supplanting issues in the monitoring reports they prepare after site visits. According to COPS Office officials, these reports are a critical component of the monitoring process. The COPS Monitoring Operations Manual—a technical guide for monitoring—requires monitors to identify and provide relevant details in monitoring reports where supplanting is identified. However, it does not require monitors to document their analysis and conclusions in instances in which the determination is ultimately made that supplanting has not occurred. As a result, it may be unclear how the monitors assessed these cases to reach conclusions that supplanting had not occurred in these instances. In our review of the monitoring reports for 39 of 55 grantees that had already begun to use CHP funds and were visited by grant monitors, we found 21grantees for which there was a pattern of risk for potential supplanting. For 16 of these 21, we concluded that the site visit reports clearly documented the analysis and conclusions reached by the monitors regarding supplanting issues. For example, one monitor noted in a site visit report that potential supplanting existed because a police department failed to fill local vacancies at the same time it hired officers using COPS grant funds. The monitor determined that there was no violation for supplanting based on information provided during and after the site visit demonstrating that the department was taking active and timely steps to fill local vacancies and that the department was prohibited from filling vacancies earlier because of a town-wide spending freeze. The site visit report listed the documentation that the monitor reviewed in making a determination that there was no violation, including copies of budget documents demonstrating town-wide cuts in personnel and the town’s fiscal distress, a memorandum implementing a town-wide spending freeze, an online job posting for the vacant officer positions, and the police department’s request to the town for authorization to fill the vacancies. However, for the remaining 5 of 21 grantees, we found that the monitors did not document their assessments of supplanting issues, and it was not clear how they reached conclusions regarding potential supplanting. The reports for these 5 grantees indicated that there were delays in filling vacancies for locally funded officer positions at the time when officers were hired for CHP-funded positions. For example, in one report, the data showed that there were over 50 vacant locally funded positions in fiscal year 2010 that continued to be unfilled in fiscal year 2011, when the same department hired 27 officers with COPS funding. When the monitor visited the department in August 2012, there were still 59 locally funded vacancies. The site visit report noted that the department anticipated filling the vacancies in November 2012 and did not discuss any supplanting compliance issues. The report did not provide details on documentation reviewed or other information obtained to demonstrate the analysis performed or the basis for determinations on potential supplanting issues. It was unclear from this whether or how the monitor had assessed potential supplanting issues. In following up with the COPS Office on this case, officials provided us with additional evidence that the monitor had assessed supplanting and determined it had not occurred. Specifically, the monitor obtained documentation from the police department supporting that the department had completed recruitment for the positions and was in the middle of the applicant selection process. COPS Office officials also provided us with additional information that monitors had obtained on site visits for the other 4 cases that was not included in the monitoring reports, but supported that the monitors had assessed potential supplanting issues and determined supplanting had not occurred. Including this information in the site visit reports would document that supplanting issues were properly assessed in accordance with the monitoring standards. Given the statutory prohibition against the supplanting of federal funds and the importance of documentation for agency accountability, monitors should consistently document the results of their supplanting analysis in the monitoring reports for on-site monitoring. According to Standards for Internal Control in the Federal Government, the documentation of agency activities is a key element of accountability for decisions. By enhancing the COPS Office’s monitoring guidance, such as its standards or operations manual, to require monitors to document the results of their supplanting analysis in the on-site monitoring reports for instances where the determination is made that no supplanting has occurred, the COPS Office could be better positioned to ensure that monitors are consistently assessing supplanting and that CHP funding is supplementing and not replacing state and local funding. Additionally, ensuring that monitors consistently document the results of their supplanting analysis would increase transparency and enhance oversight of CHP funds. The COPS Office awarded approximately $1.7 billion in grant funds from fiscal year 2008 through 2012 for hiring officers to advance community policing. To ensure that grantees are using the funds as intended by the program, the COPS Office’s CHP application collects information required by statute, including information on how applicants will implement community policing on an agency-wide scale. However, the application does not require prospective grantees to provide information on the specific community policing activities of CHP-funded officers or a commensurate number of experienced locally funded officers. Revising the application to clarify for applicants that CHP-funded officers are required to be the personnel specifically engaged in the community policing activities described on the application, consistent with best practices, would better position the COPS office to ascertain from applicants how these particular officers’ activities would advance community policing. In addition, we found that while the COPS Office has developed standards and an operations manual for monitors to use in assessing the potential for supplanting, the COPS Office’s monitoring standards and operations manual do not require monitors to document their analysis and conclusions in instances in which the determination is ultimately made that supplanting has not occurred. We found that for 5 of the 21 grantees for whom we identified as at risk for supplanting, the monitors included information in the monitoring reports on supplanting, but did not document their assessments of the supplanting issues. Enhancing the COPS Office’s monitoring guidance, such as its standards or operations manual, to require monitors to document the results of their supplanting analysis in the on-site monitoring reports for instances where the determination is made that no supplanting has occurred could better position the COPS Office to ensure that monitors are consistently assessing supplanting and ensuring that CHP funding is supplementing and not replacing state and local funding. To further enhance the accountability of the CHP, the Attorney General should direct the COPS Office Director to take the following two actions: 1. revise the CHP application to clarify for applicants that CHP-funded officers are required to be the personnel specifically engaged in the community policing activities described on the application; and 2. enhance the COPS Office’s guidance, such as its monitoring standards or operations manual, by requiring monitors to document the results of their supplanting analysis in on-site monitoring reports for instances where the determination is made that no supplanting has occurred. . We provided a draft of this report to DOJ and the COPS Office for review and comment. The COPS Office provided written comments on the draft report, which are summarized below and reproduced in full in appendix III. The COPS Office concurred with the two recommendations in the report and identified actions planned to implement the recommendations. The COPS Office also discussed concerns it had with the discussion of the grant application and wording of the second recommendation in the draft report. The COPS Office concurred with the first recommendation, that the COPS Office revise the CHP application to clarify for applicants that CHP- funded officers are required to be the personnel specifically engaged in the community policing activities described on the application. The COPS Office stated that, in response to the recommendation, it clarified in the current CHP Grant Owner’s Manual and will clarify in subsequent years’ CHP applications that the questions in the grant application apply not only to the agency overall but to the CHP-funded officers as well. Once the COPS Office has taken action to fully implement this recommendation, it will be better positioned to ascertain from applicants that officers’ activities would advance community policing. While the COPS Office concurred with the recommendation, it raised concerns in its letter about how we characterized the way the COPS Office collects information via the CHP application on the activities of CHP-funded officers. Specifically, the COPS Office disagreed with the statements that (1) the 2012 CHP application does not specifically ask applicants to explain how CHP-funded officers will be deployed in community policing and that (2) less than 20 percent of the applications funded in 2010, 2011, and 2012 contained evidence showing how additional CHP-funded officers would be deployed to community policing. According to the COPS Office, the CHP application contains over 70 individual close-ended questions and 3 narrative questions regarding activities that CHP-funded officers and agencies will commit to as a requirement of the grant. The report acknowledges that the COPS Office collects an array of information from applicants on the agency-wide activities they plan to conduct. However, our analysis—including the analysis of a systematic random sample of CHP-funded applications— was intended to demonstrate the extent to which CHP applications contained information about how additional officers would be deployed in community policing in the absence of the application not specifically asking applicants to describe which community policing activities individual CHP-funded officers will undertake. Revising the application to clarify for applicants that CHP-funded officers are required to be the personnel specifically engaged in the community policing activities described on the application, consistent with best practices, would better position the COPS Office to ascertain from applicants how these particular officers’ activities would advance community policing. The COPS Office also disagreed with a statement in the draft report that the COPS Office stated that there could be benefits to revising the application to more clearly delineate the activities in which CHP-funded officers should be engaged. Rather, the COPS Office stated in its letter that the application could be clearer by stating that the office is requiring that COPS-funded officers should be the ones who are specifically engaged in CHP- funded activities. We modified the recommendation and related language in the report to reflect this point. We provided the modified recommendation language to the COPS office, and on September 19th in an e-mail from CHP program officials, the office concurred. The COPS Office concurred with the second recommendation to enhance the COPS Office’s monitoring guidance by requiring monitors to document the results of their supplanting analysis in on-site monitoring reports for instances where the determination is made that no supplanting has occurred. The office stated that it had checks and balances in its monitoring practices on the review of grantee documents and guidance for documenting analysis results when supplanting is identified. While the COPS Office concurred with the recommendation, it noted in its letter that our recommendation as originally worded implied that the existing monitoring guidance does not require grant monitors to document the results of their supplanting analysis for cases in which supplanting has been identified. Since the COPS Monitoring Operations Manual requires monitors to identify and provide relevant details in the monitoring reports regarding instances in which supplanting has occurred, the COPS Office requested that we amend the recommendation with language stating that the monitoring reports be enhanced by ensuring that monitors document the results of their supplanting analysis in instances that do not give rise to supplanting concerns. We adjusted the recommendation and related language accordingly to clarify this point. Further, in response to the recommendation, the COPS Office outlined initiatives it has implemented to modify its COPS Monitoring Operations Manual that reflect changes to data collection tools and instructions on how monitors should document their supplanting analysis, including instances in which monitors determine that no supplanting has occurred, in the monitoring reports. These actions, if implemented effectively, should address the intent of the recommendation. We are sending copies of this report to the Assistant Attorney General For Administration, and interested congressional committees. In addition, this 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) 512-9627 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. This report answers the following questions: (1) From fiscal years 2008 through 2012, in what areas of the country was the Community Oriented Policing Services (COPS) Hiring Program (CHP) funding disbursed and to what extent did award amounts vary during this period? (2) To what extent does the COPS Office’s grant application collect information about how applicants plan to use CHP-funded officers to advance community policing? (3) To what extent does the COPS Office’s monitoring process assess whether grantees are using funds to advance community policing? To address the first question, we reviewed the history of the COPS Office’s programs and related award data from the most recent 5 fiscal years—2008 through 2012—and confirmed that CHP received the largest share of award funds as compared with other programs administered by the COPS Office during this period. We also analyzed COPS Office documentation, such as Grant Owner’s Manuals and COPS Office website materials, to learn about each COPS program’s origin and emphasis. To determine which areas of the United States have received CHP funding, we analyzed the allocation of CHP grant awards—and the numbers of officers funded—by state and mapped the CHP grant award data. Additionally, we analyzed CHP award lists for fiscal years 2008 through 2012 to determine the average CHP entry-level officer salary and benefits by state, and assessed them for variation. To assess the reliability of data used in our review, we reviewed system tests that the COPS Office conducts periodically to ensure data reliability and interviewed COPS Office officials about the integrity of the data they provided to us. We determined that the data were sufficiently reliable for the purposes of our report. We also interviewed COPS Office officials responsible for managing the CHP program to verify grant program information, determine factors that could account for variations in grant award amounts, and learn about other administrative aspects of the program. To address the second question, we assessed CHP documentation, including CHP grant applications and Grant Owner’s Manuals to determine how the COPS Office’s application collects information about how applicants plan to use CHP-funded officers to advance community policing. We examined the CHP authorizing statute and best practices for grants management identified in the Domestic Working Group Grant Accountability Project’s Guide to Opportunities for Improving Grant Accountability and compared the criteria outlining promising practices for grant applications, such as designing applications to gather sufficient information for making award decisions, with the COPS Office’s approaches for designing the CHP application. To better understand these approaches, we reviewed the CHP application design, allowable activities, and the COPS Office’s criteria for selecting awardees. Specifically, we used elements of the CHP authorizing statute and key best practices for grant management to develop a data collection instrument we used to review all applications from a sample of 103 out of the 841 grants awarded during fiscal years 2010, 2011, and 2012. We chose to evaluate applications from these 3 fiscal years to provide an assessment of the most recent fiscal years’ application design. Using the data collection instrument, we reviewed the application sample to determine, among other items, the applications’ level of detail in describing applicants’ planned use of funds. Each application was first reviewed by an analyst, and the information recorded in each completed instrument was then verified by a second analyst. To ensure a selection of grants representative of the dollar amount distribution in the population of 841 awarded grants, we sorted the population by the grant dollar amount and then selected a systematic random sample of 104 grants. During our review, we discovered that 1 grant in our sample was out of scope because the grantee did not accept the grant funds and was no longer considered an active grantee. We reviewed the remaining 103 grant applications in our sample and treated them as a simple random sample for purposes of estimation. 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 9 percentage points). This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. With the finite population correction factor, the precision for estimates drawn from this sample is no greater than plus or minus 9 percentage points at the 95 percent level of confidence. To ensure the reliability of data used in our review, we interviewed COPS Office officials about the integrity of the data they provided to us and reviewed system tests that the COPS Office conducts periodically to ensure data reliability. We also ensured that the electronic data CHP applicants submitted could not be altered once submitted to the COPS Office. We determined that the data were sufficiently reliable for the purposes of our report. We also conducted interviews with a nonprobability sample of 20 CHP grantees in California, Florida, Illinois, Massachusetts, Texas, and Wisconsin. We selected these grantees from five metropolitan areas according to criteria that included the amount of funding received by the grantees, the concentration of grantees within a metropolitan area to maximize the amount of information we could collect, and the population size served by grantees. The results of these interviews are not generalizable to all grantees, but provided insight, among other things, into how CHP grant funds are used locally to advance community policing. Finally, we interviewed COPS Office officials who oversee the application process to gather further information on the design of the application, including how the applications were scored. To address the third question, we obtained and examined the monitoring reports for 55 grantees awarded CHP grants from the 3 most recent fiscal years—2010 through 2012—with completed, available monitoring reports. The COPS Office produced these reports following the on-site monitoring visits it conducts with grantees to assess their progress and identify any compliance issues for CHP grants. Specifically, we developed a data collection instrument to review the monitoring reports to assess the extent to which the COPS Office identified and documented supplanting. We used the questions on the data collection instrument to make these assessments. Each report was first reviewed by an analyst, and the information recorded in each completed instrument was then verified by a second analyst. We then compared the COPS Office’s monitoring practices with best practices identified in the Domestic Working Group Grant Accountability Project’s Guide to Opportunities for Improving Grant Accountability; Standards for Internal Control in the Federal Government; and COPS Office guidance, such as its grant-monitoring standards. For context, we also considered findings from prior GAO work on program evaluation and the COPS Office’s management of its grant programs. To understand how the COPS Office assesses the potential for supplanting, we used COPS Office guidance on determining supplanting in reviewing the monitoring reports to identify grantees at risk of using CHP funds to replace state and local funds. Additionally, we assessed how the monitors addressed and documented instances in which grantees were vulnerable to supplanting, such as collecting and evaluating additional budget documentation from grantees. During the site visits, we interviewed CHP grantees about, among other topics, the community policing strategies they employed with CHP funding and whether their agencies had increased the number of officers dedicated to community policing relative to the number of officers hired with CHP funding. We also interviewed COPS Office officials who oversee the monitoring process about their monitoring practices and discussed with officials how monitoring provided relevant context to what grantees and the COPS Office considered progress. We also obtained the perspective of the COPS Office on the performance of its grant monitors in identifying and documenting instances of potential supplanting in the reports for on-site monitoring We conducted this performance audit from August 2012 to September 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. This appendix corresponds with figure 1 in the report, which is an interactive figure. Table 5 contains the text that is not accessible to readers of print copies of this report. In addition to the contact named above, key contributors to this report were Joy Booth, Assistant Director; Glenn Davis, Assistant Director; David Alexander; Carl Barden; Christine Hanson; Eric Hauswirth; Julian King; Linda Miller; Christian Montz; Robin Nye; Brian Schwartz; and Janet Temko.

Since its 1994 inception, the U.S. Department of Justice's (DOJ) COPS Office has awarded roughly $14 billion in grants to support the advancement of community policing, which is a policing approach that proactively addresses the conditions that give rise to public safety issues, such as crime and social disorder. GAO was asked to review key grant management practices within the COPS Office. This report focuses on the largest of its programs--CHP, which awards grants to law enforcement agencies to hire law enforcement officers, rehire officers who have been laid off, or prevent scheduled officer layoffs. This report addresses: (1) From fiscal years 2008 through 2012, in what areas of the country was CHP funding disbursed and to what extent did award amounts vary during this period? (2) To what extent does the COPS Office's grant application collect information about how applicants plan to use CHPfunded officers to advance community policing? (3) To what extent does the COPS Office's monitoring process assess whether grantees are using funds to advance community policing? GAO examined budget data and monitoring reports for 55 grantees, interviewed agency officials, and evaluated CHP applications from a systematic random sample of 103 CHP grants awarded from fiscal years 2010 through 2012. Nearly half of the Office of Community Oriented Policing Services (COPS) Hiring Program (CHP) funding from fiscal years 2008 through 2012 was awarded to grantees in six states, and award amounts varied considerably in certain years. During this period, state, county, and city law enforcement agencies nationwide received CHP grant awards to hire or rehire officers to advance community policing, with 48 percent of the funds awarded to grantees in California, Florida, Michigan, New Jersey, Ohio, and Texas. For grantees awarded the same number of officers, differences were driven mainly by variation across grantees' respective entry-level officer salaries and benefits. Variation in grantee award amounts were more prominent during 2009, 2010, and 2011, when salary and benefit levels were not statutorily capped, and grantees with higher officer salary and benefit levels generally received more CHP funding relative to other CHP grantees for the same number of officers. The COPS Office's CHP application collects information required by statute from grant applicants, but could be further enhanced by revising the application to clarify for applicants that CHP-funded officers are required to be the personnel specifically engaged in the community policing activities described on the application. The application asks applicants to provide information on how they plan to implement community policing agency-wide, but does not specifically ask applicants to explain how CHP-funded officers will be deployed in community policing--the primary statutory purpose of the CHP program. According to GAO analysis of a systematic random sample of 103 CHP-funded applications, GAO estimated that less than 20 percent of the applications funded in 2010, 2011, and 2012 contained evidence showing how additional officers would be deployed in community policing. The Domestic Working Group's guide for grant accountability recommends that agencies require applicants to include information describing, among other things, their approach for using the funds and the specific activities that are crucial to the success of the program. Revising the application to clarify for applicants that CHP-funded officers are required to be the personnel specifically engaged in the community policing activities described on the application, consistent with best practices, would better position the COPS office to ascertain from applicants how these particular officers' activities would advance community policing. The COPS Office's risk-based approach to monitoring assesses how grantees are using funds to advance community policing, but could be improved through additional monitoring guidance. The authorizing statute for the COPS grant programs contains a prohibition against supplanting-- using federal funds to replace state or local funds. The COPS Office developed standards and an operations manual for monitors to use in assessing the potential for supplanting. For 5 of the 21 grantees at risk for supplanting, GAO found that the monitors did not document their analyses of supplanting and it was not clear how they reached conclusions regarding supplanting. The manual requires monitors to document their supplanting analysis in instances in which supplanting is identified, but does not have this requirement for nonsupplanting. According to internal control standards, the documentation of agency activities is a key element of accountability for decisions. By enhancing the COPS Office's monitoring guidance to require monitors to document their results where the determination is made that supplanting has not occurred, the COPS Office may be better positioned to ensure that monitors are consistently assessing supplanting and that CHP funding is supplementing and not replacing state and local funding. GAO recommends that the COPS Office revise and clarify the CHP application and enhance guidance to require monitors to document their analysis results of non-supplanting in monitoring reports. The COPS Office generally concurred with the recommendations and described actions to address them.

You are an expert at summarizing long articles. Proceed to summarize the following text: Mass transit includes four main components––heavy rail, commuter rail, light rail, and bus. Heavy rail systems—subway systems like New York City’s transit system and Washington, D.C.’s metro—typically operate on fixed rail lines within a metropolitan area and have the capacity for a heavy volume of traffic. Commuter rail systems typically operate on railroad tracks and provide regional service (e.g., between a central city and adjacent suburbs). Light rail systems are typically characterized by lightweight passenger rail cars that operate on track that is not separated from vehicular traffic for much of the way. Large bus transit service is characterized by vehicles powered by diesel, gasoline, battery, or alternative fuel engines contained within the vehicle. According to the American Public Transportation Association (APTA), 10.7 billion trips were taken on mass transportation in 2008 —the highest number of trips taken on U.S. mass transportation in 52 years. According to TSA, transit officials, and transit experts, certain characteristics of mass transit systems, such as multiple access points and limited barriers to access, make them inherently vulnerable to terrorist attack and therefore difficult to secure. High ridership, expensive infrastructure, economic importance, and location in large metropolitan areas or tourist destinations also make them attractive targets for terrorists because of the potential for mass casualties and economic damage. Because of the expense of operating and securing a transit system, the costs are often shared among several entities. According to the Department of Transportation’s (DOT) Federal Transit Administration (FTA), almost all U.S. mass transit systems receive funds from public and private sector sources to maintain a public service that is provided and managed locally, since revenues from customer fares, on average, account for 40 percent of system operating costs. For example, FTA provides financial assistance to public transportation through its Large Urban Cities Grant Program which provides funding to urban areas through a formula- based allocation. Owners and operators of public transit systems are also responsible for ensuring the security of their systems. According to a 2004 APTA survey, transit agencies had more than $6 billion in transit security investment needs. To help defray the costs of securing U.S. transit systems, DHS has provided transit security grant funding to transit agencies since 2003. Beginning in fiscal year 2005, the DHS appropriations acts have provided annual appropriations for mass transit security, including the TSGP, which focused specifically on mass transit security. Table 1 outlines the TSGP allocations for fiscal year 2006 through fiscal year 2009. Both DHS appropriations acts and the Implementing Recommendations of the 9/11 Commission Act (9/11 Commission Act) outline requirements for security funding for mass transit and provide timelines for the issuance of grant program guidance and decisions. In addition to appropriating funding to the TSGP, DHS appropriations acts have provided deadlines for the issuance of grant guidance, the application period, and when DHS must act on applications. The 9/11 Commission Act required the Secretary of Homeland Security to establish a program for making grants to eligible public transportation agencies for security improvements, and DHS fulfilled this requirement through the TSGP. Although the TSGP considered risk prior to the passage of the 9/11 Commission Act, the act created additional requirements for the TSGP, including that recipients of public transportation funds be selected based on risk and that projects address items identified in security assessments or plans. It also outlined permissible use of funds and placed a limitation on the percentage of funds used for operational costs. Responsibility for administering mass transit security funding has changed numerous times within DHS since 2003. DHS’s Office of Domestic Preparedness administered the Urban Area Security Initiative (UASI) grant program from fiscal year 2003 to fiscal year 2005. During fiscal year 2006, the administration of the TSGP was transferred to TSA and the Office of Grants and Training within DHS’s Preparedness Directorate. TSA became the lead federal agency for determining the security priorities eligible for funding and developing the criteria for evaluating applications, while DHS’s Office of Grants and Training became responsible for grant management. The Post-Katrina Emergency Management Reform Act of 2007 transferred most offices within the Preparedness Directorate into FEMA; however, policy responsibilities, such as setting grant priorities and funding decisions, remained with TSA. As a result, during fiscal year 2007, the Office of Grants and Training was transferred to FEMA. In fiscal year 2008, FEMA’s Grant Programs Directorate became responsible for administering TSGP grants. Risk management has been endorsed by Congress, the President, the Secretary of Homeland Security, GAO, and others as a way to direct finite resources to areas that are most at risk of terrorist attack. Risk management is a continuous process that includes the assessment of threats, vulnerabilities, and consequences to determine what actions should be taken to reduce or eliminate one or more of these elements of risk. DHS released the NIPP, which created, in accordance with Homeland Security Presidential Directive 7 (HSPD-7), a risk-based framework. The NIPP, issued in 2006 and updated in 2009, sets forth guidance for agencies with critical infrastructure protection responsibilities, such as TSA, for the prioritization of protection initiatives and investments across sectors to ensure that government and private sector resources are applied where they offer the most benefit for mitigating risk. TSA created six transit security fundamentals that it states are the foundations for a successful security program, and the agency uses these fundamentals to prioritize TSGP projects. For the fiscal year 2008 and 2009 grant cycles, TSA established a systematic process to rank these priorities in awarding grant funds. To do this, TSA established project effectiveness groupings—groups of project types that TSA ranked in order of priority based on their ability to reduce risk—into which transit agency projects were placed. For example, in fiscal year 2008, there were four possible groupings (project types) for agency projects. The highest priority for that year focused on projects aimed at developing security plans and providing employee security training. See appendix II for the project effectiveness groupings for fiscal year 2008. DHS uses a risk model to help determine the transit agencies eligible for TSGP funds. Both TSA and FEMA share responsibility for the TSGP risk model, with TSA providing most of the data inputs to the model that is managed by FEMA. The TSGP’s risk methodology is similar to the methodology used to determine eligibility for other DHS state and local grant programs. For example, the methodology for determining basic eligibility for the TSGP is derived from the UASI grant program—both models identify and use the same urban areas and both the UASI and the TSGP risk models calculate risk scores for each urban area. See appendix III for additional details on the TSGP model. There are three stages of the TSGP grant cycle; allocation, award, and distribution, as discussed in figure 1. TSGP grant guidance is created annually by TSA and FEMA and provides an overview of the TSGP, the application materials needed to apply for funding under the program, and DHS management requirements. Tier II gencie compete for nd. Agencie’ project re reviewed y NRP nd Exective Commitee nd rnked based on rind other fctor. TSA nd T I gennd. DHS nno llon, bu not flied. When trit gencielfill ll grnt reqirement nd FEMA complete review, fnd re released. their project when the rd nnonced. Tier I gencieve 90 d to detil how they will implement the project. For fiscal year 2007, DHS had 75 days to release the grant guidance once the appropriations act had passed, and for fiscal year 2008, DHS had 30 days to release the grant guidance once the appropriations act had passed. Beginning in fiscal year 2009, Tier I transit agencies submit specific project information for award decisions prior to DHS award announcements. Using the TSGP risk analysis model, DHS develops risk scores, which are used to identify the highest-risk regions and the transit agencies within those regions that are eligible for funding. These regions are then placed into one of two tiers based on their risk scores to determine initial funding allocations; however, these allocations may change when DHS begins reviewing projects. Tier I: DHS determines the regions at the highest risk of a terrorist attack and selects transit agencies within those regions eligible to receive Tier I funding. Each Tier I region is given a target allocation based on its share of risk (as determined by the model). Each region, through discussions among transit agencies and TSA officials in the regional transit security working groups (RTSWG), decides which projects to fund on a collaborative basis. Each Tier I region has a RTSWG that includes eligible transit agencies, law enforcement agencies, and Amtrak (if stations exist in the region). Tier II: Lower-risk regions and certain transit agencies in those regions make up the Tier II group. The Tier II allocation is a set amount of funding allocated for all Tier II regions combined. Transit agencies in this tier apply for funding on a competitive basis—whereby their projects are evaluated against all other Tier II agency projects proposals, instead of funding decisions being determined collaboratively, as with the Tier I RTSWGs. After DHS announces target allocation amounts through the release of the grant guidance, Tier I and Tier II transit agencies have 45 days from the release of the guidance to apply for funding. During the award process, DHS evaluates transit agencies’ projects and determines which projects to fund, although the evaluation process for Tier I and Tier II agencies is different. Once the application period closes for Tier I and II, the DHS appropriations act states that DHS has 60 days to act upon the application, which DHS has defined as the length of time taken to review the applications, make the award decisions, and announce final allocations. In fiscal year 2008, as shown in figure 2, DHS created a three-part scoring methodology for evaluating projects that included an oject quality agency’s risk score, its project effectiveness grouping, and a project quality score, that included a regional collaboration factor. score, that included a regional collaboration factor. In fiscal year 2009, DHS used a similar scoring methodology, although this methodology was applied differently to Tier I and Tier II agencies, as described below. DHS has encouraged all TSGP applications to have a regional coordination component that demonstrates an investment strategy based on a regional security strategy. Many Tier I and Tier II regions have more than one transit agency operating, so coordination of federal TSGP investments is encouraged and is reflected in the regional collaboration component of the overall project score. Tier I: In fiscal year 2006, each region’s eligible transit agencies competed for the target allocation. Under this process, transit agencies’ applications were reviewed by an NRP consisting of subject matter experts from DHS, TSA, and FTA. An executive committee, consisting of senior officials from TSA, reviewed the NRP recommendations, the Secretary of Homeland Security made the final selections for funding, and awards were announced. In fiscal year 2007, DHS introduced a new process to award grants to Tier I agencies that involved direct negotiations between TSA and each RTSWG to identify the grant-funded projects that TSA would approve. Under this approach—known as the cooperative agreement process—award announcements were made, and transit agencies had 90 days to submit to DHS their investment justifications which provided additional details on how the transit agency would implement the awarded security projects. TSA collaborated with the transit agencies to finalize the investment justifications. Once these steps were completed, TSA officially approved the projects. In fiscal year 2008, TSA applied a more systematic approach for determining project funding. For Tier I regions, project scores were determined by weighing various factors, including the project effectiveness grouping, the transit agencies’ risk scores, and a regional collaboration factor. According to TSA officials, project quality was not as important a factor for Tier I agencies because TSA participated in the project development process through the RTSWG, which they believed helped ensure quality. DHS made award announcements to Tier I agencies based on the project concepts discussed in the RTSWG; however, as in the fiscal year 2007 process, final project approval was not completed at that time. DHS officials plan to use the same procedures in fiscal year 2009, except that they expect investment justifications to be completed prior to the award announcements and final project approvals are to be completed at the time of award. Tier II: DHS has used a competitive approach for awarding funds to Tier II agencies. From fiscal year 2006 to fiscal year 2008, projects submitted were reviewed and ranked by an NRP. After reviewing the transit agency risk scores and submitted projects, the panel developed a recommended slate of projects, including proposed funding amounts. An executive committee consisting of senior officials from TSA, DHS, and FTA then reviewed the recommendations as well as the risk scores of the transit agencies. The Secretary of Homeland Security made the final selections for funding, and then funding was announced. The evaluation criteria used by the panel have evolved from fiscal years 2006 through 2008, as shown in appendix V. Unlike Tier I agencies, Tier II agencies received their final project funding amount for each fiscal year at the time of award announcement. DHS plans to continue with this approach for Tier II agencies for fiscal year 2009. TSGP funds cannot be disbursed to transit agencies until FEMA ensures the agency’s compliance with federal grant management requirements, such as the National Environmental Policy Act. Since fiscal year 2008, TSA has approved transit agency projects (for both Tier I and II projects) and then forwarded them to FEMA’s Grant Programs Directorate (GPD) for review. GPD is responsible for ensuring that all grant projects adhere to federal grant requirements, including all environmental and historical preservation (EHP) requirements. FEMA’s Office of Environmental and Historical Preservation (OEHP) assists with the EHP reviews. GPD reviews projects identified as having limited EHP impacts, while OEHP reviews projects needing a more extensive environmental and historical review. Until FEMA is satisfied that all requirements have been met, no grant funding can be released to transit agencies to begin projects. However, once funds are awarded, transit agencies must complete the grant project within the designated performance period for the grant year. The TSGP’s performance periods have ranged from 24 to 36 months depending on the grant year and project type to be completed. FEMA has discretion to extend the performance period, if necessary. For Tier I regions with multiple states, one state administrative agency is designated for the entire region. The DHS Appropriations Act for fiscal year 2009 required funding to be provided directly to the transit agencies, removing the state administrative agency from the grant process. As a result, going forward transit agencies will be responsible for all state administrative agency duties, including submitting grant applications. DHS has established an approach for allocating and awarding TSGP funds using a risk model that incorporates the elements of risk and is intended to allocate funding to the highest-risk regions and transit agencies; however, the model could be strengthened to measure variations in vulnerability across regions. Furthermore, TSA revised its process and focus for the TSGP on numerous occasions since 2006, but transit stakeholders expressed concern about these revisions and their impact on funding flexibility. DHS uses a model to assess the risk to each transit agency region that includes the three elements of risk––threat, vulnerability, and consequence; however, the model does not measure variations in vulnerability, which limits the model’s overall ability to assess risk. As we reported in June 2008, measuring vulnerability is considered a generally accepted practice in assessing terrorism risk. However, DHS did not specifically measure vulnerability for each region and the associated transit agencies in the model. DHS reported that it did not measure region and transit agency vulnerability because it lacked data on the differences in vulnerability among transit agencies. Therefore, DHS decided to hold this variable constant in the risk formula. However, holding vulnerability constant may be problematic because, for example, a region may be highly vulnerable to one mode of attack but have a low level of vulnerability to another depending on a variety of factors, such as countermeasures already in place. TSA officials acknowledged the need to incorporate vulnerability into the risk model as a method for refining the results, but cautioned that measuring variations in vulnerability would require time and resources. As a result, officials reported that they were considering using transit agency vulnerability assessment results as a source of vulnerability information. To do this, FEMA officials acknowledged that they must be able to consistently compare assessments across agencies and regions, which may prove difficult given the variations in scope and methodology of these assessments. A FEMA official stated that the risk model is designed to incorporate other data, including vulnerability information, when it becomes available. A TSA official noted that TSA is considering looking into past vulnerability assessments and its Baseline Assessment for Security Enhancements (BASE) reviews for vulnerability information that might be used in the model. TSA officials also remarked that they consider ridership to be the major known vulnerability factor. A TSA official remarked that ridership represents the number of people exposed by an attack, which is a proxy for the openness of the system, station, or both. However, the risk model also uses ridership to measure consequence, so its link to vulnerability does not add additional information about how risk may vary across regions. Without accounting for variations in vulnerability, the effectiveness of the risk analysis model may be limited in that it may not fully consider important differences in regions and transit systems that could affect their vulnerability to attack and the risk scores may not be as precise. A more precise risk analysis could affect the allocations of funds to Tier I or Tier II regions because allocation is determined in part by the risk share. Using its TSGP risk model, DHS placed transit agencies into one of two tiers based on the risk of a terrorist attack occurring within a region, and then allocated funding to those tiers based on risk. In the fiscal year 2007 model, Tier I represented approximately 80 percent of the total risk of all regions assessed by the model, and Tier II represented the other 20 percent. In the fiscal year 2008 model, Tier I represented approximately 93 percent of the total risk to all regions assessed by the model, and Tier II represented the other 7 percent. Our analysis of the risk model and the funding allocated through the TSGP for fiscal years 2007 and 2008 showed that almost 90 percent of grant funds were allocated to the highest-risk transit agencies—that is, those agencies in Tier I. Furthermore, during fiscal years 2007 and 2008, the funding allocated to Tier I regions was based on a region’s risk share, which was determined by its share of the total risk for all Tier I regions in the model. Our analysis of the three grant cycles between fiscal year 2007 and 2008 showed that almost 90 percent of grant funds were allocated to the highest risk transit agencies—that is, those agencies in Tier I. Tier II received approximately 10 percent of the grant funds. After DHS allocated funds to Tier I regions, transit agencies worked within their respective RTSWGs in negotiating with TSA to identify which projects would be funded with the target allocation—known as the cooperative agreement process. TSA officials believe that the cooperative agreement process ensured project quality because under this approach TSA was able to work closely with transit agencies to develop security projects. Additionally, in an effort to ensure that grant money is spent on worthwhile projects, the grant guidance permits TSA to transfer funding among regions if fewer quality applications are submitted from one region and higher-priority security projects exist elsewhere. As a result, during fiscal year 2008, TSA transferred funds between Tier I regions and from Tier II to Tier I regions. Although TSA worked with each Tier I region during the fiscal year 2008 grant cycle, TSA officials reported that some regions did not submit enough projects that exceeded the minimum project score required to receive funding. As a result, one Tier I region saw a reduction in its target allocation. According to TSA officials, these reductions occurred because they did not want to fund poor quality projects just because funds were available in a particular region. As a result, in fiscal year 2008, Tier I gained an additional $13.7 million from Tier II, and $7.5 million from the Freight Rail Security Grant Program, for a total of $21.2 million. Five of the eight Tier I regions received awards above their target allocations such as the New York City region, which received $21 million more than its target allocation. The San Francisco Bay Area, which was the only Tier I region to see a reduction, received $2.8 million less than its target allocation. Although DHS allocated funding to tiers based on risk, the specific Tier II transit agency awards were not closely linked to risk. Unlike its cooperative agreement process used to award funds for Tier I agencies, DHS uses a competitive awards process for Tier II agencies and does not negotiate the approval of security projects with the Tier II agencies as it does with the Tier I agencies. Before fiscal year 2008, the executive committee considered agency risk after the NRP had scored the agency projects based on their investment justifications; however, the risk score was not part of a standard methodology or formula for determining funding. This process changed in fiscal year 2008 when TSA began using Tier II agency risk scores as one part of its three-part scoring methodology to determine project competitiveness. Because applicants compete for Tier II funds on a project-by-project basis, Tier II grant awards were not solely based on transit agency risk. Rather, other factors also determined grant funding. Specifically, our review of the NRP scores showed that project quality was a major factor in determining if an agency received grant funding. For example, a lower-risk agency with a high-quality project was more likely to receive funding than a higher risk agency with a low-quality project, based on the NRP’s assessment. TSA reported that Tier II agencies submitted projects with proposed investments totaling $37 million during fiscal year 2008, although DHS initially awarded $16.9 million of the total $36 million allocated to Tier II agencies. TSA officials reported that this occurred because many projects were ineligible because of such things as insufficient information, lack of live monitoring for closed-circuit television projects, or a focus on law enforcement instead of security. Because there were not enough high- quality projects submitted to fulfill the $36 million allocation for Tier II, according to TSA, the Secretary of Homeland Security made the decision to recompete—that is, allow agencies to resubmit projects for funding— for an additional $6 million. To accomplish this, TSA provided written feedback to Tier II agencies that received partial funding or no funding from the initial fiscal year 2008 grant cycle and invited them to reapply for the $6 million. The initial and recompeted TSGP funding for fiscal year 2008 resulted in DHS awarding about $23 million to all Tier II agencies. DHS officials stated that the decision to recompete $6 million ensured that the fiscal year 2008 funding for Tier II agencies was equal to the amount of funding Tier II agencies received in fiscal year 2007. TSA officials stated that all eligible projects recommended by the NRP were funded with the initial $16.9 million. However, TSA officials commented that during the recompete, there were more eligible requests than funding available because of their efforts to provide feedback on unsuccessful applications. Transit agencies submitted $9.1 million worth of eligible projects for the $6 million in funds, thus projects were funded based on total project scores until the funds were exhausted. TSA officials noted that several initially deficient applications were modified based on feedback, resubmitted, and then approved. The types of projects eligible for funding and the specific projects TSA has focused on have changed each grant year since 2006—making long-term planning difficult, according to officials we interviewed from 8 of 30 transit agencies and numerous stakeholders at TSGP after-action conferences held in September and October 2008. These changes, such as the projects that would receive priority for funding, concerned transit agencies because they meant that the agencies had to change their proposals in some cases. For example, results from 28 TSA BASE reviews completed from December 2006 through January 2007 indicated that security training was an area needing improvement at many transit agencies and was a critical vulnerability that needed to be addressed immediately. As a result, after DHS released the fiscal year 2007 grant guidance in January 2007, TSA officials notified all transit stakeholders in February 2007 that the top funding priority for fiscal year 2007 would be changed to training for key frontline employees. TSA informed the transit agencies that this training would be given elevated priority when the investment justifications were evaluated for funding merit, and projects that included training would be funded ahead of other projects. While this change may have been necessary to adjust to a changing security environment, the change resulted in transit agencies having less than 2 weeks to decide whether they wanted to change their grant applications and refocus them on this priority area. See appendix VI for a listing of grant priorities for fiscal years 2006 through 2009. Another change in the grant program that transit stakeholders expressed concern about occurred in the fiscal year 2008 grant cycle when DHS changed its methodological approach for evaluating applications. Before fiscal year 2008, the NRP evaluated Tier II grant projects for project quality––including how those projects addressed the grant priorities. In contrast, Tier I grant projects were determined by negotiations between TSA and the RTSWG. However, in 2008 DHS introduced a new scoring methodology for Tiers I and II, which was explicitly outlined in DHS’s grant guidance that year. According to TSA officials, the change in scoring methodology was based on stakeholder feedback that DHS be more transparent and clear about funding priorities and exactly how projects would be prioritized and ranked. However, 28 of 40 transit stakeholders we interviewed (30 transit agencies and 10 state administrative agencies) and numerous stakeholders at TSGP after action conferences held in September and October 2008 noted that the TSGP provides limited flexibility to pursue projects that have been identified as transit agency security needs. Officials from one state administrative agency said that prioritizing security projects puts forward- thinking agencies at a disadvantage because if they have already completed projects that address TSA’s highest funding priorities, then obtaining funding for alternative projects is difficult. Transit officials from one agency said the grant priorities provide incentives for agencies to potentially buy things they do not want or need, and that these technologies will eventually just sit on the shelf. TSA officials stated that the TSGP is a limited fund that must be allocated to best maximize the use of scarce resources based on risk. TSA officials also reported that they receive requests in excess of available funding, and therefore cannot fund all eligible requests, necessitating a prioritization and ranking schema and clear guidance on allowable project types. Officials from five large Tier I transit agencies that have chemical biological detection systems, or would like to install such systems, expressed concerns that they could no longer receive funding to install these detection systems. The TSGP listed chemical and biological detection as an allowable expense for the grant program from fiscal years 2005 through 2007; however, TSA did not fund chemical and biological projects during fiscal years 2007 and 2008 and listed them as an unallowable expense for the first time in the fiscal year 2008 guidance. TSA made this determination because its threat reports and security assessments determined that improvised explosive devices (IED) and improvised incendiary devices (IID) are the most common means of attacking mass transit, and the training of frontline employees needed to be addressed immediately. However, in fiscal year 2009 chemical and biological detection systems became eligible, and TSA officials stated that they may fund chemical and biological detection systems for fiscal year 2009 because some agencies have demonstrated that they can use this technology effectively and restoring this eligibility may allow agencies to enhance their response and recovery capabilities. Similar concerns over flexibility were outlined in recommendations from the Mass Transit Security Sector Coordinating Council to the Government Coordinating Council led by TSA in December 2007. The transit industry members of the council were concerned about the imbalance among the priorities listed in the fiscal year 2007 grant guidance and noted that transit agencies are in the best position to determine the balance of funding between capital and operating initiatives. They specifically noted that more predictability and flexibility in implementing priorities cited in the grant guidance is needed to allow agencies to engage in long-term planning of security initiatives, allowing agencies to more easily fund projects on a multiyear basis. According to TSA officials, the collaborative efforts between TSA and eligible transit agencies in the Tier I regions, combined with the project effectiveness groupings that cite eligible security enhancement measures in a prioritized listing, are intended to enhance predictability and flexibility. In an effort to improve the TSGP, TSA and FEMA held a conference in September 2008 to obtain feedback from transit agencies and state administrative agency officials on the fiscal year 2008 grant cycle. At that conference, transit agency stakeholders continued to express concerns about the need for greater flexibility and that funding decisions should be informed by the regional strategies that they have put into place. For fiscal year 2009, DHS has reported changing the scoring methodology to address transit agency concerns over limited flexibility. Specifically, DHS added a grouping for other mitigation activities that allows some of the project types that were previously excluded. Furthermore, DHS has not explicitly excluded any type of project and has enabled transit agencies to explain to DHS the priority groupings into which they believe their project should be placed. The decision about project placement, however, continues to lie with DHS and projects that fall outside of the established project effectiveness groupings are given the lowest-priority score. While this change could alleviate transit agencies’ concerns about limited flexibility, it is too soon to determine whether it will address agency concerns and allow them to secure funding for their highest security needs. DHS has met the statutory timeline requirements in allocating and awarding grants. However the two agencies that manage the TSGP—TSA and FEMA—lack defined roles and responsibilities, and the approval of grant projects and completion of administrative requirements for grants awarded in fiscal years 2006 through 2008 took many months. Additionally, delays also occurred after projects were passed to FEMA for administrative and environmental reviews because of backlogs and reported resource constraints. TSA and FEMA have attempted to address these delays by approving projects earlier in the grant process, issuing guidance, and adding resources. Because of these delays, project funds were often not available to transit agencies for months, and in some cases years, after being awarded, and as a result, only 3 percent of grant money has been spent as of February 2009. While TSA and FEMA share responsibility for managing the TSGP, the two agencies have not defined and documented their roles and responsibilities in a memorandum of understanding (MOU), or through similar means. TSA’s responsibilities fall primarily in the award process and include, among other things, identifying grant priorities, while FEMA’s responsibilities include administering the grant management process to ensure compliance with applicable laws, rules, and regulations. The roles and responsibilities of the two agencies related to the award and postaward processes are in the grant guidance. For example, the guidance states that FEMA has the lead for designing and operating the administrative mechanisms needed to manage the grant program. However, there is no documentation articulating the working arrangement between the two agencies. For example, it is not part of FEMA’s procedures to notify TSA when funding is released to the state administrative agencies and transit agencies, despite TSA officials reporting several requests for access to this information. As a result, TSA officials reported that because they do not have this information, it is difficult for them to respond when transit agencies contact them with questions about their grants. As we reported in October 2005, many agencies face a range of barriers when they attempt to work collaboratively. To enhance and maintain effective collaboration, we reported that agencies engage in practices such as establishing joint strategic plans to achieve common outcomes as well as instituting compatible policies, procedures, and other means to operate across agency boundaries. Additionally, agencies can strengthen their commitment to work collaboratively by articulating their agreements in documents, such as MOUs, interagency guidance, or interagency planning documents. Standards for Internal Control in the Federal Government also requires agencies to delegate authority and responsibility throughout their organizations. Articulating roles and responsibilities for managing the TSGP could strengthen TSA and FEMA’s ability to ensure that activities, processes, and resources are aligned to achieve a common outcome and ensure smooth coordination during the grant process. TSA officials stated that a formal MOU and guidance documents between TSA and FEMA would be beneficial, while FEMA officials stated that they believed the two agencies are working together effectively. DHS met the requirements of the TSGP to release grant guidance and act on grant applications as defined by DHS; however, additional agency actions are to be completed before specific transit agency projects and funding levels are approved and transit agencies can begin projects. Since fiscal year 2007, DHS appropriations acts have established timelines for DHS to release the TSGP guidance and act upon transit agency applications. For fiscal years 2007 through 2009, DHS met the requirements to release the grant guidance within 75 days for fiscal year 2007 and 30 days for fiscal years 2008 and 2009. The appropriations acts also set timelines for DHS to act upon the grant applications within 60 days, but until 2009, this did not include approving projects. DHS policy defined the requirement to act upon grant applications as reviewing the applications, making the award decisions, and announcing final allocations. DHS met the requirements to act upon the grant applications within 60 days, as defined by DHS, for fiscal years 2007 and 2008. While there are specific statutory deadlines for releasing grant guidance and acting on grant applications, there are no statutory deadlines once the projects are approved and are passed to FEMA for review and funding release to transit agencies. However, even though allocation amounts were announced by DHS within the statutory time frames during fiscal years 2006 through 2008, none of the Tier I regions had their projects approved by TSA at the time of award because TSA procedures allowed for approval after the award. For example, during fiscal year 2007, TSA did not begin approving Tier I projects until more than 5 months after the award date. One Tier I region did not receive project approval for its fiscal year 2007 grant projects until November 2008, or 15 months after the award date. As such, although DHS met the statutory deadlines for acting upon grant applications within the time frames established in legislation, project approval was not yet completed. In contrast, all Tier II agencies involved in the competitive process, which evaluates all projects at once, had all of their projects approved by TSA when the awards were announced. Delays in approving grant projects after awards were announced have been attributed to TSA and the transit agencies involved in the cooperative agreement process taking months to agree upon projects. According to TSGP grant guidance, the cooperative agreement process is valuable because it provides greater flexibility and allows TSA to work directly with transit agencies to quickly adapt to changes as situations arise during the grant cycle. However, this cooperative process has also resulted in significant time passing between the award and final project approval dates. According to TSA data, during the fiscal year 2006 grant cycle, the average project took 9.7 months to receive approval. During the initial grant cycle in fiscal year 2007, the average project approval took 7.1 months. During the supplemental grant cycle in fiscal year 2007, the average project approval took 5.5 months. Furthermore, at the time of our review, there was still one Tier I region whose project from a previous grant cycle had not yet been approved. Specifically, as of January 2009, a Chicago region project totaling $2.9 million had not been approved from the fiscal year 2006 grant cycle even though the fiscal year 2006 performance period ended in March 2009. In contrast, Tier II agencies involved in the competitive process have their projects approved at the time of the award and thus do not experience these delays. TSA officials stated that some of the delays were caused by a provision in the DHS appropriations act for fiscal year 2009, which provided that the program could not include a cost share requirement for grants made available for fiscal years 2008 and 2009. According to TSA officials, the removal of this cost share requirement caused a disruption because some transit agencies had to modify their projects, their budgets, or both, which resulted in final project approval and disbursement delays. One state administrative agency official in a Tier I region said that delays in funding approval make program performance period extensions a necessity. Further, the official stated that because some projects are complex and involve multiple partners, delays can have a ripple effect and slow project completion. In addition, as grant program periods are extended, it is possible for multiple grant years to occur simultaneously, making them a greater challenge to manage effectively. A TSA official reported that as of late March 2009, all Tier I projects for fiscal year 2008 were approved. A TSA official said that TSA has made progress in managing project approval time frames by changing some of its procedures for fiscal year 2009, but also noted that some of the delays in previous years could be attributed to transit agency procedures as well. For example, a TSA official noted that some transit agencies are required to have projects approved by their boards of directors or state legislatures—efforts which contributed to the length of time between award and project approval. For example, one state administrative agency official said that transit agencies cannot begin projects until state legislatures approve the projects. The official noted that this process can take time, especially if the legislature is not in session. According to TSA, during fiscal year 2009 funds are to be awarded directly to individual transit agencies; therefore, when DHS announces the awards, each transit agency’s funding amount must be finalized at that time. On April 8, 2009, in conjunction with the award announcement, DHS issued final allocation amounts for transit agencies for fiscal year 2009. As a result of this administrative change, TSA officials noted that they expected the project approval letters to be sent to FEMA soon after the award announcement. Once TSA approves projects and award amounts are finalized, FEMA takes responsibility for ensuring compliance with federal requirements; however, backlogs in FEMA’s review processes have resulted in delays in distributing project funding. One requirement that has caused delays involves ensuring compliance with the National Environmental Policy Act, which requires the consideration of the environmental impacts of proposed actions as well as reasonable alternatives to those actions. FEMA’s GPD works in conjunction with FEMA’s OEHP to complete the Environmental and Historical Preservation (EHP) reviews of each project. GPD reviews projects that have no, or limited, EHP impacts, and OEHP reviews those projects needing a more comprehensive environmental and historical preservation review. Before April 2007, DHS’s Office of Grants and Training and TSA shared responsibility for managing the TSGP. According to OEHP officials currently managing the EHP review process, when FEMA assumed responsibility for administering the TSGP in April 2007, they discovered that the EHP requirements had not been fully integrated into the TSGP and that there was a lack of institutional knowledge among DHS’s staff about how to manage the EHP process and TSGP requirements. This lack of experience, in combination with the lengthy process of collecting the necessary EHP information from grant applicants, led to a backlog of EHP reviews from fiscal years 2005 through 2007. According to FEMA officials, there is a need for additional personnel to address the EHP backlog and other anticipated workload issues. According to GPD officials, the backlog created by pending EHP reviews led to a sizable workload for GPD’s limited staff. In addition, GPD officials estimated that when transit agencies begin applying directly to FEMA for TSGP grants in fiscal year 2009, instead of going through their state administrative agencies, this approach will generate a fivefold increase in TSGP applications as individual transit agencies apply rather than state administrative agencies. In February 2009, GPD officials reported that several efforts are under way to manage their workload. For example, GPD expects to hire six more program analysts—in addition to the two already in place––to manage the expected workload increase. FEMA officials also reported in February 2009 that they expected to have these new staff hired and in place by March or April 2009. Additionally, GPD reported that it augmented its staff with contractor support in December 2007, to reduce the time for EHP reviews and expedite the release of funds. In March 2009, GPD officials said that they planned to expand the contract within 2 months to include another person for EHP support. They also reported that they are in the process of conducting a workforce study, to commence in late spring 2009, to determine staffing needs for the additional workload, and expect to have this study completed by the end of fiscal year 2009. In a separate effort to address the backlog of EHP reviews, in 2007 OEHP developed new guidance for conducting environmental reviews. The new guidance is aimed at addressing the backlog and heavy workload brought about by the integration of GPD grants into FEMA by focusing GPD and OEHP staff resources on project reviews with the greatest potential for environmental impact. FEMA officials reported that the backlog prior to the release of the guidance resulted in projects taking several weeks to several months for EHP approval, depending on the complexity and level of review. Officials also reported that the internal processing time has improved by 50 percent since the EHP guidance was released, and the guidance has also helped to identify the need for EHP training for external and internal stakeholders. See appendix VII for FEMA’s EHP review project types. Additionally, DHS revised its grant guidance for fiscal year 2009 to clarify to grant recipients the EHP information that they should submit so that FEMA can begin reviewing their projects. The intention of this revision was to reduce the amount of time between collecting the information and beginning the EHP review process. Despite these efforts, there remains a backlog of grant projects awaiting review. According to FEMA officials, as of March 2009, 72 projects were still in review, accounting for $88 million. Twenty-four were projects from fiscal year 2006, and 48 projects from fiscal year 2007. FEMA officials further noted that a large number of these projects were in EHP review. As of March 2009, FEMA’s EHP regulations were disaster focused, and have not been revised since 1996—before DHS existed. FEMA officials reported in March 2009 that the agency would revise its environmental regulations to be more inclusive of all types of projects, including non disaster homeland security grants, that FEMA funds. However, FEMA did not have a timeline for when the new regulations would be published. Best practices for project management call for milestone dates, among other factors, in carrying out a project successfully. Establishing milestones could help FEMA ensure that revisions to its environmental regulations are conducted as management intended. From fiscal years 2006 through 2008, DHS awarded about $755 million in transit security grants; however, as of February 2009, only about $21 million, or 3 percent, of this total had been expended by transit agencies largely because of TSA’s lengthy cooperative agreement process, the EHP backlog, and delays in receiving disbursement approval from FEMA. As of February 2009, for fiscal years 2006 through 2008, approximately $334 million dollars has been distributed to transit agencies and approximately $421 million is still being held pending review (with the majority of the held funds from fiscal year 2008). As might be expected, more recent fiscal years showed higher unexpended balances. However, low grant expenditures by transit agencies was commonly reported across all TSGP grant years, as shown in figure 3, and are related to many transit agencies receiving authorization to spend their grant dollars near the end of each 2 to 3 year grant performance period. FEMA officials reported that transit agencies may choose to draw down their award at any time during the performance period. Our analysis of TSA project approval and FEMA grant adjustment notices (GAN) from fiscal year 2006 or release of funds memos for fiscal year 2007 showed that it could take up to 20 months for transit agencies to receive approval to begin projects, which accounted for a significant portion of the grant performance period. FEMA used GANs and release of funds memos to notify the state administrative agency and the transit agency that they may begin a project. In fiscal year 2006, state administrative agencies may have received more than one GAN for each project. The first GANs were to notify the state administrative agencies to “obligate and expend” the funds, which meant that they could begin the projects. However, this did not mean that they could draw down any funding. Only upon receipt of the “obligate, expend, and draw down” GAN could the funds be withdrawn. This two-part GAN process created some confusion among transit stakeholders and, in fiscal year 2007, FEMA clarified the GAN process. In fiscal year 2008, FEMA changed this procedure again to include the use of a single release of funds memo, which allowed transit agencies to draw down funds. See figure 4 for the average amount of time it took for transit agencies to receive approval from TSA and FEMA to om TSA and FEMA to begin projects after the grant award date. begin projects after the grant award date. In addition to the delay between announcing awards and obtaining final project approvals, 25 of 40 transit stakeholders we interviewed, including state administrative agency officials, also reported time delays in receiving their grant monies. Furthermore, numerous transit stakeholders attending the TSGP after-action conferences raised concerns about the time it took to receive awarded funds after projects were approved, and stated that they believed the process was broken. They also reported that they believed the performance period needed to start when the GANs were received, not when awards were announced. For example, during fiscal year 2006, one Tier I transit agency was awarded $4 million for a new integrated security response center, but the agency did not receive approval to begin the project until June 11, 2008. As a result, unless this transit agency receives an extension, it will have less than 10 months to complete the project to stay within the original 30-month performance period. A transit agency official told us that the agency requested an extension until June 30, 2010, to complete this project, and was awaiting FEMA’s response. In addition, in December 2008, a state administrative agency official for one state sent a request to FEMA for a 2-year extension to the performance period for the entire state’s fiscal year 2006 TSGP grant because the “delays from the federal level have left many of these projects without a chance of success during the performance period.” Transit stakeholders also said that concerns about funding delays have hampered their ability to effectively plan for and manage projects. For example, one transit agency official said that because of delays in receiving grant funding the agency is constantly seeking extensions, which are often not approved for longer than 3 months. In addition, another transit agency official stated that state procurement processes can take additional time to complete, which can also reduce the amount of available time to complete the project within the performance period. FEMA officials noted that 2006 was an unusual year for the grant program because the multiple GANs they issued to state administrative agencies resulted in confusion among transit agencies about when projects could begin or when they could start spending money. As a result of the delays encountered in the fiscal year 2006 grant process, FEMA officials stated in March 2009 that they were notifying transit agencies of one-year extensions for all fiscal year 2006 grants that were set to end on March 31, 2009. Despite the concerns over funding delays, FEMA has not established or communicated time frames for providing grant funding to transit agencies once projects have been approved by TSA. In April 2004, we reported that timely awarding of grant funds is imperative to provide the intended benefit of the grant program. Additionally, the purpose of the TSGP is to provide funding to owners and operators of transit systems to protect critical surface transportation infrastructure and the traveling public. Ensuring the timely distribution of grant funds is essential for ensuring that transit system owners and operators receive necessary funds early enough in the performance period to complete their security projects. While the purpose of the TSGP is to provide funds to protect critical surface transportation infrastructure and the traveling public, the program lacks a plan and related milestones for developing measures to track progress toward achieving program goals. While FEMA reported that it was beginning to develop measures to better manage its portfolio of grants, TSA and FEMA have not collaborated to produce performance measures for assessing the effectiveness of TSGP-funded projects, such as how funding is used to help protect critical transportation infrastructure and the traveling public from possible acts of terrorism. Further, FEMA does not yet have performance measures in place for its administrative duties, such as measuring the time taken to complete reviews of financial and administrative requirements. As we reported in October 2005, to enhance and maintain effective collaboration, agencies should engage in practices to achieve common outcomes and establish compatible policies, procedures, and other means to operate across agency boundaries. Additionally, according to best practices for project management, the development of a project management plan—which defines how the project is executed, monitored and controlled, and closed—is a key element of project management. Best practices for project management also call for milestone dates, among other factors, in carrying out a project successfully. FEMA officials reported in October 2008 that while they were in the process of establishing baselines and targets for measures identified through the Program Assessment Rating Tool (PART) requirement, additional work was needed to develop meaningful measures. FEMA officials stated that performance measures for the TSGP are likely to focus on the increased security capabilities of the transit agencies, such as the number of canine teams a transit agency deploys. In addition, FEMA has also been developing a cost-to-capability assessment that officials report will allow them to analyze grant program accomplishments from fiscal years 2003 through 2007. Still in its early stages, the cost-to-capability assessment focuses on efforts to measure a jurisdiction’s capability to prevent and respond to various types of disasters compared to a target level of capability. Although TSA has lead responsibility for surface transportation security, a TSA grant program official stated that TSA does not have any role in FEMA’s cost-to-capability assessment and only learned about it in late 2008. This official also reported that the assessment raised some concerns as it might not be tailored appropriately to each transportation mode. TSA officials reported that they are considering using the BASE review and TSA inspectors to develop and monitor performance measures for the TSGP; however, TSA officials reported not taking any action to develop performance measures because of resource constraints for managing the program. As we have reported, federal programs contributing to the same or similar results should collaborate to ensure that goals are consistent and, as appropriate, program efforts are mutually reinforcing. Until TSA and FEMA collaborate to develop a plan with related milestones, it will be difficult for the agencies to provide reasonable assurance that measures are being developed to ensure that the program is achieving its stated purpose of protecting critical surface transportation infrastructure. FEMA is responsible for conducting both a budget review and programmatic review of grant projects including reviews of EHP requirements. However, despite this role, FEMA does not have a mechanism for systematically collecting data on the status of individual grant projects throughout this review process, including tracking the status of the reviews it conducts and the release of funds to transit agencies. Although FEMA has systems to track financial information related to all of its grant programs, these systems do not allow FEMA to track the status of grant reviews, such as EHP reviews. As a result, GPD staff reported that they created a spreadsheet to track this information, including identifying when TSGP funds were released once requirements were met. Under this tracking process, each program analyst was responsible for maintaining accurate records in the spreadsheet. However, TSA did not have access to it and, until February 2009, the information was not monitored for accuracy. Further, we found inconsistencies between FEMA’s spreadsheets and data collected through FEMA’s financial systems, including the amount of funding being held pending EHP and other reviews. For example, we found that the total amount of funds on hold in the GPD internal spreadsheets was not equal to the hold amounts in FEMA’s financial systems. GPD officials told us that FEMA’s financial systems were the official record for the awards. A FEMA official reported that there are multiple information systems involved in managing the TSGP. FEMA is in the process of implementing a new consolidated grants management system—expected to be operational for the TSGP by October 2009. According to FEMA, the new system is to include functions that support the application process and is expected to be fully operational throughout DHS in 2011. Although the system will not initially support the tracking of grant disbursements, FEMA officials reported that their intention is to have the system support these functions in future releases. However, FEMA officials did not have a specific date for when these capabilities would be available. In addition, as of March 2009, there was no mechanism for TSA to gain access to grant review or financial information, even though TSA officials reported requesting information regarding when funds were released to transit agencies so that they could track this information. Standards for Internal Control in the Federal Government requires agencies to ensure that pertinent information is recorded and communicated to management and others within the entity in a form and within a time frame that enables them to carry out their internal control and other responsibilities. Moreover, systematically collecting data on the status of grant projects throughout the grant process could strengthen FEMA and TSA’s ability to effectively manage the program. Similarly, the GPD is responsible for the financial controls and audits of the TSGP to ensure that funds are appropriately disbursed and used in accordance with grant requirements. However, the agency does not have a plan for targeting its monitoring activities related to the use of grant funds once projects have been implemented. GPD officials said that their office conducts on-site visits to transit agencies to collect information on the use of grant funds, but because of a lack of staff resources, their efforts have mostly been limited to the largest Tier I transit agencies that either have not spent their grant funding or were not able to complete projects within the designated grant period. GPD officials said that they also conduct document reviews, including reviewing quarterly financial reports, progress reports, and special conditions to release funds. Although they reported having limited resources, GPD officials said that they were able to conduct approximately 24 site visits during fiscal years 2006 through 2008, attend numerous RTSWG meetings, and interact with transit agencies at conferences as part of their efforts to monitor the awards. GPD officials also reported creating a monitoring tool for the fiscal year 2007 grant cycle to be used during on-site visits, and officials stated that the agency plans to modify the tool each grant year based on the specific grant requirements for that year. GPD officials also reported that the tool has been used by GPD program analysts during their site visits. While GPD’s monitoring tool will likely strengthen the agency’s ability to monitor grant activities, GPD lacks a plan to delineate how and when this monitoring will take place. GPD officials acknowledged that a robust monitoring plan needs to be implemented with processes in place to ensure that the agency visits each transit agency at least once a year. According to grants management best practices, monitoring grantee performance helps ensure that grant goals are reached, and it is important that agencies identify, prioritize and manage potential at-risk recipients. For example, one federal agency with grant-making responsibilities has created monitoring plans that include criteria to perform risk assessments, which consider factors affecting a grantees ability to effectively manage grants. This information could be used to prioritize monitoring activities given GPD’s limited personnel. In addition, in September 2006 we reported on the value of feedback provided through performance monitoring plans and tools such as site visits. Moreover, TSA officials stated that their agency currently has no role in the oversight of grant expenditures, but believed that the use of its inspectors to provide grant oversight would be a key component of the overall approach to mass transit security. TSA’s surface transportation security inspectors, who are located throughout the United States, interact with transit agencies for other purposes on a regular basis, and could be used for on-site monitoring. In October 2005, we reported that leveraging resources is vital to achieving effective collaboration. A monitoring plan would provide GPD with a road map for how it will carry out its monitoring activities to help ensure that it is effectively using its limited resources. In addition, by working collaboratively with TSA and its surface inspectors, who have security expertise, GPD could leverage existing resources to ensure that transit agencies are complying with security specifications set out in TSGP grant guidance and the agencies’ own investment justifications. As terrorist attacks on transit systems overseas have made clear, even with a variety of security precautions in place, mass transit systems that move high volumes of passengers daily remain vulnerable to attack. Risk management has been endorsed by the federal government as a way to direct finite resources to those areas at greatest risk of a terrorist attack. While DHS uses a risk-based process to allocate funding for the TSGP, without considering possible variations in vulnerability in the risk model, the risk scores developed through the model are not as precise as they could be, which could affect the allocation of funds to Tier I and Tier II agencies. In addition, articulating roles and responsibilities for managing the TSGP could strengthen TSA and FEMA’s ability to ensure that activities, processes, and resources are aligned to achieve a common outcome and ensure smooth coordination during the grant process. Further, TSA’s delays in approving projects and FEMA’s backlog of project reviews are contributing to delays, which negatively affect the ability of transit agencies to complete their projects within grant performance periods. However, TSA has made changes to the project approval process for fiscal year 2009, which resulted in all projects being approved at the same time as the grant award announcement. FEMA has also reported plans to modify its approach for managing the administrative requirements of the TSGP, including revising its environmental regulations to be more inclusive of all the types of projects, including nondisaster homeland security grants. While FEMA has not reported a time frame for completing this process, establishing milestones to complete this modification could help FEMA ensure that revisions to its environmental regulations are conducted in a timely manner. We have also previously reported on the importance of performance monitoring in grant programs. Monitoring the implementation of TSGP grant projects is vital to ensure that transit agencies are complying with security specifications set out in the TSGP guidance and in the agencies’ own investment justifications. A monitoring plan that details how and when monitoring will take place could improve GPD’s ability to plan for this important oversight function and help it ensure that it is effectively using its limited resources. A monitoring plan, which includes a method for leveraging TSA resources, would also put GPD in a better position to monitor grant implementation by working collaboratively with TSA to leverage the security expertise of TSA’s surface transportation security inspectors which will help FEMA address its resource limitations related to monitoring. In addition, while FEMA’s consolidated grants management system should allow FEMA to better manage data collection, the system being developed is not expected to allow FEMA to collect data on the status of grant activities throughout the grant process or to provide TSA with access to this information, both of which are vital to ensuring effective program management. Moreover, until the system is established and able to track TSGP grants to allow for effective oversight and management of TSGP funds, FEMA could benefit from establishing an interim process that tracks the necessary information and share this information with TSA, its TSGP partner. Finally, performance measures are fundamental to the successful management of federal programs. As we have reported, federal programs contributing to the same or similar results should collaborate to ensure that goals are consistent and, as appropriate, program efforts are mutually reinforcing. Until TSA and FEMA collaborate to develop a plan with related milestones for jointly measuring the effectiveness of TSGP, it will be difficult for the agencies to provide reasonable assurance that measures are being developed to ensure that the program is achieving its stated purpose of protecting critical surface transportation infrastructure and that accountability and effective stewardship of public resources exist. Finally, the absence of information on the expected time frames for making funds available to transit agencies once projects are approved can hinder transit agency efforts to design and implement projects within the designated performance periods of the grant. We are making seven recommendations to help strengthen the implementation and oversight of the TSGP. To strengthen DHS’s methodology for determining risk, we are recommending that the Secretary of Homeland Security develop a cost- effective method for incorporating vulnerability information into future iterations of the TSGP risk model. To strengthen the administration, oversight, and internal controls of the TSGP, we are recommending that the Secretary of Homeland Security direct TSA and FEMA to take the following four actions: Define TSA’s and FEMA’s respective roles and responsibilities for managing the TSGP in an MOU or similar document. Develop a cost-effective plan for monitoring the use of grant funds once projects have been implemented, including a strategy for leveraging resources that could allow TSA surface transportation security inspectors to assist in monitoring the grant projects to ensure that the projects meet the security requirements set out in TSGP guidance. Develop an interim solution to systematically collect data and track grant activities until FEMA’s grants management system can perform these functions, and ensure that both agencies have access to these data. Collaborate to develop a plan and milestones for measuring the effectiveness of the TSGP and its administration. In addition, we recommend that the Secretary of Homeland Security direct FEMA to take the following actions: Establish a time frame for revising environmental regulations to be more inclusive of nondisaster homeland security grant programs. Establish and communicate time frames for making funds available to transit agencies once FEMA receives project approvals from TSA. We provided a draft of this report to DHS and DOT for review and comment. DOT did not provide comments. DHS provided written comments on May 15, 2009, which are reprinted in appendix VIII. In commenting on the report, DHS reported that it concurred with all seven recommendations and discussed actions it has taken or planned to take to implement them. With regard to our first recommendation that DHS strengthen its methodology for determining risk by developing a cost-effective method for incorporating vulnerability information into future iterations of the TSGP risk model, DHS concurred with the recommendation and said that it would make appropriate adjustments in the fiscal year 2010 grant cycle. DHS concurred with our second recommendation that TSA and FEMA’s respective roles for the administration and oversight of the TSGP be defined and documented in an MOU or similar document. DHS reported that TSA and FEMA will work collaboratively to develop the MOU before the fiscal year 2010 grant cycle and share it with external stakeholders to ensure that the responsibilities and relationships between TSA and FEMA are clear. DHS also concurred with our third recommendation that it develop a cost- effective plan for monitoring the use of grant funds and leverage TSA surface transportation security inspectors to assist in monitoring these projects. Specifically, DHS reported that FEMA would work toward developing a cost-effective monitoring plan to include the use of surface transportation security inspectors in such instances when their transit security expertise would be appropriate for monitoring grant program functions. Because FEMA would be utilizing TSA personnel with numerous other responsibilities to help with this monitoring, it is especially important that the two agencies work together to coordinate this effort and conduct the monitoring as efficiently as possible. For example, TSA’s surface transportation security inspectors currently monitor transit agencies through the BASE reviews and could monitor grant implementation concurrently with those reviews. DHS stated that it concurred with our fourth recommendation that TSA and FEMA develop an interim solution to systematically collect data and track grant activities until FEMA’s grants management system can perform these functions, and ensure that both agencies have access to these data. DHS also stated that TSA and FEMA will identify appropriate channels for data collection and tracking as well as information sharing so that both agencies have access to all appropriate information to ensure accurate and consistent record keeping. In addition, DHS reported that it has taken action to modify FEMA tracking logs and project spreadsheets to collect additional information to track projects to improve its collection and tracking of grant information. However, given that FEMA does not know when the grants management system will be able to systematically collect data and track grant activities, it is critical that FEMA develop and implement this interim solution to collect and track key grant information as quickly and accurately as possible. With regard to our fifth recommendation that TSA and FEMA collaborate to develop a plan and milestones for measuring the effectiveness of the TSGP and its administration, DHS stated that it concurred with the recommendation. DHS reported that a collaborative written plan with established goals and milestones will be designed and implemented as part of the MOU or other formal agreement between TSA and FEMA. DHS concurred with our sixth recommendation that FEMA establish a time frame for revising environmental regulations that consider nondisaster homeland security grant programs. However, in its comments on this recommendation, DHS stated that FEMA’s environmental regulations apply to nondisaster grants. We did not intend to suggest that the regulations did not currently apply to nondisaster grants. Rather, we are recommending that FEMA establish a time frame for completing its plans to revise regulations that are currently focused on emergency management program issues to be more inclusive of the types of issues associated with nondisaster grant programs. In response to this comment, and to clarify our point, we revised the recommendation to reflect that the environmental regulations apply to all FEMA grant programs, but that FEMA should establish time frames for revising the regulations to be more inclusive of nondisaster grants. DHS also stated that FEMA is currently working with DHS to update these procedures and is targeting completion of this effort for the end of calendar year 2009. However, DHS noted that these efforts could be extended if delays occur because of additional time needed to complete procedural changes. With regard to our seventh recommendation that FEMA establish and communicate time frames for making funds available to transit agencies once FEMA receives project approvals from TSA, DHS concurred. Specifically, DHS also reported that FEMA will make every reasonable effort to establish and communicate time frames for releasing funds to TSGP grantees once FEMA receives approval of grant projects from TSA. However, DHS noted that the release of funds often depends on the responsiveness of grantees in submitting required documents and thus FEMA would work proactively to obtain required information. DHS also reported that FEMA would release grant funds within 3 to 5 days, if all required EHP and budget information is received from grantees, and appropriate clearances are provided by OEHP and the FEMA financial analyst. However, our recommendation also intended that FEMA establish timeframes for when its internal reviews would be completed once it receives all of the required documents to facilitate a timely distribution of TSGP awards. FEMA’s OEHP already has time frames for completing its EHP review process and a related performance metric to assess its effectiveness in meeting these time frames. Establishing such time frames for its other internal reviews and communicating those to transit agencies could help improve transit agency efforts to implement projects within the designated performance periods of the grant. 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 Homeland Security, the Secretary of Transportation, the Director of the Office of Management and Budget, and interested congressional committees. The 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 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. Key contributors to this report are listed in appendix VIII. The objectives of this report were to determine the extent to which (1) Transit Security Grant Program (TSGP) funds are allocated and awarded based on risk, and grant requirements have changed since 2006; (2) the Department of Homeland Security (DHS) has allocated, awarded, and distributed TSGP grants in accordance with statutory deadlines and leading practices for collaborating agencies; and (3) DHS has evaluated the effectiveness of the TSGP as well as investments made using funds awarded through the TSGP. To determine the extent to which TSGP funds are allocated and awarded based on risk, we analyzed guidance documents outlining best practices for effectively implementing a risk management framework, including the DHS National Infrastructure Protection Plan (NIPP), the Transportation Security Sector Specific Plan (TS-SSP), and GAO’s risk management framework. We obtained the Transportation Security Administration (TSA) and the Federal Emergency Management Agency’s (FEMA) risk analysis model for the TSGP for fiscal years 2007 and 2008. We analyzed the model for these fiscal years to determine the process by which DHS used the model to estimate risk—by incorporating threat, vulnerability, and consequence information—as well as how the model was used to divide regions into Tier I (higher risk) and Tier II (lower risk), and make allocations to tiers and regions and the extent to which these allocations were tied to the region’s or transit agency’s share of risk. We also interviewed officials from TSA and FEMA as well as FEMA’s contractor, Digital Sandbox, to understand what information was included in the model and how the model was managed between the two agencies. We did not evaluate the quality of the information or data included in the model, but instead evaluated the model for how it incorporated the required elements of risk. We determined the reliability of the model by discussing methods of entering and maintaining data with agency officials. On the basis of these discussions, and our review of the processes used to collect the data, we determined that the data were sufficiently reliable for the purposes of this report. To determine the extent to which grant requirements have changed since fiscal year 2006, we analyzed TSA’s grant guidance and grant priorities for fiscal years 2006 through 2009, and attended TSA and FEMA presentations to transit agencies prior to the release of the grant guidance as well as after-action conferences for the fiscal year 2008 grant cycle. Additionally, we interviewed TSA and FEMA officials about the TSGP grant determination process used in fiscal years 2006, 2007, and 2008––including TSA’s scoring methodology for Tier I and II and the national review panel criteria used for Tier II––and about the changes made to the process for fiscal year 2009. We also interviewed 30 mass transit and passenger rail operators that have applied for, received grant funding, or both to gain their perspectives on how the grant requirements have changed since fiscal year 2006 and the impact that these changes have had on the grant process. The agencies we interviewed represent 75 percent of the nation’s total mass transit and passenger rail ridership based on information we obtained from the Federal Transit Administration’s National Transit Database and the American Public Transportation Association. We selected this nonprobability sample of transit agencies based on (1) varying levels of ridership, (2) eligibility to receive TSGP grants, (3) varying levels of risk (Tier I versus Tier II), (4) expert recommendation, and (5) geographic dispersion. Because we selected a non-probability sample of mass transit and passenger rail agencies, the information obtained from these site visits cannot be generalized to all transit agencies nationwide. Table 2 lists the mass transit and passenger rail agencies we included in our interviews. During site visits to mass transit and passenger rail agencies, we interviewed grant managers and transit agency security officials responsible for developing TSGP grant applications. Further, we interviewed state administration agency officials directly involved in the TSGP to determine how the administration of the program worked between the state administration agencies and TSA and FEMA. We discussed the TSGP, either in person or by teleconference, with the SAA’s in Washington, D.C., and the following states: Washington, Illinois, Minnesota, California, Texas, Georgia, Florida, Massachusetts, and New York. To determine the extent to which DHS has allocated, awarded, and distributed TSGP grants in accordance with statutory deadlines and leading practices for collaborating agencies, we reviewed a variety of applicable laws, guidelines, and best practices. To determine DHS’s compliance with statutory deadlines, we analyzed TSGP requirements in the DHS appropriations acts for fiscal years 2007, 2008, and 2009 against DHS’s TSGP actions to release grant guidance and act upon grant applications. Additionally, we interviewed officials from FEMA’s Grants Preparedness Directorate (GPD) and the Office of Environmental and Historical Preservation (OEHP) to determine what actions were being taken to meet the requirements of the National Environmental Policy Act. To determine DHS’s compliance with federal guidance, we compared FEMA controls for the TSGP, including how grant monies are monitored through FEMA’s financial systems and spreadsheets, with criteria in Standards for Internal Controls in the Federal Government. To determine the extent to which DHS followed leading practices for collaborating agencies, we compared plans and procedures in place between TSA and FEMA to manage the program with criteria in our October 2005 report. To determine the status of grant funding since 2006, we reviewed the length of time between grant allocation and grant distribution. This required reviews of extensive grant documentation, including reviewing original grant award dates for fiscal years 2006 through 2008, analyzing grant project approval dates from TSA, reviewing grant adjustment notice (GAN) and release of funds memos from FEMA, as well as grant distribution and drawdown information from FEMA’s financial system and internal spreadsheets. We compared this information against the records of three state administrative agencies for states with large Tier I transit agencies to determine the accuracy of the dates and financial information we gathered and returned to FEMA for explanations when we found discrepancies. We also reviewed grant guidance and grant requirements to determine the performance period during which agencies had to spend grant funding. Additionally, we interviewed TSA grant management officials and FEMA GPD and OEHP officials to gain additional information on how the grant process works at each stage––allocation, award, and distribution. Our analysis also included interviews with officials from the transit agencies listed in table 2 to gain additional information on how grants are allocated and awarded as well as the length of time involved to complete the grant process. To determine the extent to which DHS has evaluated the effectiveness of the TSGP as well as investments made using funds awarded through the TSGP, we reviewed the following documents for guidance on performance measures for infrastructure protection grant programs as well as for any measures related to the TSGP: the National Preparedness Guidelines, the NIPP, the TS-SSP–mass transit modal annex, and the TSGP grant guidance. Additionally, we reviewed the guidance on leading practices for collaborating agencies as well as best practices for project management. To determine whether TSA or FEMA had implemented any measures for the administration of the TSGP, we interviewed TSA grant management officials as well as officials in FEMA’s GPD and OEHP. Finally, to identify the extent to which TSA and FEMA are measuring TSGP investments, we reviewed the Office of Management and Budget’s Program Assessment Rating Tool, which identified baselines and targets for measures for the infrastructure protection grants. We conducted this performance audit from September 2007 to June 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. DHS-approved behavior recognition detection courses Immediate actions for security threats/incidents Employee security threat assessments (e.g., background checks) The TSGP risk model accounts for risk to both intracity rail (subway and commuter rail) and bus systems. The rail and bus scores are combined to determine the total transit risk for the region. Within each mode, the threat index accounts for 20 percent of the total risk score while the vulnerability and consequence indexes account for 80 percent. DHS’s measurement of vulnerability and consequence is mainly a function of the consequences of a successful terrorist attack, represented by a population index, the total number of trips made on a system in a given year, and a national infrastructure index, which focuses on critical assets that if attacked would cause severe losses of life because of their particular vulnerabilities and damage mechanisms. Figure 5 shows the TSGP risk model. Table 3 shows the Tier I regions for 2009, and table 4 shows the Tier II regions for 2009. Bus project types included inventory control improvements, increased perimeter security, training and awareness, emergency response and preparedness, and implementation of technology-driven surveillance. Rail project type included use of passive measures, development and enhancement of improvised explosive devices, mitigation capabilities, and mitigation of high conseuence risks. Same as Rail. Same as Rail. Same as Rail. Projects include interoperable communications, evacuation plans, and antiterrorism security enhancement measures for low-density stations. In addition to the contact named above, Dawn Hoff, Assistant Director; Daniel Klabunde, Analyst-in-Charge; and Martene Bryan, Senior Analyst, managed this assignment. Jason Berman, Charlotte Gamble, and Su Jin Yon made significant contributions to the work. Chuck Bausell and William Chatlos assisted with design, methodology, and data analysis. Linda Miller and Lara Kaskie provided assistance in report preparation, and Tracey King provided legal support.

From fiscal years 2006 through 2008, the Department of Homeland Security (DHS) has allocated about $755 million dollars to transit agencies through its Transit Security Grant Program (TSGP) to protect transit systems and the public from terrorist attacks. GAO was asked to evaluate the extent to which (1) TSGP funds are allocated and awarded based on risk; (2) DHS has allocated, awarded, and distributed TSGP grants in accordance with statutory deadlines and leading practices for collaborating agencies; and (3) DHS has evaluated the effectiveness of the TSGP and its investments. To address these objectives, GAO reviewed the TSGP risk model, fund allocation methodology and program documents, such as TSGP guidance, and interviewed DHS and transit officials, among other steps. DHS has used a risk analysis model to allocate TSGP funding and award grants to higher-risk transit agencies, although transit agency officials have expressed concerns about changes that have occurred since the TSGP's inception, such as revised priorities. The TSGP risk model includes all three elements of risk--threat, vulnerability, and consequence--but can be strengthened by measuring variations in vulnerability. DHS has held vulnerability constant, which limits the model's overall ability to assess risk and more precisely allocate funds. Although the Transportation Security Administration (TSA) allocated about 90 percent of funding to the highest-risk agencies, lower-risk agency awards were based on other factors in addition to risk. In addition, TSA has revised the TSGP's approach, methodology and funding priorities each year since 2006. These changes have raised predictability and flexibility concerns among transit agencies because they make engaging in long-term planning difficult. DHS met the statutory timeline requirements for allocating and awarding grants, but the two agencies that manage the TSGP--TSA and Federal Emergency Management Agency (FEMA)--lack defined roles and responsibilities, and only 3 percent of the funds awarded for fiscal years 2006 through 2008 have been spent as of February 2009. There is no documentation articulating the roles and responsibilities of the agencies, and grant information has not been passed between the two agencies which affected TSA's ability to share grant status information with transit agencies. DHS met statutory deadlines for releasing grant guidance and acting upon applications, but management and resource issues have resulted in delays in approving projects and making funds available, including (1) lengthy project negotiations between transit agencies and TSA; (2) a backlog of required environmental reviews; and (3) a reported lack of personnel to conduct required reviews. As a result, according to FEMA records, as of February 2009, transit agencies have spent about $21 million of the $755 million that has been awarded for fiscal years 2006 through 2008. This spending rate is, in part, caused by agencies receiving authorization to spend grant dollars late in the grant period. Despite concerns over delays, FEMA has not communicated time frames for providing funding. In April 2004, GAO reported that timely grant awards are imperative to provide intended benefits. DHS has reported taking some actions to address delays, including shortening project approval times and hiring staff, but the effectiveness of these efforts is unknown. Although FEMA has taken initial efforts to develop measures to assess the effectiveness of its grant programs, TSA and FEMA lack a plan and related milestones for developing measures specifically for the TSGP, and thus DHS does not have the capability to measure the effectiveness of the program or its investments. Without such a plan, it will be difficult for TSA and FEMA to provide reasonable assurance that measures are being developed to assess the effectiveness of the program as intended. While FEMA is responsible for the financial controls and audits of the TSGP, it does not have a mechanism to systematically collect data and track grant projects throughout the grant process. As a result, FEMA cannot assess whether awards are timely or funds are being used effectively to reduce risk and increase transit system security

You are an expert at summarizing long articles. Proceed to summarize the following text: With over 235,000 employees, including physicians, nurses, counselors, statisticians, computer specialists, architects, and attorneys, VA is the second largest federal department. It carries out its mission through three agency organizations—Veterans Health Administration (VHA), Veterans Benefits Administration (VBA), and National Cemetery Administration— and field facilities throughout the United States. The department provides services and benefits through a nationwide network of 156 hospitals, 877 outpatient clinics, 136 nursing homes, 43 residential rehabilitation treatment programs, 207 readjustment counseling centers, 57 veterans’ benefits regional offices, and 122 national cemeteries. In carrying out its mission, the department depends on IT and telecommunications systems, which process and store sensitive information, including personal information on veterans. Information security is a critical consideration for any organization that depends on information systems and networks to carry out its mission or business. It is especially important for government agencies, where maintaining the public’s trust is essential. The dramatic expansion in computer interconnectivity and the expanding use of mobile devices and storage media are changing the way our government, the nation, and much of the world share information and conduct business. Without proper safeguards, enormous risk exists that systems, mobile devices, and information are exposed to potential data tampering, disruptions in critical operations, fraud, and the inappropriate disclosure of sensitive information. Recognizing the importance of securing federal systems and data, Congress passed the Federal Information Security Management Act (FISMA) in December 2002, which permanently authorized and strengthened the information security program, evaluation, and reporting requirements established by earlier legislation (commonly known as GISRA, the Government Information Security Reform Act). FISMA sets forth a comprehensive framework for ensuring the effectiveness of information security controls over information resources that support federal operations and assets. The act 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. According to FISMA, the head of each agency has responsibility for delegating to the agency chief information officer (CIO) the authority to ensure compliance with the security requirements in the act. To carry out the CIO’s responsibilities in the area, a senior agency official is to be designated chief information security officer (CISO). In June 2002, we reported that VA had not completed actions to strengthen its security management program, ensure compliance with security policies and procedures, and ensure accountability for information security throughout the department. We made four recommendations to VA: (1) complete a comprehensive security management program that included actions related to central security management functions, risk assessments, security policies and procedures, security awareness, and monitoring and evaluating computer controls; (2) develop a process for managing the department’s updated security plan to remediate identified weaknesses; (3) regularly report to the Secretary, or his designee, on progress in implementing VA’s security plan; and (4) ensure consistent use of information security performance standards when appraising the department’s senior executives. Since our report in 2002, VA’s IG has made additional recommendations addressing serious weaknesses within the department’s information security controls. In March 2005, the VA IG reported that the department had not appropriately restricted access to data, ensured that only authorized changes were made to computer programs, ensured that backup and recovery plans were adequate to ensure the continuity of essential operations, and moved the VA Central Office data center to a more appropriate location. The IG made a number of recommendations to the department to secure patient information and data over VA networks, improve application and operating system change controls, test continuity of operations plans at national data centers, and complete the move of the VA Central Office data center. In its annual FISMA report for fiscal year 2005, issued in September 2006, the IG carried forward all the recommendations from its prior years’ FISMA audits. It made recommendations in 17 areas to address all FISMA related findings for the fiscal year. On May 3, 2006, the home of a VA employee was burglarized, resulting in the theft of a personally owned laptop computer and external hard drive that contained personal information on approximately 26.5 million veterans and U.S. military personnel. The external hard drive was not encrypted or password protected. The Secretary of VA was notified of the theft on May 16, 2006, and Congress and veterans were notified on May 22, 2006. Notification letters were sent to all veterans, and VA announced that free credit monitoring services would be offered. A number of congressional hearings were held and bills introduced related to the protection of veterans’ privacy and identity. During this time period, many veteran service organizations expressed concerns to Congress as to whether VA was capable of safeguarding the personal information of veterans. These organizations also expressed doubt over whether the department’s attempts to correct the weaknesses would be effective. The stolen computer equipment was recovered on June 28, 2006, and forensic testing by the Federal Bureau of Investigation determined that the sensitive data files had not been accessed or compromised. After the equipment was recovered, the Office of Management and Budget (OMB) withdrew its request to Congress for funding for the free credit monitoring services because it had concluded that credit monitoring services were no longer necessary due to the results of the FBI’s analysis. Veterans’ organizations indicated that the department should continue to offer credit monitoring services in order to allay veterans’ worries regarding the potential of identity theft. As a result of the theft, the VA IG issued a report in July 2006 on the investigation of the incident and made five recommendations to improve VA’s policies and procedures for securing sensitive information and conducting security awareness training. Recognizing the concerns of veterans, in December 2006, Congress passed the Veterans Benefits, Health Care, and Information Technology Act of 2006. Under the act, the VA’s CIO is responsible for establishing, maintaining, and monitoring departmentwide information security policies, procedures, control techniques, training, and inspection requirements as elements of the departmental information security program. The act also includes provisions to further protect veterans and service members from the misuse of their sensitive personal information. In the event of a security incident involving personal information, VA is required to conduct a risk analysis, and on the basis of the potential for compromise of personal information, the department may provide security incident notifications, fraud alerts, credit monitoring services, and identity theft insurance. Congress is to be informed regarding security incidents involving the loss of personal information. On January 22, 2007, a security incident at a research facility in Birmingham, Alabama, highlighted other potential risks associated with the loss of information. The incident involved the loss of information on 1.3 million medical providers from the Centers for Medicare & Medicaid Services of the Department of Health and Human Services, as well as information on 535,000 individuals. In its report on the Birmingham incident, the VA IG noted that the information compromised in the incident could potentially be used to compromise the identity of physicians and other health care providers and commit Medicare billing fraud. VA took action to respond to the loss of provider information by requesting the Department of Health and Human Services to conduct an independent risk analysis on the provider data loss. The risk analysis concluded that there was a high risk that the loss of personal information could result in harm to the individuals concerned, and the Centers for Medicare & Medicaid Services sent a letter to VA on March 28, 2007, requesting that credit monitoring services be offered to providers. The department mailed notification letters to providers starting on April 17, 2007, and offered credit monitoring services. In addition, the Centers for Medicare & Medicaid Services indicated that VA might need to take additional measures to mitigate any risk of further harm, but it did not specify what such action might be or specifically mention Medicare fraud. Although VA has made progress, it has not yet fully or effectively implemented two of four GAO recommendations and has not fully implemented 20 of 22 IG recommendations to strengthen its information security practices. Because these recommendations have not yet been implemented, unnecessary risk exists that personal information of veterans and others would be exposed to data tampering, fraud, and inappropriate disclosure. VA has implemented two of our recommendations. However, it has not fully implemented two other GAO recommendations. In response to our recommendation that it regularly report on progress in updating its security plan to the Secretary, the department CIO took immediate steps in 2002 to begin briefing the Secretary and Deputy Secretary on a regular basis. Regarding our recommendation that it develop a process for managing its remedial action plan, VA issued, in May 2006, its IT Directive 06-1, which established the Data Security-Assessment and Strengthening of Controls Program to remedy weaknesses in managing its action plan. It also hired a contractor to develop Web-based tools to assist department officials in managing and updating the plan on a biweekly basis. However, it has not fully implemented our remaining two recommendations. First, although it has taken action, VA has not yet fully implemented our recommendation to complete a comprehensive security management program, including actions related to central management functions, security policies and procedures, risk assessments, security awareness, and monitoring and evaluating computer controls. In August 2006, VA issued Directive 6500, which documented a framework for the department’s security management program and set forth roles and responsibilities for the Secretary, CIO, and CISO to ensure compliance with FISMA requirements. VA also developed, documented, and implemented security policies and procedures for certain central management functions and security awareness training. In addition, it implemented a process for tracking the status of security weaknesses and analyzing the results of computer security reviews using software tools the department had developed. As part of implementing the department’s security directive (Directive 6500), VA planned to issue Handbook 6500 to provide guidance for developing, documenting, and implementing the elements of the information security program. However, it has not finalized and approved this handbook, which has been in draft form since March 2005. The handbook contains the VA National Rules of Behavior, as well as key guidance for minimum mandatory security controls, performing risk assessments, updating security plans, and planning for continuity of operations. This guidance is to be used as VA undertakes these activities as part of its preparation for completing the recertification and re- accreditation of its systems by August 2008 and to comply with provisions of the Veterans Benefits, Health Care, and Information Technology Act of 2006. VA officials indicated the handbook was close to completion, but they did not provide an estimated time frame for completion. Until the handbook is finalized and approved, VA cannot be assured that department staff are consistently coordinating security functions that are critical to safeguarding its assets and sensitive information against potential data tampering, disruptions in critical operations, fraud, and the inappropriate disclosure of sensitive information. Second, VA has not fully implemented our recommendation to ensure consistent use of information security performance standards in appraising the department’s senior executives. In September 2006, VA issued a memorandum that required all senior executive performance plans, which include performance elements and expectations, to include information security as an evaluation element by November 30, 2006. According to VA, senior executive performance plans were reviewed by human resource officials, and the plans complied with the memorandum. However, VA was unable to provide documentation on the performance plan reviews or a documented process for regular review of the plans. As a result, it is unknown whether the department can appropriately hold management accountable for information security. Until VA develops, documents, and implements a process for reviewing the senior executive performance plans on a regular basis to ensure that information security is included as an evaluation element, it may not have the appropriate management accountability for information security. Although VA has implemented 2 recommendations made by the IG, it has not yet fully implemented 20 other IG recommendations. For example, in response to the IG’s recommendation that the department complete actions to relocate and consolidate the Central Office’s data center, it moved servers and network hardware to other VA locations. Regarding the recommendation to research the benefits and costs of deploying intrusion prevention systems at all sites, the department began installing intrusion prevention systems at all sites. However, the department has not completed critical management activities to implement 15 of the 17 recommendations made by the IG in September 2006, which were carried forward from its March 2005 report, to appropriately restrict access to data, networks, and VA facilities; ensure that only authorized changes and updates to computer programs are made; strengthen critical infrastructure planning to ensure information security requirements are addressed; and ensure that background investigations are conducted on all applicable employees and contractors. To begin addressing these recommendations, VA has drafted policies and procedures, implemented certain technical solutions, and relocated data center servers to new locations at VA facilities. However, according to the department’s action plan to remediate weaknesses, all actions to resolve IG recommendations will not be completed until 2009. A detailed description of the actions VA has taken or plans to take to address the IG’s 17 recommendations can be found in appendix II. VA has also made some progress in addressing the five recommendations from the IG’s July 2006 report on the investigation of the May laptop theft incident. However, it has not fully implemented corrective actions. To begin addressing these recommendations, VA has drafted policies and procedures and updated its Cyber Security Awareness training course. However, VA is still in the process of finalizing standard contracting language to ensure that contractor personnel are held to the same standards as department personnel; it is also still standardizing all IT position descriptions and ensuring that they are evaluated, have proper sensitivity level descriptions, and are consistent throughout the department. Until these actions are complete, VA has limited assurance that it has the proper safeguards in place to adequately protect its sensitive information from inadvertent or deliberate misuse, loss, or improper disclosure. The need to fully implement GAO and IG recommendations to strengthen information security practices is underscored by the prevalence of security incidents involving the unauthorized disclosure, misuse, or loss of personal information of veterans and other individuals, such as medical providers. Between December 2003 and April 2006, VA had at least 700 reported security incidents involving the loss of personal information. For example, one incident in 2003 involved the theft of a laptop containing personal information on 100 veterans from the home of a VA employee. In 2004, personal computers that contained data on 2,000 patients were stolen from a locked office in a research facility. In 2005, information on 897 providers was inappropriately disclosed over VA’s e-mail system. In addition, in 2006, employee medical records were inappropriately accessed by a VA staff member, and a hacker compromised a computer system at a medical center supporting 79,000 veterans. All these incidents were partially attributable to weaknesses in internal controls. More recently, additional incidents have occurred that, like the earlier incidents, were partially due to weaknesses in the department’s security controls. In these incidents, which include the May 2006 theft of computer equipment from an employee’s home (discussed earlier) and the theft of equipment from department facilities, millions of people had their personal information compromised. Appendix III provides details on a selection of incidents that occurred between December 2003 and January 2007. Although VA has made some progress in implementing GAO and IG recommendations to resolve these weaknesses in security controls, all actions to resolve these recommendations are not planned to be implemented until 2009. As a result, VA will be at increased risk that systems, mobile devices, and information may be exposed to potential data tampering, disruptions in critical operations, fraud, and the inappropriate disclosure of sensitive information. VA has begun or continued several major initiatives since the May 2006 security incident to strengthen information security practices and secure personal information within the department, but more remains to be done. Since October 2005, VA has been reorganizing its management structure to provide better oversight and fiscal discipline over its IT systems, and it has undertaken a series of new initiatives. However, shortcomings with the implementation of these initiatives limit their effectiveness. For example, although VA has developed a remedial action plan that includes tasks to develop, document, revise, or update a policy or program, 87 percent of these do not have an established time frame for implementation across the department. Unless such shortcomings are addressed, these initiatives may not effectively strengthen information security practices at the department. An effective IT management structure is the starting point for coordinating and communicating the continuous cycle of information security activities necessary to address current risks on an ongoing basis while providing guidance and oversight for the security of the entity as a whole. Under FISMA and the Veterans Benefits, Health Care, and Information Technology Act of 2006, the CIO ensures compliance with requirements of these laws and designates a senior agency information security officer or CISO to assist in carrying out his responsibilities. One mechanism organizations can adopt to achieve effective coordination and communication is to establish a central security management office or group to coordinate departmentwide security-related activities. To ensure that information security activities are effective across an organization, an IT management structure should also include clearly defined roles and responsibilities for all security staff and coordination of responsibilities among individual staff. The department officially began its effort to provide the CIO with greater authority over IT in October 2005 by realigning its management organization to a centralized management structure. By July 2006, a department contractor began work to assist with the realignment effort. According to VA, its goals in moving to a centralized management structure were to provide the department better oversight over the standardization, compatibility, and interoperability of IT systems, as well as better overall fiscal discipline. The Secretary approved the department’s new IT organization structure in February 2007. The new structure includes an Assistant Secretary for Information and Technology (who serves as VA’s CIO), the CIO’s Principal Deputy Assistant Secretary, and five Deputy Assistant Secretaries. Five new senior leadership positions within the Office of Information and Technology were created to assist the CIO in overseeing five core IT process areas: cyber security, portfolio management, resource management, systems development, and operations. Completion of the realignment is scheduled for July 2008. Under the new IT management structure, responsibility for information security functions within the department is divided between two core process areas: First, the Director of the Cyber Security Office (part of the Information Protection and Risk Management process area) has responsibility for developing and maintaining a departmentwide security program; overseeing and coordinating security efforts across the organization; and managing the development and implementation of department security policy, standards, guidelines, and procedures to ensure ongoing maintenance of security. The Director of Cyber Security is also the designated CISO for the department. Second, the Director of the Field Operations and Security Office (part of the Enterprise Operations and Infrastructure process area) is responsible for implementing security and privacy policies, validating compliance with certification and accreditation requirements, and managing facility information security officers. In brief, the CISO/Director of Cyber Security is thus responsible for managing the departmentwide security program, but the Director of the Field Operations and Security is responsible for implementing it. Figure 1 shows these two offices within the new management structure. Although VA has made significant progress in the realignment of its IT management structure, no documented process yet exists for the two responsible offices to coordinate with each other in managing and implementing a departmentwide security program. VA officials indicated that the Director of Cyber Security and the Director of Field Operations and Security are communicating about the implementation of security policies and procedures within the department. However, this communication is not defined as a role or responsibility for either position in the new management organization book, nor is there a documented process in place to coordinate the management and implementation of the security program, both of which are key security management practices. As a result, policies or procedures could be inconsistently implemented throughout the department. Without a consistently implemented departmentwide security program, the CISO cannot effectively ensure departmentwide compliance with FISMA. Until the process and responsibilities for coordinating the management and implementation of IT security policies and procedures throughout the department are clearly documented, VA will have limited assurance that the management and implementation of security policies and procedures are effectively coordinated and communicated. In addition, the CISO position is currently unfilled, hindering VA’s ability to strengthen information security practices and coordinate security- related activities within the department. The CISO position has been vacant since June 2006, and currently, the CIO is the acting CISO of the department. The department has been attempting to fill the position of the CISO since October 2006. In addition, the department began trying to hire staff for other senior positions in March 2007. VA officials have indicated that the process and procedures they are required to undertake to hire staff for the positions is quite extensive and takes time to complete. Nevertheless, until the position of the CISO is filled, the department’s ability to strengthen information security will continue to be hindered. Furthermore, the department’s directive on its information security program has not been updated to reflect the new IT realignment structure for the position of the CISO. Under Directive 6500, the Associate Deputy Assistant Secretary for Cyber and Information Security is the senior information security officer or CISO. However, under the new realignment structure, there is no Associate Deputy Assistant Secretary for Cyber and Information Security, and instead the Director of Cyber Security is the CISO. VA officials have said that they intend to revise the directive to reflect the new management structure, but they did not provide an estimated time frame for completion. If roles and responsibilities are not updated or consistent in VA’s policies and directives, then communication and coordination of responsibilities among the department’s security staff may not be sufficient. Action plans to remediate identified weaknesses help departments to identify, assess, prioritize, and monitor progress in correcting security weaknesses that are found in information systems. According to OMB’s revised Circular A-123, Management’s Responsibility for Internal Control, departments should take timely and effective action to correct deficiencies that they have identified through a variety of information sources. To accomplish this, remedial action plans should be developed for each deficiency, and progress should be tracked for each. Following the May 2006 security incident, VA officials began working on an action plan to strengthen information security controls at the department. Referred to as the Data Security-Assessment and Strengthening of Controls Program, the plan was developed over a period of several months, and work has been completed on some tasks. By the end of January 2007, 20 percent of the items in the action plan had been completed, and task owners had been assigned for all items in the plan. As of June 1, 2007, the plan had at least 400 items to improve security and address weaknesses that the IG has identified at the department. On a biweekly basis, the action plan is updated with status updates provided by the task owners (including the percentage of work completed to resolve the item), and a new version of the plan is created. The CIO receives a briefing on each new version of the action plan. Once the new version is approved by the CIO, the plan is made available to task owners and other officials at the department. The CIO has also briefed other senior department officials on the plan and action items. Although VA’s action plan has task owners assigned and is updated biweekly, department officials have not ensured that adequate progress has been made to resolve items in the plan. First, in more than a third of cases, VA has not completed action items by their expected completion date. Specifically, VA has extended the completion date at least once for 38 percent of the plan items, and it has extended the completion date multiple times for 6 percent of the items in the plan. The average extension was about 5 months. In addition, 28 percent of action items that remained open as of June 1, 2007, had already exceeded the scheduled completion date, and over half of the work remained to be completed for a majority of those items. These extensions and missed deadlines can be attributed in part to VA’s not developing, documenting, and implementing procedures to ensure that action items were addressed in an effective and timely manner. If weaknesses are not successfully corrected in a timely manner, VA will continue to lack effective security controls to safeguard its assets and sensitive information. Second, a large portion of VA’s approach to correcting identified weaknesses has been focused on establishing policies and procedures: 39 percent of the items in the action plan are to develop and document or revise and update a policy, a program, or criteria. However, VA has not established action items for implementing these new or changed policies and procedures across the department. For 87 percent of action items related to policies and procedures, the action plan included no corresponding task with an established time frame for departmentwide implementation. Developing and documenting policies and procedures are just the first two steps in remediating identified weaknesses. If there are no implementation tasks with time frames, VA cannot monitor and ensure successful implementation. Until VA establishes tasks with time frames to implement policies and procedures in the plan, it will not be able to successfully manage its planned actions to correct identified weaknesses. Third, VA does not have a process in place to validate the closure of action plan items, that is, to ensure both that task owners have completed the activities required to sufficiently address action items and also that there is adequate documentation of these activities. During our review, we noted the closure of approximately 80 action items that included activities such as developing a policy or procedure, creating a schedule, deploying security tools, or updating software. However, according to the department official responsible for managing the plan, upon review of these completed items, VA found a number of them lacked support for closing the item (such as documentation). This official indicated that VA was developing a process to provide validation of closed action plan items, but no supporting documentation on the development of this validation process had been provided. Until VA develops, documents, and implements a process to validate the closure of action plan items, it will not be assured that closed action items have been sufficiently addressed. Fourth, VA’s action plan does not identify the activities it is taking to address our recommendations. In November 2006, the VA official in charge of managing the plan indicated that although the department had not previously identified activities being taken to address our recommendations, it would begin to do so. However, as of June 2007, these activities had not been identified and tracked in the action plan. As a result, VA may not be able to adequately monitor its progress in implementing our recommendations to resolve identified weaknesses. Until VA identifies the activities it is taking in its action plan to address our recommendations, it will have limited assurance that progress in implementing those activities is being adequately monitored. VA has developed its Information Protection Program, which is a phased approach to ensuring that the department has the appropriate software tools to assist in ensuring the confidentiality, availability, and integrity of information. During the first phase, VA installed encryption software on laptops across the department, a task completed in September 2006. In the second phase, the department is undertaking several other information protection initiatives, including improving the security of network transmissions and the protection of removable storage devices, such as the encryption of thumb drives. These initiatives are all currently being developed and documented. One mechanism to enforce the confidentiality and integrity of critical and sensitive information is the use of encryption. Encryption transforms plain text into cipher text using a special value known as a key and a mathematical process known as an algorithm. According to VA Directive 6504, issued in June 2006, approved encryption software must be installed if an employee uses VA government-furnished equipment or other non-VA equipment in a mobile environment, such as a laptop or PDA carried out of a department office or a personal computer in an alternative worksite, and the equipment stores personal information. The encryption software used must meet Federal Information Processing Standard 140. According to department officials, by September 2006, the department had successfully encrypted over 18,000 laptops. The laptops were encrypted through a combination of two software encryption products, both of which have been certified as complying with the provisions of Federal Information Processing Standard 140. Simultaneously, VA developed and implemented routine laptop “health checks.” These checks ensure that all laptops have applied updated security policies, such as antivirus software, and will also remove any sensitive information that is not authorized to be stored on the laptop. Based on the results of our testing, VA consistently implemented encryption software at eight VA facilities, with minor exceptions. At six of the eight facilities, all laptops were encrypted in accordance with the directive. At the other two facilities, both medical centers, the directive was not implemented in a small number of cases. At one medical center, of the 58 laptops tested, 3 should have been encrypted according to VA’s policy but were not. At another medical center, of the 41 laptops tested, 1 laptop was not encrypted that should have been. In some of these cases, VHA medical center officials noted that the reference in the directive to operation in a mobile environment led to ambiguity about which laptops were required to be encrypted. Although our testing showed sound consistency in this encryption effort, this and another source of ambiguity in the directive could affect the department’s success in implementing other planned encryption initiatives. Specifically, Directive 6504 did not provide explicit guidance on whether to encrypt laptops that were categorized as medical devices, which make up a significant portion of the population of laptops at VHA facilities. At facilities for patient care, laptops could be categorized both as equipment that operated in a mobile environment (and thus subject to VA’s encryption directive) and as medical devices (and thus subject to compliance with other federal guidance that may interfere with following the encryption directive). At the two medical centers we visited, which each have over 300 laptops, most laptops were considered medical devices. When VHA officials contacted the help desk for the encryption initiative, they were told that these laptops did not need encryption software installed. However, Directive 6504 had not made this clear, increasing the challenge to VHA facilities in implementing the encryption initiative. Without guidance that takes into consideration the environment in which laptops are used in different VA facilities and that clearly identifies devices that require encryption functionality, VA may not have assurance that all facilities in the department will be able to consistently implement encryption initiatives for all appropriate devices. Finally, the department did not maintain an accurate inventory of all laptops that had been encrypted, nor did it have an inventory of all laptops within the department. Each VA facility was responsible for maintaining an inventory of laptops, including what laptops had been encrypted, but the laptop inventories at four of the eight facilities we visited were inaccurate. For example, eight laptops listed in the inventories were not laptops, but scanners, personal computers or other devices. In some cases, the inventory listed a laptop as encrypted, but testing revealed that the machine was not encrypted. (The weaknesses identified with the inventories of laptops are similar to weaknesses identified in a report we recently issued, which noted significant IT inventory control weaknesses at VA). Because it did not maintain an accurate inventory of all equipment that has encryption installed, VA may not have adequate assurance that all equipment required to be encrypted has been. As part of its phased approach to acquiring appropriate software tools, the department is undertaking several information protection initiatives. For instance, the department is working to secure network transmissions to prevent user identification, passwords, and data from being transmitted in clear text. To provide port security and device control, VA is establishing access permission lists, audit and reporting capabilities, and lists of approved devices. For the protection of removable storage media, VA developed and documented Directive 6601, which provides guidance for use of removable devices, and it is in the process of acquiring encryption software for thumb drives, external hard drives, and CD-ROM and DVD drives. VA is also acquiring encryption for mobile devices such as Blackberries. In addition, the department is establishing a public key infrastructure and Internet gateway for secure e-mail transmission and document exchange. These initiatives are in varying stages of development and have not yet been implemented. Even strong controls may not block all intrusions and misuse, but organizations can reduce the risks associated with such events if they take prompt steps to detect and respond to them before significant damage can be done. In addition, analyses of security incidents can pinpoint vulnerabilities that need to be eliminated, provide valuable input for risk assessments, help in prioritizing security improvement efforts, and be used to illustrate risks and related trends for senior management. FISMA requires that agencies develop procedures for detecting, reporting, and responding to security incidents. In addition, OMB Memo M-06-19 requires agencies to report all incidents involving personal identifiable information to the U.S. Computer Emergency Readiness Team (US-CERT) within 1 hour of discovering the incident. VA has improved its incident management capability since May 2006 by realigning and consolidating two centers with responsibilities for incident management, as well as developing and documenting key policies and procedures. Following the May 2006 security incident, VA hired a contractor to assist its Network Operations Center and Security Operations Center in developing plans for improved coordination between the two centers and for using a risk management approach to managing incidents. As part of its findings, the contractor recommended that the two centers be integrated at the regional and enterprise level. In February 2007, VA realigned and consolidated the two centers into the Network and Security Operations Center (NSOC), which is responsible for incident detection or identification, response, and reporting within the department. NSOC has also developed and documented a concept of operations for incident management and call center procedures, and it has developed a new incident report template to assist VA personnel in reporting incidents to the center within 1 hour of discovering the incident. Senior management officials also receive regular reports on security incidents within the department. In addition, VA has improved the reporting of incidents involving the loss of personal information within the department since the May 2006 incident. Following the incident, the Secretary issued a memorandum requiring all employees to take security and privacy training by June 30, 2006, as well as sign a statement of commitment and understanding regarding the handling of personal information of veterans. An analysis of reported incidents from 2003 to 2006 showed a significant increase in the reporting of incidents involving the loss of personal information to NSOC in 2006, as detailed in table 1. Of the incidents reported in 2006, 77 percent were reported after May. While the increase in reported incidents shows that the memorandum and updated security and privacy training are heightening VA employees’ awareness of their responsibility to report incidents involving loss of personal information, it also indicates that vulnerabilities remain in security controls designed to adequately safeguard information. To assist the department in improving its analysis of security incident data, NSOC merged three incident databases into one to streamline the collection of incident data gathered within the department. VA also developed a software tool with a Web-based interface (the Formal Event Review and Evaluation Tool) to analyze reported incidents and observe trends, and began using the tool in April 2007. The department has made a notable improvement in its notification of major security incidents to US-CERT, the Secretary, and Congress since the incidents in May 2006. However, the time it took to send notification letters to individuals was increased for some incidents because VA did not have adequate procedures for incident response and notification. Table 2 presents major security incidents occurring since May 2006, along with the times taken to make various notifications. As the table shows, delays in reporting incidents have generally decreased since May 2006. Coordination with other agencies. In the incident in Birmingham in January 2007, medical provider and physician information from the Centers for Medicare & Medicaid Services of the Department of Health and Human Services was lost, requiring VA to coordinate with this department to respond to the incident. At the time of the incident, VA had drafted interim procedures for incident response, including notifying individuals affected by security incidents. These draft procedures described steps to be taken to respond to incidents involving the loss of information on veterans. However, they did not include processes for coordinating incident response and mitigation activities with other agencies. This contributed to the fact that it took more time to determine the risks to medical providers, who were not notified until 85 days after the incident. To address the coordination issue, VA revised its interim procedures to indicate that incident response teams will work with other federal agencies and teams as needed to contract for independent analyses of the risk associated with compromise of the particular data involved. In March 2007, VA approved these revised interim procedures. However, the approved procedures are limited to contracting for risk analyses and do not incorporate processes for coordinating with other federal agencies on other appropriate mitigation activities. For example, although the procedures allow for the offer of credit monitoring to affected individuals, they do not address mitigating other types of risks, such as potential fraudulent claims for payment under Medicare, which were a potential risk for the Birmingham incident. Credit monitoring would not address this risk. Other coordination and mitigation activities may be needed, such as alerting the Centers for Medicare & Medicaid Services to the possibility of fraudulent claims involving specific providers to adequately address this potential risk or other risks, different from those experienced to date. Obtaining up-to-date contact information. VA’s procedures for incident response and notification do not include mechanisms for obtaining contact information on individuals (when necessary), which can also cause delays in sending out notification letters to individuals. A VA official noted that notification letters to individuals could be delayed, depending on whether the department could locate complete address information for the affected individuals and on the number of letters that must be sent. Such delays occurred in the case of the missing backup tape in May 2006 (when 159 days passed before notification letters were sent). The data and number of records that were on the backup tape were not immediately known, and the address information of veterans whose data were compromised in the incident had to be researched. Our recent report noted that agencies faced challenges in identifying address information for individuals affected by security incidents and that mechanisms should be in place to obtain contact information on individuals. However, VA’s draft and approved interim procedures do not include a mechanism for obtaining such contact information. As a result, the department’s response to incidents could be delayed when the compromised data do not include complete and accurate contact information (or there is uncertainty about the data). Risk analysis. As mentioned earlier, VA asked the Department of Health and Human Services to conduct an independent risk analysis on the provider data loss in the January 2007 incident in Birmingham; this analysis showed that there was a high risk that the loss of personal information could result in harm to the individuals concerned. Conducting such risk analyses after incidents is a recommended procedure, since appropriate incident response and notification depend on determining the level of risk associated with the particular information that is compromised. In addition, conducting periodic risk assessments before an incident occurs facilitates a rapid response, by enabling the development of mitigation activities and appropriate coordination for potential data losses. Assessments of both systems and the information they contain are important, particularly information with a high potential risk for inappropriate use or fraud. However, VA is still in the process of finalizing and approving its guidance for completing risk assessments on VA’s systems. As a result, the department does not have a current assessment of risk for the information located at its facilities and in its information systems, which could affect the coordination and mitigation activities that are developed by the department to respond to potential data losses. Until VA assesses the risk for information located at its facilities and in its information systems and uses this assessment to develop and document mitigation activities and appropriate coordination for potential data losses (particularly high-risk losses), it may not be able to adequately address potential risks associated with loss of sensitive information at its facilities and on its systems. Additional VA actions. VA has taken additional actions to improve incident response and notification. In February 2007, VA chartered the Incident Resolution Team Structure, a group of officials from organizations within the department who are responsible for responding to incidents and handling notification requirements at the national, regional, and local levels. This action was in response to an OMB memorandum issued in September 2006, which recommended that all departments and agencies develop a core management group responsible for incident response to losses of personal information, as well as a response plan for notifying individuals affected by security incidents. Roles and responsibilities within the Incident Resolution Team Structure are organized according to the level of activity, the nature of the incident, and how the incident is categorized based on risk levels. VA also uses the Formal Event Review and Evaluation Tool to determine what the risk category of a security incident should be, based on the severity of the incident. VA has also recently developed, with contractor assistance, interim regulations for security incident notification, data mining, fraud alerts, data breach analysis (that is, risk analysis of security incidents), credit monitoring, identity theft insurance, and credit protection services, as required under the Veterans Benefits, Health Care, and Information Technology Act of 2006. These interim regulations were approved by OMB and became effective on June 22, 2007. According to Standards for Internal Control in the Federal Government, internal controls at agencies should generally be designed to ensure that ongoing monitoring occurs in the course of normal operations. The methodology for evaluating an agency’s internal controls should be logical and appropriate and may include assessments using checklists or other tools, as well as a review of the control design and direct testing of the internal control. The evaluation team should develop a plan for the evaluation process to ensure a coordinated effort, analyze the results of evaluation against established criteria, and ensure that the process is properly documented. The agency should also ensure that corrective action is taken within established time frames and is followed up on to verify implementation. In an effort to promote internal controls within VA’s computer environment, VA has consolidated a number of IT compliance programs under one organization, the Office of IT Oversight and Compliance (ITOC). This office was established in January 2007. Previously, the Review and Inspection Division was responsible for conducting facility assessments and validating information entered into a database in response to VA’s annual FISMA self-assessment survey. The division was incorporated into the ITOC, which is now responsible for providing independent, objective, and quality oversight and compliance services in the areas of cyber security, records management, and privacy. It is also responsible for conducting assessments of VA’s facilities that (1) determine the adequacy of internal controls; (2) investigate compliance with laws, policies, and directives from VA and external organizations; and (3) ensure that proper safeguards are maintained. The results of these assessments are reported directly to the CIO and responsible supervisors at the facilities. The ITOC recommends corrective actions to remediate identified issues where necessary and also makes available a remediation team to assist the facility in addressing any recommendations. In January 2007, the ITOC began conducting assessments at facilities and by June 2007 had conducted 34 assessments. According to the Director of the ITOC, it recently became fully staffed with 127 personnel and will begin to conduct 12 to 18 assessments per month. VA facilities will be assessed every 3 years. Although the ITOC was formed to identify security weaknesses and ensure compliance with federal law and department policy, its approach to conducting assessments does not include basic elements necessary for evaluating and monitoring controls. For example, although the ITOC developed a checklist to conduct facility assessments, it did not develop a standard methodology for analysts to use when evaluating internal controls against the checklist, or specific criteria for each checklist item. As a result, the office lacks a process to ensure that its examination of internal controls is consistent across VA facilities. In addition, although the Director of the ITOC indicated that the assessment team recommendations to facilities are tracked in a database, no supporting documentation was provided. Further, according to the standards for internal control, organizations should follow up to ensure that corrective active is taken. However, the ITOC follows up to see if recommendations have been implemented only when a site is re-inspected. As a result, the office has no timely mechanism in place to ensure that its recommendations have been addressed. Until there are a standard methodology and established criteria for evaluating internal controls at facilities, as well as a mechanism in place to track recommendations and conduct regular follow-up on their status, VA will have limited assurance that its process for assessing its statutory and regulatory compliance and the effectiveness of its internal controls process is adequate and consistent across its facilities. Effective information security controls are critical to securing the information systems and information on which VA depends to carry out its mission. GAO and IG recommendations to address long-standing weaknesses within the department have not yet been fully implemented, nor is the implementation of the IG recommendations expected to be completed in the near future. Consequently, there is an increased risk that personal information of veterans and other individuals, such as medical providers, will be exposed to potential data tampering, disruptions in critical operations, fraud, and the inappropriate disclosure of sensitive information. Until VA addresses recommendations to resolve identified weaknesses, it will have limited assurance that it can adequately protect its systems and information. Although VA has begun or continued several initiatives to strengthen information security practices within the department, the shortcomings with the implementation of these initiatives could limit their effectiveness. If the department develops and documents processes, policies, and procedures; fills a key position and completes the implementation of major initiatives, then it will help ensure that these initiatives strengthen information security practices within the department. Sustained management commitment and oversight are vital to ensure the effective development, implementation, and monitoring of the initiatives that are being undertaken. Such involvement and oversight are critical to providing VA with a solid foundation for resolving long-standing information security weaknesses and continuously managing information security risks. To assist the department in improving its ability to protect its information and systems, we are recommending the Secretary of Veterans Affairs take the following 17 actions: Finalize and approve Handbook 6500 to provide guidance for developing, documenting, and implementing the elements of the information security program. Develop, document, and implement a process for reviewing on a regular basis the performance plans of senior executives to ensure that information security is included as an evaluation element. Develop, document, and implement a process for the Director of Field Operations and Security and Director of Cyber Security to coordinate with each other on the implementation of IT security policies and procedures throughout the department. Document clearly defined responsibilities in the organization book for the Director of Field Operations and Security and the Director of Cyber Security for coordinating the implementation of IT security policies and procedures within the department. Act expeditiously to fill the position of the Chief Information Security Officer. Revise Directive 6500 to reflect the new IT management structure and to ensure that roles and responsibilities are consistent in all VA IT directives. Develop, document, and implement procedures for the action plan to ensure that action items are addressed in an effective and timely manner. Establish tasks with time frames for implementation of policies and procedures in the action plan. Develop, document, and implement a process to validate the closure of action plan items. Include in the action plan the activities taken to address GAO recommendations. Develop, document, and implement clear guidance for identifying devices that require encryption functionality. Maintain an accurate inventory of all IT equipment that has encryption installed. Develop and document procedures that include a mechanism for obtaining contact information on individuals whose information is compromised in security incidents. Conduct an assessment of what constitutes high-risk data for the information located at VA facilities and in information systems. Develop and document a process for appropriate coordination and mitigation activities based on the assessment above. Develop, document, and implement a standard methodology and established criteria for evaluating the internal controls at facilities. Establish a mechanism to track ITOC recommendations made to facilities and conduct regular follow-up on the status of the recommendations. We received written comments on a draft of this report from the Deputy Secretary of Veterans Affairs (these are reprinted in appendix IV). The Deputy Secretary generally agreed with our findings and recommendations and stated that VA has already implemented or is working to implement all 17 recommendations. Additionally, the Deputy Secretary stated that the consolidation of all IT operations and maintenance under VA’s Chief Information Officer will enhance the department’s information security program, as well as correct long- standing deficiencies. In his comments, the Deputy Secretary also noted that the recommendation related to information security as an evaluation element in senior executive performance plans has already been implemented and that the recruitment announcement to fill the position of Chief Information Security Officer closed on July 27, 2007. He further stated that VA’s Directive 6500, issued in August 2006, remains valid. However, as mentioned in our report, Directive 6500 was not updated to reflect the new IT realignment structure that was approved by the Secretary in February 2007 and roles and responsibilities should be consistent in all department policies and directives. The Deputy Secretary also discussed some of the activities that were underway to implement our recommendations. In the draft report that was provided for comment, we indicated that VA had not implemented any of the IG’s 22 recommendations to improve information security. We have since received new information and have updated the report to reflect that VA has now implemented 2 of the 22 IG recommendations. As agreed, 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 are sending copies of this report to interested congressional committees; the Secretary of Veterans Affairs; 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 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 V. Our objectives were to evaluate (1) whether the Department of Veterans Affairs (VA) has effectively addressed GAO and VA Office of Inspector General (IG) recommendations to strengthen its information security practices and (2) actions VA has taken since the May 2006 security incident to strengthen its information security practices and secure personal information. In doing this work, we analyzed relevant documentation including policies, procedures, and plans, and interviewed key department officials in Washington, D.C., to identify and assess VA’s progress in implementing recommendations and federal legislation to strengthen its information security practices. We also drew on previous GAO reports and testimonies, as well as on expert opinion provided in congressional testimony and other sources. We used certain applicable federal laws, other requirements, and guidelines, including Office of Management and Budget (OMB) memorandums, in assessing whether the Department's actions and initiatives can help ensure departmental compliance. For the first objective, we evaluated VA’s actions to address GAO and VA IG recommendations, respectively in our 2002 report and in the IG’s July 2006 and September 2006 reports. To review VA’s history of implementation efforts, we examined GAO reports, testimony from recent congressional hearings made by GAO and IG staff, as well as reports by the VA IG. To determine the implementation status of open GAO recommendations, we analyzed pertinent security policies, procedures, and plans and met with officials from VA to gather information on the department’s actions to address the recommendations. To determine the implementation status of open IG recommendations we met with officials from the VA IG Office of Audit to discuss the status of these recommendations and met with VA officials to learn what actions had been taken or were planned to take to fully address the recommendations. The VA IG concurred with the status information provided. For the second objective, we evaluated VA’s actions to strengthen its information security practices to comply with federal guidance, including recent OMB memorandums. We met with department officials to gather information on what initiatives VA had undertaken or planned to undertake to improve its information security practices. For each initiative, we obtained and analyzed supporting documentation and met with department officials responsible for the implementation of the initiatives to assess the extent to which the department had complied with federal requirements and other guidelines. In addition, we also performed audit procedures to determine the extent to which VA has installed encryption functionality on its laptop computers. Our detailed scope and methodology for the laptop encryption testing are below. Laptop Encryption Testing We examined 248 laptops at eight locations to determine whether encryption software had been installed on a selection of laptops as indicated by VA. We selected the locations to be visited based on (1) the type of facility and (2) number of facilities available to be tested in a geographic area. We identified different facility types in proximity to each other and to GAO offices. Clinics and cemeteries were excluded from the selection because the number of laptops at these locations would be quite small. We also selected a Research Enhancement Award Program location based on an incident in January 2007 involving this type of location. On the basis of the criteria listed above, we selected the following eight facilities: Baltimore Regional Office, Chicago Regional Office, Denver Health Administration Center, Denver Regional Office, Denver Research Enhancement Award Program, Hines Data Center, Hines Medical Center and the Washington, D.C., Medical Center. At each location, we obtained an inventory or population of “in use” laptops. We examined every laptop in the population that was available for review at the Baltimore Regional Office, Chicago Regional Office, Denver Research Enhancement Award Program, and the Hines Data Center because of the relatively small number of laptops in the population. We selected random samples of laptops with the intent of projecting the results to each population at the Denver Health Administration Center, Denver Regional Office, Hines Medical Center, and Washington, D.C., Medical Center. We conducted testing of encryption implementation on laptops at select VA facilities to determine whether the department’s laptops were in compliance with VA Directive 6504 which stated that if a laptop was in a mobile environment and contained sensitive information that it be encrypted using approved software that is validated against National Institute of Standards and Technology standards. We also tested laptops at the two medical facilities to see whether the laptops should be encrypted according to the facility inventory because multiple inventories were received from these locations. In addition, we tested the laptops at the two medical facilities to see whether the laptop was considered a medical device based on the definition of medical devices provided to us by VA. At each location there were a small number of laptops that were unavailable to us to be tested. Department officials cited several reasons for this, including that the laptop had been turned in to be disposed of or discarded according to VA policy, had a hard drive failure, or could not be brought in to the site for testing. In table 3, the “laptops tested” column represents the number of laptops the team was able to test. For all four locations where every laptop in the population was tested, we used the results of our test to determine whether the directive had been consistently implemented. For the Denver Health Administration Center and the Denver Regional Office, our sample results allowed us to estimate with 95 percent confidence that at least 93 percent of the laptops would have consistently implemented the directive. On the basis of these results, we concluded that at these six sites, VA had consistently implemented its directive. For the Hines Medical Center and the Washington, D.C., Medical Center, the results of our tests indicated that VA’s directive had not been consistently implemented for one laptop and three laptops at these facilities respectively. We performed our work at VA headquarters in Washington, D.C., and at the selected VA facilities listed above, in accordance with generally accepted government auditing standards, from November 2006 through August 2007. This appendix includes the actions the Department of Veterans Affairs (VA) has taken or is planning to take to address 17 recommendations related to Federal Information Security Management Act related findings made by the VA Office of Inspector General (IG) as reported to us by the completion of our review in August 2007. The Department of Veterans Affairs (VA) had at least 1500 security incidents reported between December 2003 and January 2007 which included the loss of personal information. Below is additional information on a selection of incidents, including all publicly reported incidents subsequent to May 3, 2006, that were reported to the department during this period and what actions it took to respond to these incidents. These incidents were selected from data obtained from VA to provide illustrative examples of the incidents that occurred at the department during this period. December 9, 2003: stolen hard drive with data on 100 appellants. A VA laptop computer with benefit information on 100 appellants was stolen from the home of an employee working at home. As a result, the agency office was going to recall all laptop computers and have encryption software installed by December 23, 2003. November 24, 2004: unintended disclosure of personal information. A public drive on a VA e-mail system permitted entry to folders/files containing veterans’ personal information (names, Social Security numbers, dates of birth, and in some cases personal health information such as surgery schedules, diagnosis, status, etc.) by all users after computer system changes made. All folders were restricted, and individual services were contacted to set up limited access lists. December 6, 2004: two personal computers containing data on 2,000 patients stolen. Two desktop personal computers were stolen from a locked office in a research office of a medical center. One of the computers had files containing names, Social Security numbers, next of kin, addresses, and phone numbers of approximately 2,000 patients. The computers were password protected by the standard VA password system. The medical center immediately contacted the agency Privacy Officer for guidance. Letters were mailed to all research subjects informing them of the computer theft and potential for identity theft. VA enclosed letters addressed to three major credit agencies and postage paid envelopes. This incident was reported to VA and federal incident offices. March 4, 2005: list of 897 providers’ Social Security numbers sent via e-mail. An individual reported e-mailing a list of 897 providers’ names and Social Security numbers to a new transcription company. This was immediately reported, and the supervisor called the transcription company and spoke with the owner and requested that the file be destroyed immediately. Notification letters were sent out to all 897 providers. Disciplinary action was taken against the employee. October 14, 2005: personal computer containing data on 421 patients stolen. A personal computer that contained information on 421 patients was stolen from a medical center. The information on the computer included patients’ names; the last four digits of their Social Security numbers; and their height, weight, allergies, medications, recent lab results, and diagnoses. The agency’s Privacy Officer and medical center information security officer were notified. The use of credit monitoring was investigated, and it was determined that because the entire Social Security number was not listed, it would not be necessary to use these services at the time. February 2, 2006: inappropriate access of VA staff medical records. A VA staff member accessed several coworkers’ medical records to find date of birth. Employee information was compromised and several records were accessed on more than one occasion. No resolution recorded. April 11, 2006: suspected hacker compromised systems with employee’s assistance. A former VA employee is suspected of hacking into a medical center computer system with the assistance of a current employee providing rotating administrator passwords. All systems in the medical center serving 79,000 veterans were compromised. May 5, 2006: missing backup tape with sensitive information on 7,052 individuals. An office determined it was missing a backup tape containing sensitive information. On June 29, 2006, it was reported that approximately 7,052 veterans were affected by the incident. On October 11, 2006, notification letters were mailed, and 5,000 veterans received credit protection and data breach analysis for 2 years. August 3, 2006: desktop computer with approximately 18,000 patient financial records stolen. A desktop computer was stolen from a secured area at a contractor facility in Virginia that processes financial accounts for VA. The desktop computer was not encrypted. Notification letters were mailed and credit monitoring services offered. September 6, 2006: laptop with patient information on an unknown number of individuals stolen. A laptop attached to a medical device at a VA medical center was stolen. It contained patient information on an unknown number of individuals. Notification letters and credit protection services were offered to 1,575 patients. January 22, 2007: external hard drive with 535,000 individual records and 1.3 million non-VA physician provider records missing or stolen. An external hard drive used to store research data with 535,000 individual records and 1.3 million non-VA physician provider records was discovered missing or stolen from a research facility in Birmingham, Alabama. Notification letters were sent to veterans and providers, and credit monitoring services were offered to those individuals whose records contained personally identifiable information. In addition to the individual named above, key contributions to this report were made by Charles Vrabel (Assistant Director), James Ashley, Mark Canter, Barbara Collier, Mary Hatcher, Valerie Hopkins, Leena Mathew, Jeanne Sung, and Amos Tevelow.

In May 2006, the Department of Veterans Affairs (VA) announced that computer equipment containing personal information on approximately 26.5 million veterans and active duty military personnel had been stolen. Given the importance of information technology (IT) to VA's mission, effective information security controls are critical to maintaining public and veteran confidence in its ability to protect sensitive information. GAO was asked to evaluate (1) whether VA has effectively addressed GAO and VA Office of Inspector General (IG) information security recommendations and (2) actions VA has taken since May 2006 to strengthen its information security practices and secure personal information. To do this, GAO examined security policies and action plans, interviewed pertinent department officials, and conducted testing of encryption software at select VA facilities. Although VA has made progress, it has not yet fully implemented most of the key GAO and IG recommendations to strengthen its information security practices. Specifically, VA has implemented two GAO recommendations: to develop a process for managing its plan to correct identified weaknesses and to regularly report on progress in updating its security plan to the Secretary. However, it has not fully implemented two other GAO recommendations: to complete a comprehensive security management program and to ensure consistent use of information security performance standards for appraising senior VA executives. In addition, the department has not yet fully implemented 20 of 22 recommendations made by the IG in 2006. For example, VA has not completed activities to appropriately restrict access to data, networks, and department facilities; ensure that only authorized changes and updates to computer programs are made; and strengthen critical infrastructure planning. Because these recommendations have not yet been implemented, unnecessary risk exists that the personal information of veterans and others, such as medical providers, will be exposed to data tampering, fraud, and inappropriate disclosure. Since the May 2006 security incident, VA has continued or begun several major initiatives to strengthen its information security practices and secure personal information within the department, but more remains to be done. These initiatives include continuing efforts begun in October 2005 to reorganize its management structure to provide better oversight and fiscal discipline over its IT systems; developing an action plan to correct identified weaknesses; establishing an information protection program; improving its incident management capability; and establishing an office responsible for oversight of IT within the department. However, implementation shortcomings limit the effectiveness of these initiatives. For example, no documented process exists between the Director of Field Operations and Security and the chief information security officer (CISO) to ensure the effective coordination and implementation of security policies and procedures within the department. In addition, the position of the CISO has been unfilled since June 2006. Although, 39 percent of items in the department's remedial action plan are tasks to develop, document, revise, or update a policy or program, 87 percent of these items have no corresponding task with an established time frame for implementation across the department. VA also did not have clear guidance for identifying devices that require encryption functionality, and it lacked adequate procedures for incident response and notification. Finally, VA's Office of IT Oversight and Compliance lacks a standard methodology and established criteria to ensure that its examination of internal controls is consistent across VA facilities. Until the department addresses recommendations to resolve identified weaknesses and implements the major initiatives it has undertaken, it will have limited assurance that it can protect its systems and information from the unauthorized disclosure, misuse, or loss of personal information of veterans and other personnel.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Workforce Investment Act created a new, comprehensive workforce investment system designed to change the way employment and training services are delivered. When WIA was enacted in 1998, it replaced the Job Training Partnership Act (JTPA) with three new programs—Adult, Dislocated Worker, and Youth—that allow for a broader range of services, including job search assistance, assessment, and training for eligible individuals. In addition to establishing three new programs, WIA requires that a number of employment-related services be provided through a one- stop system, designed to make accessing employment and training services easier for job seeker customers. WIA also requires that the one-stop system engage the employer customer by helping employers identify and recruit skilled workers. While WIA allows states and localities flexibility in implementing these requirements, the law emphasizes that the one-stop system should be a customer-focused and comprehensive system that increases the employment, retention, and earnings of participants. The major hallmark of WIA is the consolidation of services through the one-stop center system. About 17 categories of programs, totaling over $15 billion from four separate federal agencies, are required to provide services through the system. (See table 1.) WIA allows flexibility in the way these mandatory partners provide services through the one-stop system, allowing co-location, electronic linkages, or referrals to off-site partner programs. While WIA requires these mandatory partners to participate, WIA did not provide additional funds to operate one-stop systems and support one-stop partnerships. As a result, mandatory partners are expected to share the costs of developing and operating one-stop centers. However, several of the programs have limitations in the way the funds may be used, giving rise to one-stop funding challenges. Beyond the mandatory partners, one-stop centers have the flexibility to include other partners in the one-stop system. Labor suggests that these additional, or optional partners, may help one-stop systems better meet specific state and local workforce development needs. These optional partners may include Temporary Assistance for Needy Families (TANF) or local private organizations, for example. States have the option of mandating particular optional partners to participate in their one-stop systems. For example, in 2001, 28 states had formal agreements between TANF and WIA to involve TANF in the one-stop system. In addition, localities may partner with other programs to meet the specific needs of the community. One-stop centers serve two customers—job seekers and employers (see fig. 2). In serving job seekers, one-stop centers are encouraged to develop strategies to achieve a streamlined set of services. In past reports, we identified key areas critical to successfully integrating services under WIA, such as ensuring that job seekers have ready access to employment and program information, reducing job seekers’ confusion by providing them with a streamlined path from one program to another, providing job seeker services that are tailored and seamless, and helping job seekers identify and obtain needed program services without the burden of completing multiple intake and assessment procedures. One-Stop centers provide job seekers with job search and support services, while the job seekers act as an available labor pool for the one-stops’ employer customers. In serving employers, one-stops have the flexibility under WIA to provide a variety of tailored services, including hiring, assessments and training services that meet the specific needs of each employer. The degree to which the one- stop system engages and provides services to employers is left to the discretion of state and local officials. However, Labor suggests that employer involvement is critical for one-stop officials to better understand what skills are needed, what jobs are available, and what career fields are expanding. In order to demonstrate the effectiveness of the WIA programs, WIA requires that states and localities track performance and Labor holds states accountable for their performance. The measures gauge outcomes in the areas of job placement, employment retention, and earnings change, as well as skill attainment and customer satisfaction. In addition to the WIA programs, most of the 17 employment and training programs have their own performance measures. There are no overall one-stop performance measures. The one-stop centers we visited embraced the customer-focused provisions of WIA by streamlining one-stop services for job seekers. All 14 one-stop centers we visited used at least one of three different strategies to build a streamlined one-stop system—ensuring job seekers could readily access needed services, educating program staff about all of the one-stop services available to job seekers, and consolidating case management and intake procedures (see fig. 3). To ensure that job seekers could readily access needed services, one-stops we visited allocated staff to help job seekers navigate the one-stop system, expanded services for one-stop customers, and provided support to customers with transportation barriers. Ensuring access is designed to minimize confusion for job seekers as they navigate one-stop services. To educate program staff about one-stop services, centers used cross-training sessions in which partners informed one another about the range of services available at the one-stop. Finally, centers sought to reduce the duplication of effort across programs and the burden on job seekers navigating programs by consolidating case management and intake procedures across multiple programs through joint service plans for customers and shared computer networks. Nearly all of the one-stop centers we visited implemented specific strategies to ensure that job seekers had access to needed services. We previously reported that the range of services provided by multiple programs in the one-stop center caused confusion for job seekers. To minimize confusion, nearly all of the sites we visited looked for ways to ensure job seekers would have ready access to program information and a clear path from one program to another within the one-stop system. For example, when one-stop center staff in Killeen, Texas, and Clarksville, Tennessee, referred job seekers to another partner, the staff personally introduced the job seeker to the referred program staff to prevent job seekers from getting lost between programs. Similarly, officials in Erie, Pennsylvania, positioned a staff person at the entrance to the one-stop to help job seekers entering the center find needed services and to assist exiting job seekers if they did not receive the services they sought. (See app. II for more examples from each of the sites we visited.) In addition to improving access to one-stop center services on-site, some of the one-stops we visited found ways to serve job seekers who may have been unable to come into the one-stop center for services. For example, in Boston, Massachusetts, the one-stop placed staff in off-site locations, including family courts, correctional facilities, and welfare offices to give job seekers ready access to employment and program information. Specifically, Boston one-stop staff worked with an offender re-entry program that conducted job fairs inside the county prison to facilitate incarcerated offenders’ transition back into the workplace. One-stops also improved job seeker access to services by expanding partnerships to include optional service providers—those beyond the 17 program partners mandated by WIA. These optional partners ranged from federally funded programs, such as TANF, to community-based organizations providing services tailored to meet the needs of local job seekers. The one-stop in Dayton, Ohio, was particularly proactive in forming optional partnerships to meet job seekers’ service needs. At the time of our visit, the Dayton one-stop had over 30 optional partners on-site, including the Montgomery County Combined Health District, which operated a health clinic on-site; Clothes that Work!, which provides free business attire to low-income women; and an alternative high school. The most common optional partner at the one-stops we visited was the TANF program—which was an on-site partner at 13 of the 14 sites. One-stop managers in Clarksville told us that co-location with the Tennessee Department of Human Services, which administers TANF, benefited all job seekers because the department helped to fund various services, including computer classes, soft skills classes, and parenting classes that could be provided to those not eligible for TANF. Additionally, Killeen, Texas, one- stop staff told us that co-location with TANF helped welfare recipients address barriers to employment by facilitating easier access to other services, such as housing assistance and employment and training programs. Many one-stop centers, such as in Killeen, Texas, and Vineland, New Jersey, ensured access to one-stop services by addressing customers’ transportation challenges. Staff in Killeen partnered with the libraries in rural areas to provide computer access to one-stop resume writing and job search services and an on-line TANF orientation. In Kansas City, Missouri, the one-stop management decided to locate the one-stop center next to the bus company, the Area Transit Authority (ATA). This strategic decision meant that all bus routes passed by the one-stop center, thus ensuring that customers with transportation challenges could access one-stop center services. Additionally, the ATA partnered with the one-stop to create an Urban Employment Network program to assist job seekers with transportation to and from work. The ATA provided bus service 7 days a week from 5:00 in the morning until midnight and set up a van service to operate during off-peak hours. To help ensure that job seekers receive services tailored to meet their needs, nine of the one-stops we visited focused on educating all one-stop staff about the range of services available through the one-stop. In earlier work, we identified challenges for job seekers in receiving the right set of services to meet their needs. One-stop officials at the centers we visited reported that staff who were cross-trained could better assess the particular needs of job seekers, including identifying barriers to getting a job, and were able to provide job seekers with more appropriate referrals. Cross-training activities ranged from conducting monthly educational workshops to offering shadow programs through which staff could become familiar with other programs’ rules and operations. Officials in Salt Lake City, Utah, reported that cross–training improved staff understanding of programs outside their area of expertise and enhanced their ability to make referrals. The Pikeville, Kentucky, one-stop supported cross-training workshops in which one-stop staff from different partner programs educated each other about the range of services they could provide. After learning about the other programs, Pikeville staff collaboratively designed a service delivery flow chart that effectively routed job seekers to the appropriate service providers, providing a clear entry point and a clear path from one program to another. In addition, the Vocational Rehabilitation staff at the Pikeville one-stop told us that cross-training enabled other program staff to more accurately identify hidden disabilities and to better refer disabled customers to the appropriate services. In the one-stop centers we visited, cross-training occurred among the majority of on-site co-located partners as well as between some of the on- site and off-site one-stop programs. One-stop managers in Dayton, Ohio, told us that cross-training staff resulted in increased referrals to service providers that had previously been unknown, such as to smaller programs within the one-stop or to local neighborhood programs that could better meet the specific needs of particular job seekers. Specifically, Dayton managers also reported that cross-training one-stop staff dramatically improved referrals to the Child Support program, thereby enhancing efforts to establish paternity, a requirement for determining eligibility for TANF. To provide streamlined service delivery, 10 of the 14 one-stops we visited consolidated their intake processes or case management systems, reducing the need for job seekers to go through multiple intake processes. This consolidation took many forms, including having case workers from different programs work as a team to develop service plans for customers and having a shared computer network across programs. As a result, case workers reduced the duplication of effort across programs and job seekers were not burdened with completing multiple intake and assessment procedures. For example, the Youth Opportunity Program and Workforce WIA Youth program staff at the one-stop in Kansas City, Missouri, shared intake and enrollment forms to streamline the delivery of services to youth. In Blaine, Minnesota, job seekers were originally served by multiple service providers, meeting independently with each provider for each program service received. Caseworkers from the various one-stop programs in Blaine met regularly to collaborate in developing and implementing joint service plans for customers who were co-enrolled in multiple programs. As a result, the number of caseworkers involved had been reduced significantly, and job seekers received a more efficient and tailored package of services. To efficiently coordinate multiple services for one-stop customers in Erie, Pennsylvania, the staff used a networked computer system with a shared case management program, so that all one-stop program staff could share access to a customer’s service plan and case file. All of the one-stops we visited implemented at least one of three different approaches to engage and provide services to employers—dedicating specialized staff to establish relationships with employers or industries, working with employers through intermediaries, and providing tailored services to meet employers’ specific workforce needs (see fig.4). All of the one-stops dedicated staff to establish relationships with employers, minimizing the burden on employers who previously may have been contacted by multiple one-stop programs. A few of these one-stops also had employer-focused staff work with specific industries in order to respond better to local labor shortages. Many of the one-stops also worked with employers through intermediaries, such as the Chambers of Commerce or economic development entities, in order to market one-stop services and expand their base of employer customers. Finally, most one- stops went beyond providing basic services to employers by tailoring services to meet individual employers’ needs, such as specialized recruiting and applicant pre-screening, customized training opportunities, and assessments using employer specifications. Tailored services were used to maintain employer involvement and increase employment opportunities for job seekers. To help employers access the workforce development system, all of the one-stops we visited dedicated specialized staff to establish relationships with employers. One-stop officials told us that engaging employers was critical to successfully connecting job seekers with available jobs. Specialized staff outreached to individual employers and served as employers’ primary point of contact for accessing one-stop services. For example, the one-stop in Killeen, Texas, dedicated specialized staff to serve not only as the central point of contact for receiving calls and requests from employers but also as the primary tool for identifying job openings available through employers in the community. A one-stop manager in Killeen told us that in the past, staff from each partner agency would outreach to employers to find jobs for their own job seekers. Now they have eliminated the duplication of effort and burden on employers by designating specialized staff to conduct employer outreach for all one-stop programs. In addition to working with individual employers, staff at some of the one- stops we visited also worked with industry clusters, or groups of related employers, to more efficiently meet local labor demands—particularly for industries with labor shortages. One-stop managers at these sites told us that having staff work with industry clusters helped them better respond to labor shortages because it enabled staff to develop a strong understanding of the employment and training needs of those industries. These one-stops were better prepared to match job seekers with appropriate training opportunities, enabling those job seekers to become part of a qualified labor pool for these industries. For example, the one-stop in Santa Rosa, California, assigned staff to work with employers in local high-demand industries, including health care, high tech, and tourism. These staff established relationships with employers from these industries, assessed their specific workforce needs, and shared this information with one-stop case workers. Specifically, when Santa Rosa’s tourism industry was in need of more skilled workers, the one-stop worked with the local community college to ensure there were certification courses in hotel management and the culinary arts, for exam. The one-stop in Aurora, Colorado, also dedicated staff to work with specific industries. For example, in response to a nursing shortage of 1,600 nurses in the Denver metro area, staff from the Aurora one-stop assisted in the creation of a healthcare recruitment center designed to provide job placement assistance and access to health-care training. In addition to dedicating specialized staff, all of the one-stops we visited worked with intermediaries to engage and serve employers. Intermediaries, such as local Chambers of Commerce or economic development entities, served as liaisons between employers and the one- stop system, helping one-stops to engage employers while connecting employers with one-stop services. For example, the one-stop staff in Clarksville, Tennessee, worked with Chamber of Commerce members to help banks in the community that were having difficulties finding entry- level employees with the necessary math skills. To help connect job seekers with available job openings at local banks, the one-stop developed a training opportunity for job seekers that was funded by Chamber members and was targeted to the specific skills needed for employment in the banking community.Similarly, staff at the one-stop in Kenosha, Wisconsin, were in frequent contact with the Kenosha Area Business Alliance, a community development corporation, to identify and address hiring and training needs of the local manufacturing industry. This partnership not only helped employers access human resources assistance—such as recruitment, networking, and marketing—but it also assisted employers with assessment and training of new and existing employees. Specialized staff at most of the one-stops we visited also worked with local economic development entities to serve employers or recruit new businesses to the area. For example, the staff at the Erie, Pennsylvania, one-stop worked with a range of local economic development organizations to develop an outreach program that assessed the workforce needs of employers, linked employers with appropriate services, and developed incentive packages to attract new businesses to the community. In addition to dedicating specialized staff to engage employers and working with intermediaries, all of the one-stops we visited tailored their services to meet employers’ specific workforce needs by offering an array of job placement and training assistance designed for each employer. These services included specialized recruiting, pre-screening, and customized training programs. For example, when one of the nation’s largest cabinet manufacturers was considering opening a new facility in the eastern Kentucky area, the one-stop in Pikeville, Kentucky, offered a tailored set of services to attract the employer to the area. The services included assisting the company with pre-screening and interviewing applicants and establishing an on-the-job training package that used WIA funding to offset up to 50 percent of each new hire’s wages during the 90-day training period. According to a company representative, the incentive package offered by the one-stop was the primary reason the company chose to build a new facility in eastern Kentucky instead of another location. Once the company arrived, the Pikeville one-stop administered the application and assessment process for job applicants and held a 3-day job fair, resulting in the company hiring 105 people through the one-stop and planning to hire an additional 350 employees. To help industries address labor shortages and strengthen local businesses, several of the one-stops we visited actively developed and marketed training opportunities for current and potential new employees, helping to keep jobs in the community and promote local economic growth. For example, Pikeville, Kentucky, encountered a labor shortage in the local coal mining industry. Because of the high cost of training for inexperienced miners, many companies considered hiring experienced coal miners from foreign countries. To help companies save on training costs and hire workers from the local area—one of historically high unemployment—the Pikeville one-stop created an on-the-job training program using WIA funds, which paid for half of new miners’ salaries during their training period. The co-owner of a local mining company, who hired 15 percent of his workforce through the one-stop, told us that, without the assistance of the one-stop, he would not have been able to hire as many miners. Because he saved money on training costs, the co-owner said he was also able to promote his experienced workers to more advanced positions and provide better benefits, such as health insurance, for all his employees. Tailored services were used not only to attract new employers, but to retain employers in the one-stop system and train new workers for employers struggling to find job-ready staff. For example, for over 9 years, the Clarksville, Tennessee, one-stop has provided tailored hiring services, including drug-testing and pre-screening of applicants, for a nearby manufacturing company. As a result, the company has hired over 75 people through the one-stop. One-stops also provided customized workshops and classes to help employers train new and current workers. When a local nursing home expressed concern about hiring non-English-speaking workers, the one-stop in Blaine, Minnesota, created a job-specific English as a Second Language course that was taught on-site at the nursing home by one-stop staff. Many of the one-stops we visited also provided employers with tailored business support services and educational resources. One-stop managers told us that these services helped the one-stops attract and retain employer involvement in the one-stop system and enhanced employers’ ability to maintain a skilled workforce. For example, some one-stops we visited allowed employers to use office space in the one-stop for interviewing job applicants. A few of the one-stop centers had specific business centers on- site, such as the Business Resource Center in Killeen, Texas. The center served entrepreneurs and over 400 small businesses by providing information about starting a small business, such as tax information, economic development information, marketing resources, and business workshops. Similarly, the Sunnyvale, California, one-stop addressed the specific needs of customers seeking entrepreneurial opportunities by co- locating with a patent and trademark library that is electronically linked to the national trademark office. Finally, several one-stops offered employers help with accessing business tax credits. For example, when the employer services staff at the one-stop in Vineland, New Jersey, realized the application process for tax credits was cumbersome for employers, they began automatically completing the required paperwork for employers so that the employers could more readily apply for the tax credit incentives. To build the solid infrastructure needed to support better services for job seekers and employers, many of the one-stops we visited developed and strengthened program partnerships and raised funds beyond those provided under WIA. Center operators fostered the development of strong program partnerships by encouraging communication and collaboration among partners through functional teams and joint projects. As shown in figure 5, this collaboration allowed one-stop partners to better integrate their respective programs and services. Many one-stops also worked toward improving one-stop operations and services by raising additional funds through fee-based services, grants, and contributions from partners and state or local government. The revenue raised through these activities helped one-stops improve operations and services despite the lack of WIA funding for one-stop operations and restrictions on the ways in which one- stop programs can spend their funds. In order to build a cohesive, well-functioning one-stop infrastructure, 9 of the 14 one-stop centers we visited gave partners the opportunity to collaborate through functional teams and joint projects. One-stop managers told us that collaboration through teams and joint projects allowed partners to better integrate their respective programs and services, as well as pursue common one-stop goals and share in one-stop decision making. For example, partners at the Erie, Pennsylvania, one-stop center were organized into four functional teams—a career resource center team, a job seeker services team, an employer services team, and an operations team—which together operated the one-stop center. As a result of the functional team meetings, partners reported that they worked together to solve problems and develop innovative strategies to improve services in their respective functional area. For instance, to improve intake and referral processes, the Erie job seeker services team created a color-coded intake form shared by multiple partners. Certain customers, such as veterans and dislocated workers, received intake forms that were a different color from those of other customers, so that staff could easily identify the different customer groups and direct each toward the services that best met their needs. Similarly, in Salt Lake City, Utah, partners created a committee to address issues of common concern, such as cross-program referrals, cross-training of partner staff, and employer involvement. Staff from the Vocational Rehabilitation Program in Salt Lake City told us that this committee helped to increase referrals to their program by producing flow charts of the service delivery systems of various partner programs to identify points at which referrals and staff collaboration should occur. In addition to fostering integration across programs, one-stop managers said that the joint decision making done through functional teams facilitated the development of a shared one-stop identity. Pikeville, Kentucky, one-stop managers told us that shared decision-making was instrumental in developing a common one-stop identity and in ensuring partners’ support for the one-stop system. The process of creating a shared one-stop identity in Pikeville was also supported by the adoption of a common logo, nametags, and business cards, and was reinforced by a comprehensive marketing campaign, which gave partners a common message to rally behind. Pikeville one-stop managers told us that, as a result of this shared one-stop identity, partner staff no longer focused exclusively on serving their individual program customers; rather, staff developed a “can-do” attitude of meeting the needs of all one-stop customers. In addition, managers told us that because of their shared one- stop identity, partners were more willing to contribute resources to one another and to the center as a whole. For instance, in order to streamline services for job seekers, the Adult Basic Education Program administered skills assessments to all one-stop customers, regardless of which program they were enrolled in. One-stop managers at several of the sites we visited told us that the co- location of partner programs in one building facilitated communication and collaboration. For this reason, one-stop managers at several of the centers we visited reported that they fostered co-location by offering attractive physical space and flexible rental agreements. For example, in Pikeville, Kentucky, the local community college donated free space to the one-stop on its conveniently located campus, making it easier to convince partners to relocate there. Partners were also eager to relocate to the Pikeville one- stop because they recognized the benefits of co-location for their customers. For instance, staff from the Vocational Rehabilitation Program said that co-location at the one-stop increased their customers’ access to employers and employment services. Pikeville managers also told us that co-location at the community college made it easier for partners to share information and made them more visible to students likely to need employment services in the near future. In addition, because co-location sometimes presents a challenge to partners with limited resources, several centers offered flexible rental agreements to make it easier for partners to co-locate. For example, the Kansas City, Missouri, one-stop enabled the Adult Basic Education Program to co-locate by allowing it to contribute instructors and General Educational Development (GED) classes instead of paying rent. Partners in some locations, including Dayton, Ohio, and Kenosha, Wisconsin, donated space to enable other partners to be on-site. Several one-stops where all partners were not co-located found ways to create strong linkages with off-site partners. For example, in addition to regular meetings between on-site and off-site staff, the one-stop in Aurora, Colorado, had a staff person designated to act as a liaison and facilitate communication between on-site and off-site partners. When an on-site partner specializing in senior services raised concerns about the lack of employment opportunities for its customers, the liaison set up a meeting with Vocational Rehabilitation, an off-site partner, to enable both parties to begin exchanging referrals to jobs and services. Managers at all but two of the one-stops we visited said that they were using the flexibility under WIA to creatively increase one-stop funds through fee-based services, grants, or contributions from partner programs and state or local governments. Managers said these additional funds allowed them to cover operational costs and expand services in spite of the lack of WIA funding to support one-stop infrastructure and restrictions on the use of program funds. For example, one-stop operators in Clarksville, Tennessee, reported that they raised $750,000 in fiscal year 2002 through a combination of business consulting, drug testing, and drivers’ education services. Using this money, the center was able to purchase a new voicemail and computer network system, which facilitated communication among staff and streamlined center operations. Similarly, in Sunnyvale, California, one-stop managers said they raised $20,000 through downsizing and training services for employers, and used this money to expand the one-stop’s training services. Centers have also been proactive about applying for grants from public and private sources. For example, the one-stop center in Kansas City, Missouri, had a full-time staff person dedicated to researching and applying for grants. The one-stop generated two-thirds of its entire program year 2002 operating budget of $21 million through competitive grants available from the federal government as well as from private foundations. This money allowed the center to expand its services, such as through an internship program in high-tech industries for at-risk youth. One-stop centers also raised additional funds by soliciting contributions from local or state government and from partner agencies. For instance, Boston one-stop managers reported that the state of Massachusetts matched the one-stop’s Wagner-Peyser funds dollar for dollar, which enabled the center to fund its resource room and library. In addition, the Dayton, Ohio, one-stop received $1 million annually from the county to pay for shared one-stop staff salaries and to provide services to job seekers who do not qualify for services under any other funding stream. Dayton one-stop partners also contributed financial and in-kind resources to the center on an as-needed basis. In addition to raising money through grants, managers at the one-stop in Santa Rosa, California, told us that they made more efficient use of existing funds by having staff use a funding source determination worksheet to maximize training funds from various sources. The worksheet is continually updated to show how much funding is available through each program, allowing caseworkers to choose the most economical source for eligible customers’ Individual Training Accounts (ITAs) based on the amount of money available through each funding stream and the date it is scheduled to expire. While Labor currently tracks outcome data—such as job placement, job seeker satisfaction, and employer satisfaction—and funds several studies to evaluate workforce development programs and service delivery models, little is known about the impact of various one-stop service delivery approaches on these and other outcomes. Labor’s studies largely take a program-by-program approach rather than focusing on the impact on job seekers of various one-stop integrated service delivery approaches, such as sharing customer intake forms across programs, or on employers, such as dedicating staff to focus on engaging and serving employers. Further, Labor’s efforts to collaborate with other federal agencies to assess the effects of different strategies to integrate job seeker services or to serve employers through the one-stop system have been limited. In addition, one- stop administrators do not have enough opportunities to share existing information about how to improve and integrate services for job seeker and employer customers. While Labor has developed a promising practices Web site to facilitate such information sharing, it is unclear how well the site currently meets this objective. Labor currently tracks performance measures under the three WIA programs using 17 separate outcome measures, including job placement and job seeker and employer customer satisfaction, designed to gauge the success of WIA funded services. However, managers at a few of the one- stop centers we visited told us that customer satisfaction data, for example, could not be linked to specific services or strategies, so one-stop managers could not use the data to improve services for their job seeker and employer customers. While outcome measures are an important component of program management in that they assess whether a participant is achieving an intended outcome-such as obtaining employment—they cannot measure whether the outcome is a direct result of program participation. Other influences, such as the state of the local economy, may affect an individual’s ability to find a job as much or more than participation in an employment and training program. Many researchers consider impact evaluations to be the best method for determining the effectiveness of a program—that is, whether the program itself rather than other factors leads to participant outcomes. While Labor is currently supporting a large number of impact and process evaluations of various workforce development programs and initiatives, none of these studies include an evaluation of the impact of different integrated service delivery approaches on outcomes, such as job placement or retention, or job seeker and employer satisfaction (see table 2). Examples of integrated service delivery initiatives that we observed at one- stops and that Labor could evaluate include cross-training one-stop staff, sharing customer intake across programs, and consolidating case management for customers enrolled in multiple programs. While these integrated service delivery approaches were common at the one-stops we visited, little is currently known about their impact on one-stop customer outcomes and satisfaction. In addition, there is a lack of information about which approaches to serving employers are most effective, such as dedicating staff to engage and serve employers or tailoring services for employers by offering customized training or pre-screening job applicants, for example. Employment and Training Administration (ETA) officials provided us with information on their current research, such as the Microanalysis of the One-Stop—a process evaluation that Labor has initiated to analyze how job seekers and employers access the array of available one-stop services. While this study offers an analysis of the implementation and operation of integrated service delivery, it does not measure the impact of this integration on one-stop customers’ satisfaction or outcomes. In addition, the impact evaluations that Labor is currently undertaking typically take a program-by-program approach and do not measure the effectiveness of integrated services. For instance, Labor’s evaluation comparing the impact of various approaches to implementing Individual Training Accounts only includes WIA program participants, and its evaluation of self-directed job search in a one-stop environment focuses only on UI recipients. ETA officials told us that a major barrier they face to conducting a broader array of impact studies is their limited research budget—$35 million for demonstration grants and $9 million for evaluations in fiscal year 2003. In a few cases, Labor has sought to address these funding limitations by collaborating with other federal agencies to fund studies. For example, Labor is helping HHS fund the $26 million Employment, Retention and Advancement Study, an evaluation assessing strategies to promote employment retention and advancement among welfare recipients and low- wage workers. Labor is also collaborating with the Department of Education on a process evaluation examining the implementation of school-to-work programs at selected Job Corps centers. Such collaboration not only enables Labor to address funding limitations, but it also has the potential to facilitate evaluations of service delivery approaches that span multiple programs overseen by different agencies. However, in spite of these benefits, Labor is currently engaging in only a limited number of such collaborations. Moreover, none of these collaborative studies are specifically directed towards evaluating the impact of one-stop services or integrated service delivery approaches. While Labor has developed several mechanisms for providing guidance and allowing local one-stop administrators to share information on how to move beyond the basic requirements of WIA toward improving and integrating one-stop services, these efforts have been limited. Labor’s primary mechanisms for disseminating information about promising practices at one-stop centers are a Web site, forums, and conferences. The promising practices Web site, which is funded by Labor and is operated by Northern Illinois University’s Center for Governmental Studies, represents a promising step toward building a mechanism to support information sharing among one-stop administrators. However, neither ETA nor the Web site’s administrators have conducted a customer satisfaction survey or user evaluation of the site, so little is known about how well the site currently meets its objective to promote information sharing about promising practices. Much of the information available on the Web site comes from submissions by one-stop centers or research organizations, yet Web site administrators told us that these submissions have not been screened to ensure that their content is useful. Furthermore, relevant literature stresses that information presented through Web sites should be accessible, useful, and well organized. When we attempted to use the Web site, we found that useful information on the site was difficult to access. In order to find information about promising practices through the site, one must conduct a search by key word, which often did not yield satisfactory results. Search results were organized alphabetically, not by relevance, and some of the results addressed the search topic only marginally. In addition, search results included a disorganized mixture of external documents, links to other Web sites, and submissions. For instance, a search under the keywords "service integration" yielded six results, including two links to external Web sites, two external documents, and two promising practices submissions. Of these six results, two did not directly address promising practices in the area of service integration. In addition to the Web site, Labor hosts regular regional meetings and cosponsors several national conferences to promote information dissemination and networking opportunities for state and local grantees and stakeholders. Labor also hosted several forums during WIA implementation to allow information exchanges to occur between the department and state and local one-stop administrators. While these conferences and forums provide a venue for one-stop managers to talk with one another about what is and is not working at their centers, participation is limited to those who can physically take part. The workforce development system envisioned under WIA represents a fundamental shift from prior systems, and barely 3 years have passed since it was fully implemented. States and localities are learning how to use the flexibility afforded by WIA to develop systems that work for their local areas and that implement WIA’s vision of a customer-focused system. The one-stop centers we visited are coordinating with the 17 mandatory partners, and often multiple optional partners, to create a one-stop system that strives to streamline services for job seekers and make employers a significant part of the one-stop system. While the one-stops we visited ranged in terms of their location—from urban to suburban to rural—we saw numerous examples of one-stops streamlining services for job seekers, developing business-related services to meet the needs of employers, and supporting a one-stop infrastructure that provides the full range of assistance needed by job seekers and employers to serve local workforce needs. While these strategies show promise for improving services to job seekers and employers alike, there is no clear understanding of whether these integrated service delivery approaches are actually increasing job seeker and employer satisfaction or outcomes, such as job placement and retention. Labor’s current research efforts focus within individual programs and have yet to take into account that customers are now served by a one-stop system where multiple programs from four federal agencies provide services. Moreover, few efforts have been made to share information on promising practices. It is unclear whether one effort, a promising practices Web site supported by Labor, is effective in meeting its objective to promote information sharing about promising practices. Without the right research or information sharing tools, it is difficult to know which one-stop practices are, in fact, successful and how the system might be improved in the long run. In order to better understand and disseminate information on how well different approaches to program integration are meeting the needs of one- stop job seekers and employers, we recommend that the Secretary of Labor collaborate with the Departments of Education, Health and Human Services, and Housing and Urban Development to develop a research agenda that examines the impacts of various approaches to program integration on job seeker and employer satisfaction and outcomes, such as job placement and retention and conduct a systematic evaluation of the promising practices Web site and ensure that it is effective. We provided a draft of this report to Labor for comment. Labor agreed with our recommendations and expressed appreciation for our acknowledgment of the progress made by local one-stop centers. However, Labor suggested we recognize other research activities undertaken by ETA and its efforts to share promising practices. We have incorporated Labor’s comments in our report, as appropriate. A copy of Labor’s response is in appendix III. Specifically, Labor agrees with our recommendation that better information is needed to assess the impact of integrated services on customer outcomes and satisfaction, but noted that it collects performance information that includes job seeker and employer customer satisfaction data. In addition, Labor told us it is working on implementing common performance measures for the one-stop system. As we noted in the report, outcome measures are an important part of program management, but alone, do not allow for an understanding of whether the outcome is a direct result of program participation. We continue to stress the need for more impact studies in order to understand whether integrated services are making a difference. Labor agrees with our recommendation that Labor conduct a systematic evaluation of the Web site to ensure that it is effective. Labor told us that it is undertaking a strategic review of its Web sites, including the promising practices site that is intended to identify ways to improve customer access to information. Labor also said that it is engaged in other activities to effectively share information about what is working well in one-stop centers. For example, ETA hosts regular regional meetings for state administrators and funds a number of efforts that produce, recognize, and share promising practices within the workforce system. We are sending copies of this report to the Secretary of Labor, 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. Please contact me on (202) 512-7215 if you or your staff have any questions about this report. Other major contributors to this report are listed in appendix IV. Arapahoe/Douglas Works! Arapahoe/Douglas Works! (local government consortium) Workforce Essentials, Inc. Workforce Essentials, Inc. (nonprofit) Partner consortium, led by Greater Erie Community Action Committee (nonprofit) Full Employment Council (nonprofit) Suburban, rural area. Fort Hood is nearby. Eastern Kentucky Concentrated Employment Program (nonprofit) While sites were identified as exemplary based on their promising practices in one of three key areas—serving job seekers, engaging employers, and operating the one-stop center—we found that all 14 of the one-stops we visited exhibited numerous promising practices in multiple areas. The selection of promising practices described below represents some of the strongest or most unique examples from each site. Arapahoe/Douglas Works! Colorado Workforce Center 14980 E. Alameda Drive Working with intermediaries to engage and serve employers - Arapahoe/Douglas Works! works closely with local Chambers of Commerce and economic development entities to conduct outreach to employers. Each year Arapahoe/Douglas Works! and the local Chamber hold an employer recognition awards event, which not only markets the one-stop system to business, but also encourages workplace innovation by honoring three employers with awards for work-life balance, community partnerships, and outstanding youth employer. Dedicating specialized staff to address local industry needs - Because of a local nursing labor shortage, the one-stop dedicated specialized staff to establish an on-site healthcare recruitment center to help job seekers find training opportunities in the healthcare field. Promoting partner collaboration - In addition to regular meetings between on-site and off-site staff, the one-stop has a staff person designated to act as a liaison and facilitate communication between on- site and off-site partners. Developing optional partnerships to expand services - Arapahoe/Douglas Works! partners with the Department of Corrections to provide transition services for juvenile offenders. Raising additional funds to expand services - Arapahoe/Douglas Works! raised about $620,000 through contracts with local schools to provide workforce development services for at-risk high school students. The one-stop also raised about $80,000 through an on-site learning lab for students at risk of dropping out of school. Anoka County Workforce Center 1201 89th Avenue NE Ensuring partner staff understand the range of services –Staff periodically participate in center-wide meetings where they make presentations to one another about their program’s services and role at the center. In addition, partners lead workshops on how to better serve their particular customer base. Officials reported that cross-training results in increased referrals across partner programs. Streamlining services through consolidated case management - The caseworkers from the various one-stop programs meet regularly to collaborate in developing and implementing joint service plans for customers who are co-enrolled in multiple programs. Tailoring services to meet employers’ specific workforce needs - The one-stop developed an English-as-a-Second-Language course tailored to the needs of a local nursing home. The course was taught on- site at the nursing home by one-stop staff. Promoting partner collaboration - Partners collaborate in functional teams to manage the one-stop. Collaboration among partners was enhanced when they jointly applied for a One-Stop Implementation grant from the state of Minnesota. Because of the strong sense of cooperation among them, partners pooled their resources when possible to ensure the continued funding of services. Raising additional funds to expand services - An H1-B grant and a grant from the McKnight Foundation enabled the center to expand services for customers. The grants enabled the center to implement a training program in healthcare-related fields and develop a social services and car donation program for people who do not qualify for any other program. The Work Place 99 Chauncy Street Ensuring job seekers’ access to services - Because the majority of the Work Place’s partners are located off-site, the one-stop placed staff in off-site locations, including family courts, correctional facilities, and welfare offices to give job seekers ready access to employment-related services. Dedicating specialized staff to establish relationships with employers - The Work Place has staff dedicated to recruiting, engaging, and maintaining employer involvement. The Work Place has focused on measuring employer satisfaction and soliciting employer feedback to guide them in improving their employer services. The center has established employer focus groups to identify the services employers used and their satisfaction with those services. Tailoring services to meet employers’ specific workforce needs - The Work Place screens applicants and provides referrals to the Marriott Hotel’s Pathways to Independence program, a nationwide job readiness program for people with multiple barriers to employment. About 75 percent of program graduates over the past 5 years were recruited through The Work Place. Developing optional partnerships to expand services - The Work Place has developed an optional partnership with the Suffolk County House of Corrections to provide community reintegration services for prisoners prior to their release. One of the programs is an offender re- entry program that conducts job fairs inside the county jail to facilitate incarcerated offenders’ transition back into the workplace. Raising additional funds to expand services - The state of Massachusetts matches the Boston one-stop’s Wagner-Peyser funds dollar for dollar, which enables the center to fund its resource room and library. WorkForce Essentials, Inc. 110 Main Street Ensuring job seekers’ access to services - The Clarksville one-stop provides a clear path for job seekers to follow between one-stop services. When job seekers are referred to another partner program, staff personally walk them over to the referred program staff to prevent them from getting lost between programs. Dedicating specialized staff to establish relationships with employers - WorkForce Essentials, Inc., dedicates staff to conduct employer outreach in order to provide employer services and identify employment opportunities for job seekers. One-stop operators said that outreach to employers has helped engender employer trust in the organization and the job seekers it serves. Working with intermediaries to engage and serve employers - The Clarksville one-stop staff worked with Chamber of Commerce members to provide math training in order to improve the pool of entry-level employees for the local banking industry. This helped connect job seekers with available job openings at local banks. Tailoring services to meet employers’ specific workforce needs - The one-stop provided tailored hiring services, including drug testing and pre-screening of applicants, for a manufacturing company, resulting in the company hiring over 75 people through the one-stop. Developing optional partnerships to expand services- Managers in Clarksville told us that co-location with the Tennessee Department of Human Services, which administers TANF, benefits all job seekers because the department helps fund various services, including computer classes, soft skills classes, and parenting classes that can be provided to those not eligible for TANF. Raising additional funds to expand services - WorkForce Essentials, Inc., raised $750,000 in fiscal year 2002 through drivers’ education courses, drug testing, recruitment, and skills assessment services. This money was used to pay salaries and to purchase voicemail and a computer network system. In addition, the one-stop received a $2.8 million H-1B Technical Skills Training Grant from DOL, through which it has provided high-skills training to over 900 workers so far. The Job Center 111 S. Edwin C. Moses Boulevard Streamlining services through consolidated case management - Caseworkers from various programs, including TANF, Medicaid, Food Stamps, and WIA share caseloads and coordinate their service plans for job seekers. Ensuring partner staff understand the range of services - One- stop managers reported that cross-training on-site and off-site partners dramatically improves referrals to the Child Support Program, thereby enhancing efforts to establish paternity, a requirement for determining eligibility for TANF. Additionally, they indicated that their cross-trained staff referred job seekers to service providers that had previously been unknown, such as to smaller programs within the one-stop or local neighborhood programs. Promoting partner collaboration and co-location - Partners collaboratively operate the one-stop through four councils. All partners are asked to participate and all have equal voice in decision-making. Additionally, partners contributed space and other resources to help other partners co-locate. The Center is housed in a former shopping mall, which offers plenty of flexible space to allow all partners to co- locate. Developing optional partnerships to expand services - At the time of our visit, the Dayton one-stop had over 30 optional partners on-site, including the Montgomery County Combined Health District, which operates a health clinic on-site; and Clothes that Work! which provides free business attire to low-income women; and an alternative high school. Raising additional funds to expand services - The one-stop receives $1 million annually from the county to pay for shared one-stop staff salaries and to provide services to job seekers who do not qualify for services under any other funding stream. Dayton one-stop partners also contribute financial and in-kind resources to the center on an as-needed basis. Pennsylvania CareerLink 1309 French Street Streamlining services through consolidated case management - To efficiently coordinate multiple services for one-stop customers, Erie one-stop staff use a networked computer system with a shared case management program, so that they can share access to a customer’s service plan and case file. Ensuring job seekers’ access to services - The one-stop positions a staff person at the doors to the center to help job seekers entering the center find needed services and to ensure that exiting job seekers received the services they sought. Working with intermediaries to engage and serve employers - CareerLink staff collaborated with numerous local economic development entities to develop an outreach program that assesses the workforce needs of employers and links employers with appropriate services. Promoting partner collaboration - The one-stop staff is organized into four functional teams that meet weekly to work on common goals and develop new strategies. These teams have developed innovative strategies to improve service delivery, including the creation of a resource guide for caseworkers and a color-coded intake form. Strengthening relationships among partners - Staff at CareerLink participate in frequent team-building activities, such as social events and recognition ceremonies, to promote a positive, integrated working environment. Full Employment Council 1740 Paseo Kansas City, MO 64108 Streamlining services through consolidated intake procedures - Youth Opportunity and the WIA Youth program staff share intake and enrollment forms to streamline the delivery of services to youth. This process alleviates the burden of multiple intake and assessment forms when registering participants. Ensuring job seekers’ access to services - The one-stop management decided to locate the one-stop center next to the bus company, the Area Transit Authority, (ATA). This strategic decision meant that all bus routes passed by the one-stop center, ensuring that customers with transportation problems could access one-stop services. Additionally, the ATA partners with the one-stop to create an Urban Employment Network program to assist job seekers with transportation to and from work, 7 days a week from 5:00 in the morning until midnight and has set up a van service to operate during off-peak hours. Working with intermediaries to engage and serve employers - The Full Employment Council uses the Chamber of Commerce as an intermediary with employers. The chamber has a workforce issues division that does outreach to educate employers about recruitment and retention strategies and services offered at the one-stop center. While staff at the Kansas City one-stop assist job seekers with disabilities, the Chamber works with local employers to educate them about hiring disabled workers and integrating them into the workplace. Promoting partner co-location - The one-stop enabled the Adult Basic Education program to co-locate by allowing it to contribute instructors and GED classes instead of paying rent. Raising additional funds to expand services - The Kansas City one- stop has a staff person specifically designated to researching grant opportunities and writing grant applications. Through pursuing grant opportunities, the center has been able to raise about $14 million, which represents two-thirds of its total budget in program year 2002. These additional funds enable the one-stop staff to address local workforce concerns and provide services, such as internship opportunities in high- tech industries for at-risk youth. Kenosha County Job Center 8600 Sheridan Road Streamlining services through consolidated and case management - Case files for economic support, case management, job placement, and childcare services are shared on a networked computer system that staff from these four programs can access. Staff from these programs collectively develop an action plan for their customers and share an electronic calendar for scheduling customers’ appointments and workshops. Working with intermediaries to engage and serve employers - The one-stop collaborates with local community colleges and the Kenosha Area Business Alliance, an economic development association, to identify labor and skills shortages in local industry. These partnerships have not only helped employers with human resources assistance--such as recruitment, networking, and marketing--but they have also assisted employers with assessment and training of new and existing employees. For example, the one-stop’s relationship with a local community college led to the development of a Certified Nursing Assistant course taught in Spanish. Promoting partner collaboration - Regular functional team meetings allow partners to share ideas, work together to solve problems, and develop strategies to improve services. For example, through functional teams, partners were able to establish an on-site childcare center. Promoting partner co-location - Goodwill Industries, a one-stop partner, pays rent for smaller partners that cannot afford to pay rent on their own to expand services for job seekers. Central Texas Workforce Center 300 Cheyenne Ensuring job seekers’ access to services - To serve customers with transportation challenges, staff in Killeen partner with the libraries in rural areas to provide computer access to one-stop resume writing and job search services. They also provide an on-line TANF orientation, so that customers can access it remotely. Additionally, when one-stop center staff refer job seekers to one of their many partners, the staff personally introduce the job seeker to the referred program staff to prevent job seekers from getting lost between programs. Developing optional partnerships to expand services - The one- stop improved job seeker access to services by forming relationships with optional partners such as TANF. One-stop staff told us that co- location with TANF services helps welfare recipients address barriers to employment by facilitating easier access to services, such as housing assistance and employment and training programs. Dedicating specialized staff to establish relationships with employers - The one-stop has specialized staff serving not only as the central contact for receiving calls and requests from employers but also as the primary source for identifying job openings available through employers in the community. Tailoring services to meet employers’ specific workforce needs - In collaboration with local community colleges and the Chamber of Commerce, the one-stop created a Business Resource Center that offers services specifically for entrepreneurs and new businesses, including tax assistance and workshops on starting or improving a business. Raising additional funds to expand services - The one-stop has applied for multiple transportation grants to improve access to jobs for rural job seekers. In addition, the one-stop raised $309,000 in fiscal year 2001 by renting out space to local businesses and by providing services to employers. Pike County JobSight Center 120 South Riverfill Drive Ensuring partner staff understand the range of services - Cross- training workshops taught by partner staff educate staff about the one- stop’s diverse array of services. Although partners specialize in a particular area of expertise, cross-training has improved referrals and enabled staff to better ensure that job seekers get the tools they need to become successfully employed. Tailoring services to meet employers’ specific workforce needs - When eastern Kentucky encountered a labor shortage in the coal mining industry, the one-stop recruited a large pool of local applicants and created an on-the-job training program using WIA funds, which paid for half of new miners’ salaries during their training period. Dedicating specialized staff to establish relationships with employers - Specific JobSight staff are dedicated to employer outreach and customizing services. These staff were able to help attract a large cabinet manufacturer to the area by offering a customized service package, including prescreening and assessment, on the job training, and a 3-day job fair. Promoting partner collaboration - When the one-stop was created, partners participated in intensive workshops and collaboratively designed a service delivery plan to reduce service duplication. In addition, partners collaboratively designed a common intake form and a service delivery flow chart. Creating a shared one-stop identity - One-stop managers told us that shared decision making was instrumental in developing a common one- stop identity and in ensuring partners’ support for the one-stop system. The process of creating a shared one-stop identity in Pikeville was also supported by the adoption of a common logo and nametags, and was reinforced by a comprehensive marketing campaign. Promoting partner co-location - The local community college donated free space to the one-stop on its conveniently located campus, making it desirable for partners to relocate there. South County Employment Center 5735 S. Redwood Road Streamlining services through consolidated case management - The caseworkers at the Salt Lake City one-stop are divided into four teams that share case management of customers. The Job Connection Team is stationed at the front desk and helps customers by doing quick assessments, referrals, UI profiling, and assisting with computer access. Caseworkers from the three Employment Teams specialize in a particular program and all caseworkers meet once a month to discuss program requirements and how to streamline services for co-enrolled customers. Ensuring partner staff understand the range of services - Department of Workforce Services and Vocational Rehabilitation caseworkers participate in frequent cross-training sessions, so they are capable of assisting co-enrolled customers. One-stop managers reported that cross–training has improved staff understanding of programs outside their area of expertise and enhanced their ability to make referrals. There is also a shadow program in which staff members shadow one another for a few hours to learn about one another’s jobs and the programs they administer. Ensuring job seekers’ access to services - The one-stop established a Web-based job search program on which job seekers can post resumes and look for jobs. This Web site reduces customer flow, saves money, and makes it more convenient for people to look for jobs from their homes or offices. Dedicated specialized staff to establish relationships with employers – Employers have a separate one-stop center where they can conduct interviews, access labor market information, attend seminars, and use computers. The center has specialized employer outreach and business services staff that act as liaisons to employers, organize job fairs, and assist with job placements. Promoting partner collaboration - Partners created a “MOUse” committee to address Memorandum of Understanding (MOU) issues, including referrals, information systems, employer involvement, cross- training, and service accessibility. Staff from the Vocational Rehabilitation Program in Salt Lake City told us that this committee helped to increase referrals to their program by producing flow charts of the service delivery systems of various partner programs to identify points at which referrals and staff collaboration should occur. Sonoma County Job Link One-Stop Center 2245 Challenger Way Santa Rosa, CA 95407 Dedicating specialized staff to establish relationships with industries - In Santa Rosa, staff are dedicated to specific industries in order to better address local labor shortages. When Santa Rosa’s tourism industry was in need of more skilled workers, the one-stop worked with the local community college to ensure that job seekers were connected to certification courses in hotel management and the culinary arts. Also, the one-stop center has a Small Business Development Center, funded by the Small Business Administration, that provides consulting services to small businesses. Working with intermediaries to engage and serve employers - The one-stop focuses heavily on using existing partnerships with intermediaries, such as the Economic Development Board, to market their services to employers and to utilize information gathered from employer surveys. Managers told us this partnership has helped caseworkers better understand particular industries and job market fluctuations. Developing optional partnerships to expand services - The one- stop is collaborating with CalWORKS, the state TANF program, which allows them to provide additional services, such as the employer account representatives. These representatives work with employers, the Workforce Investment Board, and caseworkers to gather and disseminate information about the labor market, particularly high- demand industries. Raising additional funds to expand services - Santa Rosa has been better equipped to receive national grants and grants from the state of California by collaborating with three other Workforce Investment Boards in the area. In addition, this collaboration has improved local labor market information and sharing of promising practices. Improving one-stop operations - Partner staff use a Funding Source Determination Worksheet to ensure that customers’ services are paid for by the most appropriate grant or by a variety of funding streams to maximize funding in the long run. The funding sheet helps alleviate some cost burden on partners with tighter training budgets. Connect! 420 S. Pastoria Avenue Dedicating specialized staff to establish relationships with employers - Connect! has dedicated staff to providing a variety of services (both free and fee-based) to meet business needs, including staffing services, such as prescreening of job applicants and on-site recruiting; transition/outplacement services to help downsizing businesses assist displaced workers; educational resources; and training, such as technical training for small business IT workers. Tailoring services to meet employers’ specific workforce needs - The one-stop is co-located with a patent and trademark library that is electronically linked to the national trademark office to assist customers seeking entrepreneurial opportunities. Gathering labor market information on local industries - Connect! conducted Labor Market Information Plus (LMI+) studies of local industries to gather information on current workforce issues and challenges and predict future labor market trends. Raising additional funds to expand services - One-stop managers raised $20,000 through fee-based downsizing and training services for employers and used this money to expand the one-stop’s business services. Improving one-stop operations - In order to improve its operations, Connect! conducted an assessment (Voice of the Customer Initiative) to better understand customer expectations and needs. As a result, the one-stop reorganized its operations, redefined relationships with partners, developed a new outcome budget structure, and created specialized one-stop centers for businesses, job seekers, and youth. Cumberland County One-stop 415 Landis Avenue Ensuring job seekers’ access to services - By addressing customers’ transportation challenges, the Cumberland County One-Stop enhanced access to training and employment opportunities for rural customers. The one-stop now provides transportation to employment sites that are difficult for customers to access, such as the Atlantic City casino industry. Ensuring partner staff understand the range of services - Program staff attend monthly meetings to educate one another about various program rules, which improves referrals and eligibility determination for customers. For example, all program staff attended training on how to assess customers’ eligibility for the TANF program. Tailoring services to meet employers’ specific workforce needs - When employer services staff realized the application process for tax credits was cumbersome for employers, they completed the required paperwork themselves so that employers could receive the tax credit incentives. Working with intermediaries to engage and serve employers - The Cumberland County One-Stop negotiated an agreement with the local Empowerment Zone Office, requiring that new businesses use the one- stop center for recruitment before using their own private resources. This arrangement allows the one-stop to stay informed of employer needs and potential opportunities for job seekers. Working with intermediaries to engage and serve employers - The Vineland one-stop belongs to the three Chambers of Commerce in the area and attends many of their events. Business services staff make presentations about the one-stop’s services at professional conferences, chamber meetings, and other local events. Elisabeth Anderson, Elizabeth Caplick, and Tamara Harris made significant contributions to this report. In addition, Shana Wallace assisted in the study design; Jessica Botsford provided legal support; and Patrick DiBattista assisted in the message and report development. Workforce Investment Act: Exemplary One-Stops Devised Strategies to Strengthen Services, but Challenges Remain for Reauthorization. GAO- 03-884T. Washington D.C.: June 18, 2003. Workforce Investment Act: Issues Related to Allocation Formulas for Youth, Adults, and Dislocated Workers. GAO-03-636. Washington D.C.: April 25, 2003. Multiple Employment and Training Programs: Funding and Performance Measures for Major Programs. GAO-03-589. Washington, D.C.: April 18, 2003. Food Stamp Employment and Training Program: Better Data Needed to Understand Who Is Served and What the Program Achieves. GAO-03-388. Washington D.C.: March 12, 2003. Workforce Training: Employed Worker Programs Focus on Business Needs, but Revised Performance Measures Could Improve Access for Some Workers. GAO-03-353. Washington, D.C.: February 14, 2003. Older Workers: Employment Assistance Focuses on Subsidized Jobs and Job Search, but Revised Performance Measures Could Improve Access to Other Services. GAO-03-350. Washington, D.C.: January 24, 2003 Workforce Investment Act: States’ Spending Is on Track, but Better Guidance Would Improve Financial Reporting. GAO-03-239. Washington, D.C.: November 22, 2002. Workforce Investment Act: States and Localities Increasingly Coordinate Services for TANF Clients, but Better Information Needed on Effective Approaches. GAO-02-696. Washington, D.C.: July 3, 2002. Workforce Investment Act: Coordination of TANF Services Through One- Stops Has Increased Despite Challenges. GAO-02-739T. Washington, D.C.: May 16, 2002. Workforce Investment Act: Youth Provisions Promote New Service Strategies, but Additional Guidance Would Enhance Program Development. GAO-02-413. Washington, D.C.: April 5, 2002. Workforce Investment Act: Coordination of TANF Programs and One- Stop Center Is Increasing, but Challenges Remain. GAO-02-500T. Washington, D.C.: March 12, 2002. Workforce Investment Act: Better Guidance and Revised Funding Formula Would Enhance Dislocated Worker Program. GAO-02-274. Washington, D.C.: February 11, 2002. Workforce Investment Act: Improvements Needed in Performance Measures to Provide a More Accurate Picture of WIA’s Effectiveness. GAO-02-275. Washington, D.C.: February 1, 2002. Workforce Investment Act: Better Guidance Needed to Address Concerns Over New Requirements. GAO-02-72. Washington, D.C.: Oct. 4, 2001. Workforce Investment Act: New Requirements Create Need for More Guidance. GAO-02-94T. Washington, D.C. October 4, 2001. Workforce Investment Act: Implementation Status and the Integration of TANF Services. GAO/T-HEHS-00-145. Washington, D.C.: June 29, 2000. 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. 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To create a more comprehensive workforce investment system, the Workforce Investment Act (WIA) of 1998 requires states and localities to coordinate most federally funded employment and training services into a single system, called the one-stop center system. This report examines how selected one-stop centers have used the law's flexibility to implement their own vision of WIA and provides information on promising practices for (1) streamlining services for job seekers, (2) engaging the employer community, (3) building a solid one-stop infrastructure by strengthening partnerships across programs and raising additional funds. In addition, it provides information on the actions the Department of Labor is taking to collect and share information about what is working well for job seeker and employer customers in one-stop centers. Of the 14 one-stop centers in GAO's study that were identified as exemplary by government officials and workforce development experts, all had implemented a range of promising practices to streamline services for jobseekers, engage the employer community, and built a solid one-stop infrastructure. The one-stop centers GAO visited streamlined services for job seekers by ensuring access to needed services, educating program staff about all of the one-stop services available to job seekers, and consolidating case management and intake procedures. In addition, all of the one-stop centers GAO visited used at least one of the following three methods to engage employers--dedicating specialized staff to work with employers or industries, working with employers through intermediaries, such as Chambers of Commerce or economic development entities, or tailoring services to meet specific employers' needs. To provide the infrastructure to support better services for job seekers and employers, many of the one-stops GAO visited found innovative ways to strengthen program partnerships and to raise additional funds beyond those provided under WIA. Center operators fostered the development of strong program partnerships by encouraging partner collaboration through functional work teams and joint projects, and they raised additional funds through fee-based services, grants, and contributions from partners and state or local governments. While Labor currently tracks outcome data--such as job placement, job seeker satisfaction and employer satisfaction--and funds several studies to evaluate workforce development programs and service delivery models, little is known about the impact of various one-stop service delivery approaches on these and other outcomes. Labor's studies largely take a program-by-program approach rather than focusing on the impact on job seekers of various one-stop integrated service delivery approaches, such as sharing customer intake forms across programs, or on employers, such as dedicating staff to focus on engaging and serving employers. Further, Labor's efforts to collaborate with other federal agencies to assess the effects of different strategies to integrate job seeker services or to serve employers through the one-stop system have been limited. While Labor has developed a promising practices Web site to facilitate such information sharing, it is unclear how well the site currently meets this objective.

You are an expert at summarizing long articles. Proceed to summarize the following text: In an earlier era, when there was less concern over the costs of health care, the process by which drugs reached patients was relatively simple. The patient went to a doctor, who, if convinced that the malady could be helped with medication, would prescribe a drug that the patient could obtain at the local pharmacy. If the patient’s health insurance had a prescription drug benefit, the patient would be reimbursed for the purchase; if not, the patient would cover the costs out-of-pocket. The decisions regarding which drug would be prescribed were often left to physicians, while those regarding drug cost typically involved manufacturers and retail pharmacies. Further, the health insurer was usually not centrally involved in either decision. Today, the ways in which drugs are prescribed and paid for are considerably more complex. To a great extent, this complexity has been introduced in direct response to concerns with the rapid growth in health care expenditures. Just as with hospital and physician services in an earlier day, insurers have recently begun to take concrete steps to control the costs of pharmacy benefits. Some steps require patients to bear a larger share of the costs of drugs through increased copayments, while others reduce the utilization of drugs and rely more on less-costly types of drugs. The most important steps, however, are directed at minimizing both how much insurers pay manufacturers for drugs and how much they pay pharmacies for their services. Insurers take steps to reduce the acquisition costs of drugs by negotiating for discounts or rebates from drug manufacturers. A powerful tool in these negotiations is the formulary that the insurer or the PBM maintains. A formulary is a list of prescription drugs that are preferred by the insurer or the PBM. Drugs are included on formularies not only for reasons of medical effectiveness but also because of price. Because formularies can affect the utilization rates for drugs, it is in the interest of a drug manufacturer to have its products included. This is especially true when the insurer or PBM is successful in obtaining high rates of physician compliance with the formulary and when the insurer has a large number of enrollees. In these cases, the potential effect that placement on a formulary has on the sales and market share of a drug is so great that insurers can use such placement as a means of securing discounts or rebates from drug manufacturers. Insurers and PBMs also negotiate for discounts directly with pharmacies to try to control how much they reimburse for services. In these negotiations, the position of insurers is strengthened not by formularies but by their ability to influence which pharmacies their enrollees use. As with the negotiations with manufacturers, the position of the insurer or the PBM is related to the number of enrollees represented by the plan. The extent to which negotiated rebates and discounts with drug manufacturers and pharmacies have controlled costs can be substantial. For example, in our most recent examination of these strategies, a large insurer estimated that the combined savings that resulted from manufacturer rebates and pharmacy discounts exceeded $300 million.Many retail pharmacists believe that the means used to achieve these savings have placed them at a comparative disadvantage in the rapidly changing health care environment. The current environment is viewed with anxiety by many retail pharmacists. The success of insurers and other institutional buyers in using their consolidated buying power to reduce the price they pay for drugs has not been shared by retail pharmacists. As a consequence, retail pharmacies are sometimes charged more for similar products than are health insurers such as health maintenance organizations, self insured health plans, and other institutional buyers. The best evidence we were able to obtain that differential pricing existed comes from a recent study of drug pricing in Wisconsin. Table 1 summarizes the results from that study. As can be seen from the table, differences in prices of greater than 10 percent were found for more than one third of all products (27 out of 76 drugs), and in more than one half of those cases (21 percent of all cases), the differences could not be justified by volume of purchase. In placing these findings in a larger perspective, it is important to note that Wisconsin has what is often referred to as a “unitary pricing” law that “requires sellers to offer drugs . . . to every purchaser under the same terms and conditions afforded to the most favored purchaser.” The data from Wisconsin support the conclusion of many that differential pricing exists. The differences in prices may well reflect the relative abilities of insurers and retail pharmacies to influence market share. That is, some purchasers of drugs, primarily those who can influence the specific drugs that are prescribed for large numbers of patients, may pay less for drugs because of that ability. The increasing concern among insurers with controlling costs and the consequent reliance on their consolidated purchasing power also have affected how much pharmacies are reimbursed for the drugs they sell to customers. As health insurers and the PBMs that represent them cover more people, they use the size of their member populations as leverage to help reduce the amounts that they reimburse pharmacies for prescriptions dispensed to those populations. Although a pharmacy can refuse to participate in an insurer’s network of pharmacies willing to provide prescription discounts, it is difficult for the pharmacy to face the possibility of losing the business. For example, each of the two largest PBMs represents more than 40 million people nationwide. As we were told by one independent retail pharmacist, “either I agreed to the new reimbursement schedule, or I lose 40 percent of my patients.” In addition to the pressures of how much retail pharmacists pay for drugs and how much they can charge for their services, they have been facing pressure from new sources of competition. The expansion of supermarkets into the pharmaceutical area has been under way for some time, but the more immediate threat to the viability of retail pharmacies may be posed by the reliance of insurers on mail order pharmacies. Mail order firms have made significant inroads into the market in recent years, especially in providing drugs for the chronically ill. In an effort to promote the use of mail order pharmacies, some insurers provide enrollees with considerable financial incentives. For example, the largest plan under the federal employee health benefits program provides enrollees drugs free of charge if they obtain them through the mail order program yet requires a 20-percent copayment from most enrollees for drugs purchased at retail pharmacies. All these pressures on retail pharmacies have had a considerable effect. For example, in the case described above, a change in pharmacy benefits that affected many of the plan’s enrollees reduced payments to retail pharmacies. During the first 5 months of 1996, the total amount that retail pharmacies were paid for the prescriptions they dispensed to enrollees affected by the benefit change decreased by about 36 percent, or about $95 million, from the amount paid during the same period in 1995. Retail pharmacists have resorted to three different types of action in response to the changes in pharmaceutical pricing: litigation, adoption of competitive strategies, and calls for legislation. A large lawsuit regarding drug pricing was recently settled, at least in part. The suit was a class action by tens of thousands of independent and chain pharmacies against virtually all the leading manufacturers and wholesalers of brand-name prescription drugs. The pharmacies argued that the manufacturers and wholesalers, by granting discounts to managed care organizations that were not available to the pharmacies, were engaged in a price-fixing conspiracy in violation of federal antitrust law. The court rejected an initial settlement but approved a modified settlement with most of the manufacturer-defendants on June 21, 1996.(The wholesalers are not parties to this settlement because the court earlier granted summary judgment in their favor.) The litigation is not entirely over because not all parties have agreed to the settlement, and a number of issues remain on appeal in the Court of Appeals for the 7th Circuit. The modified settlement satisfied the concerns about future pricing conduct that led the court to reject the initial proposal. Specifically, the current settlement provides that (1) the manufacturers will not refuse discounts solely on the basis that the buyer is a retailer and (2) retail pharmacies and buying groups that are able to demonstrate an ability to affect market share will be entitled to discounts based on that ability, to the same extent that managed care organizations would get such discounts. In addition to pursuing legal remedies, retail pharmacies are beginning to adopt some strategies designed specifically to become more competitive in the new environment. Some pharmacies are offering services not traditionally found in them (such as food products and optical care), while some are trying to follow the lead of institutional drug purchasers. For example, some retailers are creating buying groups, and others are considering ways to influence the choice of drugs by contacting patients directly and informing them of the relative merits of the different drugs that might be available. If contacting patients directly is successful, it will provide retail pharmacies with the commodity that makes institutional buyers so powerful—namely, the ability to influence market share. Although we cannot predict how successful any of these strategies will be, the large chain pharmacies are more likely to succeed as they try to compete with managed care organizations and mail order pharmacies than are the smaller, independent retail pharmacies. Finally, retail pharmacists and their representatives have been strong proponents for legislative solutions. Depending on ideological affiliation, these are alternatively referred to as “unitary pricing” or “equal access to discount” laws, and they have been considered in one form or another by the majority of state legislatures. Although it is difficult to predict all the consequences of legislation in such a complex area as drug pricing, we can look to the last instance in which the federal government attempted a legislative solution to a problem involving drug costs: the Medicaid rebate on prescription drugs. In OBRA 1990, the Congress tried to reduce Medicaid’s prescription drug costs by requiring that drug manufacturers give state Medicaid programs rebates for outpatient drugs. The rebates were based on the lowest of “best” prices that drug manufacturers charged other purchasers, such as health maintenance organizations and hospitals. In our study of this legislation, we found that the average best price for outpatient drugs paid by large purchasers increased. In its evaluation, the Congressional Budget Office concluded that the program had reduced Medicaid spending on prescription drug benefits by almost $2 billion. However, at the same time, the budget office study’s conclusion was consistent with ours in that “spending on prescription drugs by non-Medicaid patients may have increased as a result of the Medicaid rebate program.” Although the issues involved with the differential pricing between institutional and retail pharmacies are likely to be distinct from those the Congress confronted in the Medicaid prescription drug benefit, the lessons of OBRA 1990 cannot be ignored at a time when controlling health care costs is of such critical importance. Mr. Chairman, this concludes my statement. I would be happy to answer any questions that the Subcommittee might have. For more information about this testimony, please call George Silberman, Assistant Director, at 202-512-5885. Other major contributors include David G. Bernet, Joel A. Hamilton, and John C. Hansen. Blue Cross FEHB Pharmacy Benefits (GAO/HEHS-96-182R, July 19, 1996). Pharmacy Benefit Managers: Early Results on Ventures with Drug Manufacturers (GAO/HEHS-96-45, Nov. 9, 1995). Medicaid: Changes in Best Price for Outpatient Drugs Purchased by HMOs and Hospitals (GAO/HEHS-94-194FS, Aug. 5, 1994). Prescription Drugs and the Elderly: Many Still Receive Potentially Harmful Drugs Despite Recent Improvements (GAO/HEHS-95-152, July 24, 1995). Prescription Drug Prices: Official Index Overstates Producer Price Inflation (GAO/HEHS-95-90, Apr. 28, 1995). Prescription Drugs: Spending Controls in Four European Countries (GAO/HEHS-94-30, May 17, 1994). Prescription Drugs: Companies Typically Charge More in the United States Than in the United Kingdom (GAO/HEHS-94-29, Jan. 12, 1994). Medicaid: Outpatient Drug Costs and Reimbursements for Selected Pharmacies in Illinois and Maryland (GAO/HRD-93-55FS, Mar. 18, 1993). Prescription Drug Prices: Analysis of Canada’s Patented Medicine Prices Review Board (GAO/HRD-93-51, Feb. 17, 1993). Medicaid: Changes in Drug Prices Paid by HMOs and Hospitals Since Enactment of Rebate Provisions (GAO/HRD-93-43, Jan. 15, 1993). Prescription Drugs: Companies Typically Charge More in the United States Than in Canada (GAO/HRD-92-110, Sept. 30, 1992). Prescription Drugs: Changes in Prices for Selected Drugs (GAO/HRD-92-128, Aug. 24, 1992). Medicaid: Changes in Drug Prices Paid by VA and DOD Since Enactment of Rebate Provisions (GAO/HRD-91-139, Sept. 18, 1991). 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. A recorded menu will provide information on how to obtain these lists.

GAO discussed the implications of prescription drug pricing for retail pharmacies, focusing on the: (1) changes in the process of getting prescription drugs from manufacturers to patients; and (2) consequences for and response of retail pharmacies to these changes. GAO noted that: (1) health insurers have used their consolidated buying power to obtain drug discounts not available to retail pharmacies; (2) health insurers and pharmacy benefit managers (PBM) use the size of their member populations as leverage to help reduce the amounts that they reimburse pharmacies for prescriptions dispensed to those populations; (3) retail pharmacies have been facing increased competition from mail order pharmacies; and (4) retail pharmacies have responded to the changes in pharmaceutical pricing by waging lawsuits against leading drug manufacturers and wholesalers, developing more competitive strategies for gaining business, and campaigning for legislative action.

You are an expert at summarizing long articles. Proceed to summarize the following text: In 2002, after more than 15 years of scientific investigation, Congress approved the Yucca Mountain site in Nevada as a suitable location for the development of a long-term permanent repository for high-level nuclear waste. DOE is responsible for developing and operating the repository, and NRC is responsible for licensing the repository. DOE is currently preparing an application to submit to NRC by December 2004 for a license to construct the repository. To obtain a license, DOE must, among other things, demonstrate to NRC that the repository will not exceed Environmental Protection Agency health and safety standards over a 10,000-year period. An ineffective quality assurance program runs the risk of introducing unknown errors into the design and construction of the repository that could lead to adverse health and safety consequences. To demonstrate compliance with the health standards over this 10,000-year period, DOE must rely primarily on a “performance assessment” computer model that incorporates over 1,000 data sources, approximately 60 scientific models, and more than 400 computer software codes to simulate the performance of the repository. Given the prominence of computer modeling in the licensing of the repository, one of DOE’s most important tasks is to demonstrate the adequacy of the data, models, and software used to perform the simulation. In addition, as part of the licensing process, DOE must demonstrate that its quality assurance program can effectively identify and correct deficiencies in areas important to the safe operation and long-term performance of the repository, such as the natural and engineered barriers of the repository and the program’s data, models, and software. See appendix I for more information on the role of quality assurance in the licensing process. DOE has a long-standing history of attempting to correct quality assurance problems. In 1988, we identified significant problems with the quality assurance program, noting that NRC had identified many specific concerns about the Yucca Mountain program, including DOE’s heavy reliance on contractors and inadequate oversight would increase the likelihood that DOE might encounter quality-related problems; the possibility that Nevada would contest the licensing proceedings, thereby increasing the probability that DOE would have to defend its quality assurance program; additional expense and time-consuming delays to correct program weaknesses if DOE could not properly defend the quality of its work; and DOE staff’s and contractors’ negative attitude toward quality assurance. Since the late 1990s, DOE has attempted to correct continuing quality assurance problems in three areas critical to the repository’s successful performance: the adequacy of the data sources, the validity of scientific models, and the reliability of computer software that have been developed at the site. These problems surfaced in 1998 when DOE began to run the initial versions of its performance assessment model. Specifically, DOE was unable to ensure that critical project data had been properly collected and tracked back to original sources. In addition, the department lacked a standardized process for developing scientific models used to simulate a variety of geologic events and an effective process for ensuring that computer software used to support the scientific models will work properly. DOE implemented actions in 1999 to correct these deficiencies and prevent their recurrence. In 2001, similar deficiencies associated with models and software resurfaced. DOE attributed the recurrence to ineffective procedures and corrective actions, improper implementation of quality procedures by line managers, and personnel who feared reprisal for expressing quality concerns. To ensure that it adequately addressed the problems to prevent future recurrence, DOE developed a more comprehensive corrective action plan in July 2002, concentrating on actions needed to address the causes of the recurring problems while improving the organizational culture and instilling a strong commitment to quality in all project personnel. The plan detailed specific actions for both DOE and its contractor, Bechtel/SAIC Company, LLC (Bechtel), to strengthen the roles, responsibilities, accountability, and authority of project personnel; develop clearer quality assurance requirements and processes; improve program procedures; create an improved programwide corrective action process; and improve processes for ensuring that employees can raise project concerns without fear of reprisals. DOE reports that it has implemented almost all of the actions identified in its 2002 corrective action plan; however, recent audits and assessments indicate that recurring quality assurance problems have not been corrected. In 2003, DOE conducted three audits to evaluate the effectiveness of the corrective actions taken to address recurring problems with data, models, and software. Because each audit identified additional quality assurance problems, DOE concluded that there was insufficient evidence to demonstrate that the recurring problems had been corrected. DOE recently closed the corrective action reports for data and software, but did so without determining whether corrective actions have been effective. To examine actions taken to correct some of the management weaknesses identified in the 2002 corrective action plan, DOE conducted four management assessments late in 2003. Collectively, these assessments found continuing management weaknesses that DOE had identified as root causes of the recurring problems. NRC also conducted an assessment that was issued in April 2004. NRC’s assessment noted some improvements but also found continuing weaknesses and noted that quality assurance problems could hinder the licensing process. In 2003, DOE’s audits of data, models, and software identified continuing quality problems that could impede DOE’s license application. As a result, DOE could not close corrective action reports for models and software for nearly 3 years. In a June 2003 audit, DOE found quality problems in developing and validating software. In September 2003, DOE quality assurance auditors found that some data sets were still not qualified or traceable to their sources. In October 2003, a DOE audit found continuing quality problems in model documentation and validation. DOE officials have stated that these findings represent problems with procedures and documentation and do not invalidate the technical products produced using the data, models, and software. In March 2004, DOE closed the corrective action reports for data and software but did so without evaluating the effectiveness of corrective actions—according to agency officials, they will evaluate effectiveness at a later date. DOE anticipates closing the corrective action report for models in August 2004 but also plans to do so without evaluating the effectiveness of corrective actions. In April 2003, DOE again reported significant problems similar to those originally identified in 1998 with the qualification and traceability of data sets. At the time, DOE implemented corrective actions to recheck all of its data sets to confirm that they were traceable and qualified. However, a September 2003 audit identified similar data problems and new problems in addition to those noted in the corrective action report. The audit found that some data sets did not have the documentation needed to trace them back to their sources; the critical process of data control and management was not satisfactory; and, as in 1998, faulty definitions were developed for data procedures, which allowed unqualified data to be used. In addition, DOE found that overall compliance with procedures was unsatisfactory. Similarly, the April 2003 corrective action report also noted a lack of management leadership, accountability, and procedural compliance, issues which are closely related to the key improvement area of roles and responsibilities. DOE officials noted that these findings represented noncompliance with procedures, and that the procedures and processes were effective in producing defensible technical products if properly followed. As of February 2004, DOE had not finished rechecking all of its data sets or correcting problems in its data sets. However, DOE closed the corrective action report in March 2004 by making the rechecking process a continuing part of the Yucca Mountain repository’s work. The corrective action report was closed without DOE evaluating the effectiveness of the rechecking process in correcting problems with data. DOE officials stated that they plan to evaluate effectiveness at a later date. An October 2003 DOE quality assurance audit found continuing problems with the documentation and validation of models that DOE plans to use in its license application. Although auditors reported that processes were effective in producing defensible models to support the license application, they found that for some models sampled, project personnel did not properly follow model validation procedures. These problems were similar to those identified by audits conducted in 2001. Auditors compared results from the 2003 audit with actions taken to correct problems identified in 2001 and found that procedures still were not being satisfactorily implemented in the areas of model documentation and traceability, model validation, and checking and review. For example, an action was taken in 2001 to improve the self-identification of problems before issuing new model reports by allowing for sufficient scheduling time for model checking and review. However, the 2003 audit concluded that instances of new errors in model reports were evidence that the previous actions may not have been fully implemented. As a result, DOE has been unable to close the May 2001 model corrective action report for almost 3 years. DOE recently directed a team of industry experts to review its models and revise them to ensure consistency, traceability, and procedural compliance. DOE anticipates closing the corrective action report in August 2004 but will do so without conducting another audit of models to determine if corrective actions have been effective. In a June 2003 audit, DOE auditors discovered recurring software problems that could affect confidence in the adequacy of software codes. Specifically, the auditors found ineffective software processes in five areas: technical reviews, software classification, planning, design, and testing. The auditors found several of the software development problems to be similar to previously identified problems, indicating that previous actions were ineffective in correcting the problems. For example, auditors again noted instances of noncompliance with software procedures. They also concluded that technical reviews during software development were inadequate, even though documentation indicated that corrective actions for this condition had been completed 3 months before the 2003 audit. Auditors also noted poorly defined roles and responsibilities as a cause of problems identified in the technical review of software, even though DOE had taken actions under its 2002 corrective action plan to clarify roles and responsibilities. Because of these results, DOE was unable to close the June 2001 software corrective action report. DOE employed a team of industry professionals in the fall of 2003 to examine software quality problems identified from 1998 through 2003. The professionals’ February 2004 report concluded that software problems recurred because DOE did not assess the effectiveness of its corrective actions and did not adequately identify the root causes of the problems. In a January 2004 follow-up audit of software, auditors verified that unqualified software was used to run approved models, and noted that procedural controls for determining the adequacy of software were inadequate. In March 2004, without evaluating the effectiveness of corrective actions, DOE closed the software corrective action report. DOE officials plan to evaluate the effectiveness of its corrective actions for software sometime in the future. DOE reported in the fall of 2003 that it had implemented most of the actions identified in the plan focusing on management weaknesses, but four DOE management assessments of the Yucca Mountain project completed between September and November 2003 found that some of the identified management weaknesses had yet to be properly addressed. These assessments included one requested by project management comparing DOE’s management practices at Yucca Mountain with external industry best practices, one required as an annual assessment of the adequacy and effectiveness of the quality assurance program, one requested by the project director that examined the effectiveness of selected DOE and contractor management systems, and one examining the project work environment. Collectively, these assessments identified continuing weaknesses in the areas of roles and responsibilities, quality assurance procedures, and a work environment that did not foster employee confidence in raising concerns without fear of reprisal. DOE officials stated that they are presently reviewing the findings of these assessments, and have recently initiated additional corrective actions. Three of the four management assessments conducted late in 2003 identified significant continuing problems with the delineation and definition of roles and responsibilities for carrying out the quality assurance program. In its 2002 corrective action plan, DOE stated that it was not possible to build accountability into management without clearly and formally defining roles and responsibilities for DOE and its contractors. DOE’s planned actions included clarification of roles and responsibilities within DOE and Bechtel through policy statements, communications, a new program manual, and realignment of the organization to support performance accountability. DOE reported that it had completed all corrective actions in this area by May 2003. The assessments noted that these actions had resulted in some improvements, but that some management weaknesses remained. The assessments found that the Yucca Mountain project lacked formal mechanisms for defining and communicating roles and responsibilities that meet both DOE and NRC requirements; did not have a systematic process for assigning authorities to DOE and Bechtel organizations and individuals; relied on program managers who had not fully assumed ownership and responsibility for quality assurance; lacked formal control of documents outlining roles and responsibilities, ensuring that they reflect the organization; lacked clear reporting relationships between the project and supporting had not adequately established processes for reviewing procedures had few systematic and effective approaches in place for assigning accountability to individuals and organizations; and did not effectively plan and communicate reorganizations and assign appropriate authority levels, in the opinion of many project employees. As a result of findings from these assessments, DOE is pursuing further corrective actions. For example, DOE plans to formally control the high- level document that defines its organizational structure. Also, Bechtel has initiated a management system improvement project, which includes issuing a new document defining roles and responsibilities. DOE officials expect that roles and responsibilities will continue to be a challenge in the future, but that efforts will continue. Three of the four management assessments identified continuing problems with project procedures, one of the areas of management weaknesses addressed by the 2002 corrective action plan. Although the assessments noted that DOE and Bechtel had made improvements in the procedure management system and DOE had reportedly reviewed existing procedures, issued new or revised procedures, and ensured that personnel using the procedures were properly trained, the assessments noted that procedures were overly prescriptive, procedures did not cover all required processes, and continuing noncompliance with procedures remained a problem. Although DOE completed actions under the 2002 plan to revise project procedures, DOE has initiated further corrective actions, including a plan to again revise Yucca Mountain project procedures by June 2005. Three of the four assessments identified continuing problems with efforts by DOE and Bechtel to ensure a work environment in which employees can freely raise concerns without fear of reprisal—one of the key areas of management weaknesses identified in the corrective action plan. DOE and Bechtel implemented corrective actions to improve the work environment by revising and expanding policies, modifying DOE contracts to require implementation of program requirements, decreasing the backlog of employee concerns, and providing programwide training that is based on industry practices. However, the assessments revealed continuing problems with the work environment, including both DOE’s and Bechtel’s employee concerns programs, which provide personnel with an opportunity to formally raise concerns about the project outside the normal chain-of-command without fear of reprisal. Appendix II describes the requirements of the Yucca Mountain employee concerns programs. Although the assessments noted ongoing management actions to strengthen the implementation of the concerns programs, they also noted that neither DOE nor Bechtel have effectively controlled corrective actions under the employee concerns programs, sometimes closing cases on the basis of anticipated actions; both DOE and contractor employee concerns programs are not being utilized to their fullest; there is a general lack of employee confidence in reporting safety issues DOE and Bechtel have not made effective resources available for determining the root causes of problems identified; DOE and Bechtel have not established a climate of trust despite communication mechanisms and messages; and a majority of DOE and contractor employees either do not consider the project’s corrective action process to be effective or are not sure of its effectiveness. Although the plan’s actions to improve the work environment were completed in November 2003, DOE plans to take additional actions to improve employee confidence in raising issues without fear of reprisal. NRC has commented on DOE’s lack of progress in making improvements to the quality assurance program. At an April 2003 management meeting with DOE, an NRC official commented that the quality assurance program had not produced the outcomes necessary to ensure that the program is compliant with NRC requirements. In response, DOE outlined the steps it was taking to ensure that its license application would meet NRC expectations for completeness, accuracy, and compliance with quality assurance requirements. The steps included additional actions to improve performance in five areas: license application, procedural compliance, the corrective action program, the work environment, and accountability. In October 2003, DOE reported to NRC that it had completed some of the actions and was making progress in the remaining open action items. While NRC officials noted that DOE’s actions might enhance performance, they found that significant implementation issues persist. NRC officials stated that they were seeking evidence of incremental DOE progress in the implementation of the quality assurance program in order to gain confidence in the adequacy of data, models, and software supporting the potential license application. In a November 2003 management meeting with DOE, NRC officials expressed encouragement with DOE’s progress in implementing an improved corrective action process and the continued performance of effective audits and the identification of areas for improvement. However, the NRC staff continued to express concerns with DOE’s lack of progress in correcting repetitive quality problems with models and software. “…if DOE continues to use its existing policies, procedures, methods, and practices at the same level of implementation and rigor, the license application may not contain information sufficient to support some technical positions in the application. This could result in a large volume of requests for additional information in some areas which could extend the review process, and could prevent NRC from making a decision regarding issuing a construction authorization to DOE within the time required by law.” DOE cannot formally assess the overall effectiveness of its 2002 corrective action plan because the performance goals to assess management weaknesses in the plan lack objective measurements and time frames for determining success. For example, the goals do not specify the amount of improvement expected, how quickly the improvement should be achieved, or how long the improvement should be sustained before the problems can be considered corrected. For example, whereas 1 goal calls for a decreasing trend in the average time needed to make revisions in procedures, it does not specify the desired amount of the decrease, the length of time needed to achieve the decrease, or how long the decrease must be sustained. DOE recently developed a management tool to measure overall project performance that includes more than 200 performance indicators with supporting goals, including 17 goals linked to the 13 goals included in the 2002 corrective action plan. These 17 goals specify the desired amount of improvement, but most still lack the time frames needed for achieving and sustaining the goals. DOE officials told us they intend to use this performance measurement tool to track the progress of the project, including actions taken under the 2002 corrective action plan. A DOE independent review of the corrective action plan completed in March 2004 found that the corrective actions from the 2002 plan to address management weaknesses have been fully implemented. However, the review also noted the effectiveness of corrective actions under the plan could not be evaluated because many of the goals in the performance measurement tool that are linked to the 2002 plan lacked the level of objectivity and testing needed to measure effectiveness. DOE’s 2002 plan included 13 goals to be used to determine the effectiveness of the corrective actions that addressed the five areas of management weaknesses. However, these goals were poorly defined, thus limiting DOE’s ability to evaluate the effectiveness of actions taken. Both GAO and the Office of Management and Budget (OMB) have stated that performance goals need to be measurable, and time frames need to be established in order to track progress and demonstrate that deficiencies have been corrected. Of the 13 goals in the corrective action plan, 3 indicated how much improvement was expected. For example, 1 of the 3 goals specified that the number of significant quality problems self- identified by program managers should be at least 80 percent of all significant quality problems, including those identified by program managers, quality assurance auditors, or other employees. In contrast, 1 of the other 10 goals called for the achievement of a decreasing trend in the time needed for revising procedures, but did not specify how much of a decrease is expected. Further, none of the 13 goals specified the length of time needed to reach and maintain the desired goal to demonstrate that the actions taken were effective. For example, the goal calling for self- identified significant quality problems to be at least 80 percent of all significant quality problems did not indicate the length of time needed to achieve the goal or how long this goal should be sustained in order to demonstrate effectiveness. DOE does not intend to revise the goals of the 2002 corrective action plan to include quantifiable measures and time frames. Without such quantifiable measures to determine whether a goal has been met, and without a specified time for the goal to be maintained, DOE cannot use these goals to determine the effectiveness of the actions taken. DOE’s recent efforts to improve performance measurement have not allowed it to adequately measure the effectiveness of its corrective action plan. DOE has developed a projectwide performance measurement tool to assess project performance that includes over 200 performance indicators with supporting goals related to the project. At our request, Bechtel was able to link 17 of the supporting goals to 12 of the 13 goals of the 2002 corrective action plan. Although these linked goals improved quantifiable measurement for 11 of the plan’s goals by specifying the amount of improvement expected, most did not include the necessary time frames for meeting the goals and sustaining the desired performance. DOE officials stated that this tool was not specifically tailored to evaluate the corrective action plan’s effectiveness, but that they have decided to use it in lieu of the original 13 goals to monitor improvements and progress in correcting the management weaknesses identified in the plan. Table 1 provides a comparison of the supporting goals in the performance tool with the 2002 corrective action plan goals. DOE has recently assessed the implementation of corrective actions, but it has not yet assessed the effectiveness of these actions in correcting recurring problems. In December 2003, DOE outlined the approach it used to determine whether corrective actions have been implemented. This approach is part of the overall process described in the 2002 action plan— appendix III provides an overview of the action plan and the status of the process. To determine if corrective actions had been implemented, DOE relied on the collective judgment of project managers regarding how effectively they have incorporated corrective actions into their regular project activities. A March 2004 DOE review analyzed the implementation of corrective actions for each of the management weaknesses but was not able to evaluate the effectiveness of the corrective actions. DOE’s March 2004 review noted strong management commitment to improvement and described recent actions taken to ensure that work products meet quality objectives for a successful license application. However, the review identified continuing weaknesses in DOE’s ability to determine the effectiveness of the actions it has taken. The review team attempted to measure how effectively DOE had met each of the plan’s original 13 goals. The team was unable to measure whether 10 of the 13 goals had been met, but concluded that the project had met 2 of the goals and made progress toward another goal, based on an analysis of trends in quality problems identified. However, these conclusions were not based on an evaluation of quantifiable goals with time frames for meeting and sustaining the desired performance. The review also concluded that the performance indicators developed to evaluate the success of the actions lacked the level of objectivity and testing needed to measure effectiveness and that some lacked the data needed to assess effectiveness. The review recommended that DOE continue its corrective actions and refine performance indicators so that the effectiveness of corrective actions in meeting the plan’s goals can be more readily measured. In April 2004, DOE notified NRC that it had completed, validated, and independently assessed the commitments it made in the 2002 corrective action plan, institutionalized the corrective actions, and established a baseline to foster and sustain continuous improvement. DOE officials stated they have achieved the initial goals of the 2002 plan through these actions. These officials indicated they would continue to refine and improve project tools used to evaluate the effectiveness of corrective actions. However, because of the limitations noted in its March 2004 review, DOE has not yet evaluated the effectiveness of corrective actions. Despite working nearly 3 years to address recurring quality assurance problems, recent audits and assessments have found that problems continue with data, models, and software, and that management weaknesses remain. As NRC has noted, quality assurance problems could delay the licensing process. Despite recurring quality problems, DOE has recently closed the corrective action reports for data and software and intends to close the corrective action report for models in August 2004 without first evaluating the effectiveness of the corrective actions taken to address the problems in these areas. DOE also does not intend to improve the goals of the 2002 plan associated with management weaknesses so that they can be adequately measured. Instead, DOE continues to plan and implement further actions to correct its quality problems and management weaknesses. This approach provides no indication regarding when DOE may be in a position to show that corrective actions have been successful. Entering into the licensing phase of the project without resolving the recurring problems could impede the application process, which at a minimum could lead to time-consuming and expensive delays while weaknesses are corrected and could ultimately prevent DOE from receiving authorization to construct a repository. Moreover, recurring problems could create the risk of introducing unknown errors into the design and construction of the repository that could lead to adverse health and safety consequences. Because of its lack of evidence that its actions have been successful, DOE is not yet in a position to demonstrate to NRC that its quality assurance program can ensure the safe construction and long-term operation of the repository. To better evaluate the effectiveness of management actions in correcting recurring quality problems, we recommend that the Secretary of Energy direct the Director, Office of Civilian Radioactive Waste Management, to revise the performance goals in the 2002 action plan to include quantifiable measures of the performance expected and time frames for achieving and maintaining this expected level of performance and close the 2002 plan once sufficient evidence shows that the recurring quality assurance problems and management weaknesses that are causing them have been successfully corrected. We provided a draft of this report to DOE and NRC for their review and comments. DOE’s written comments, which are reproduced in appendix IV, expressed disagreement with the report’s findings and recommendations. DOE commented that the report did not properly acknowledge improvements the department has made in the quality assurance program; failed to properly characterize the 2002 Management Improvement Initiatives as a “springboard” to address management issues; did not consider DOE’s use of the full range of performance indicators related to quality assurance; and mischaracterized the results of several independent, external reviews, taking a solely negative view of the findings. We disagree with most of DOE’s comments. Our draft report acknowledged that DOE has taken a number of actions to address past problems in the quality assurance program, but to ensure clarity on this point, we have incorporated additional language to this effect in the report. However, our primary focus for this review was to evaluate the effectiveness of DOE’s corrective actions in addressing the recurring quality problems. Despite the many actions taken to improve the quality assurance program, the management weaknesses and quality problems with data, models, and software have continued, indicating that the corrective actions have not been fully effective. Regarding DOE’s views on our treatment of the 2002 Management Improvement Initiatives, DOE itself characterized the initiative as a “comprehensive corrective action plan.” DOE stated that the implementation of the plan has been successful based on the evidence that responsible managers have taken agreed-upon action. This approach can be misleading, however, because it does not incorporate a determination of whether these actions have been effective. In fact, DOE has not evaluated the effectiveness of these actions in solving recurring problems. DOE further stated that we did not consider the full range of performance indicators related to quality assurance that DOE uses to manage the project. We agree. We asked DOE staff to compare their new performance indicators to the goals in the 2002 plan, and those are the goals that we presented for comparison in table 1 of our report. A discussion of the remainder of the hundreds of other goals was beyond the scope of our review and would not have added to an understanding of the overall problems with DOE’s goals. Finally, we disagree with DOE’s comment that we mischaracterized the results of recent independent reviews. We noted instances in these reports where improvements were found. However, we also devoted appropriate attention to evidence in these reports that address whether DOE’s corrective actions have been effective. As our report states, these reports consistently found that these actions have not yet had their intended effect. In NRC’s written comments, reproduced in appendix V, the agency agreed with our conclusions but suggested that DOE be given the flexibility to choose alternative approaches to achieve and measure quality assurance program performance. We agree that alternative approaches could be used to measure performance; however, to ensure the success of any approaches, DOE must include objective measurements and time frames for reaching and sustaining desired performance and include an end point for closing out the corrective action plan. To assess the status of DOE’s corrective actions to resolve recurring quality problems, we reviewed audits and deficiency reports written by the program over the past 5 years that identified problems with data, models, and software. We did not independently assess the adequacy of data, models, and software, but rather relied on the results of the project’s quality assurance audits. In addition, we reviewed numerous documents that NRC prepared as part of its prelicensing activities at Yucca Mountain, including observations of quality assurance audits, NRC on-site representative reports, and correspondence between NRC and DOE on quality matters. We also observed an out-briefing of a quality assurance audit to obtain additional knowledge of how quality problems are identified and reported. To document the status of actions taken, we reviewed evidence used by DOE’s Office of Civilian Radioactive Waste Management to prove corrective actions had been implemented and interviewed officials with DOE, at the Yucca site and in headquarters, and officials with Bechtel, the primary contractor. We also reviewed the results of four DOE assessments completed in the fall of 2003 that included the quality assurance program, interviewing the authors of the assessment reports to obtain a clear understanding of the problems identified. We attended quarterly meetings held between DOE and NRC to discuss actions taken under the plan and met with representatives of the State of Nevada Agency for Nuclear Projects and with representatives of the Nuclear Waste Technical Review Board, which was established to advise DOE on scientific and technical aspects of the Yucca Mountain project. To determine the adequacy of DOE’s plan to measure the effectiveness of the actions it has taken, we examined the July 2002 corrective action plan and subsequent project performance measurement documents to determine how DOE intended to use goals and performance measures to evaluate the plan’s effectiveness. We asked Bechtel officials to assist us in identifying and matching performance goals in the projectwide performance measurement tool with those in the 2002 corrective action plan. We compared DOE’s approach in its corrective action plan and subsequent projectwide tool with GAO and OMB guidance on performance measurement. We discussed the implementation of the corrective action plan and methods for measuring its effectiveness with various DOE and NRC officials and DOE contractors in Washington, D.C., and at the Yucca Mountain project office in Las Vegas, Nevada. We also interviewed other GAO personnel familiar with performance measurement to more fully understand the key elements needed for effective assessments. We will send copies of this report to the appropriate congressional committees, the Secretary of Energy, and the Chairman of the Nuclear Regulatory Commission. 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 www.gao.gov. If you or your staffs have any questions about this report, please call me on (202) 512-3841. Major contributors to this report are listed in appendix VI. After the Department of Energy (DOE) submits its license application to the Nuclear Regulatory Commission (NRC), NRC will review it to determine whether all NRC requirements have been met and whether the repository is likely to operate safely as designed. NRC’s review will be guided by its Yucca Mountain Review Plan, which NRC developed to ensure the quality, uniformity, and consistency of NRC reviews of the license application and of any requested amendments. The review plan is not a regulation, but does contain the licensing criteria contained in federal regulations. DOE’s application is to include general, scientific, and administrative information contained in two major sections: (1) a general information section that provides an overview of the engineering design concept for the repository and describes aspects of the Yucca Mountain site and its environs that influence repository design and performance, and (2) a detailed safety analysis section that provides a review of compliance with regulatory performance objectives that are based on permissible levels of radiation doses to workers and the public, established on the basis of acceptable levels of risk. The general information section covers such topics as proposed schedules for construction, receipt, and emplacement of waste; the physical protection plan; the material control and accounting program; and a description of site characterization work. The detailed safety analysis is the major portion of the application and includes DOE’s detailed technical basis for the following areas: the repository’s safety performance before permanent closure in 100 to the repository’s safety performance in the 10,000 years after permanent closure, on the basis of the “performance assessment” computer model; a research and development program describing safety features or components for which further technical information is required to confirm the adequacy of design and engineered or natural barriers; a performance confirmation program that includes tests, experiments, and analyses that evaluate the adequacy of information used to demonstrate the repository’s safety over thousands of years; and administrative and programmatic information about the repository, such as the quality assurance program, records and reports, training and certification of personnel, plans for start-up activities, emergency planning, and control of access to the site. After DOE submits the license application (currently planned for December 2004), NRC plans to take 90 days to examine the application for completeness to determine whether DOE has addressed all NRC requirements in the application. One of the reviews for completeness will include an examination of DOE’s documentation of the quality assurance program to determine if it addresses all NRC criteria. These criteria include, among other things, organization, design and document control, corrective actions, quality assurance records, and quality audits. If it deems any part of the application incomplete, NRC may either reject the application or require that DOE furnish the necessary documentation before proceeding with the detailed technical review of the application. If it deems the application complete, NRC will docket the application, indicating its readiness for a detailed technical review. Once the application is docketed, NRC will conduct a detailed technical review of the application over the next 18 months to determine if the application meets all NRC requirements, including the soundness of scientific analyses and preliminary facility design, and the NRC criteria established for quality assurance. If NRC discovers problems with the technical information used to support the license application, it may conduct specific inspections to determine the extent and effect of the problem. Because the data, models, and software used in modeling repository performance are integral parts of this technical review, quality assurance plays a key role since it is the mechanism used to verify the accuracy of the information DOE presents in the application. NRC may conduct inspections of the quality assurance program if technical problems are identified that are attributable to quality problems. According to NRC, any technical problems and subsequent inspections could delay the licensing of the repository or, in a rare instance, lead to ultimate rejection of the application. NRC will hold public hearings chaired by its Atomic Safety and Licensing Board to examine specific topics. Finally, within 3 to 4 years from the date that NRC dockets the application, NRC will make a decision to grant the application, reject the application, or grant it with conditions. Figure 1 presents the licensing process and timeline. DOE and Bechtel/SAIC Company, LLC (Bechtel), have each established an employee concerns program to allow employees to raise concerns about the work environment without fear of reprisal. NRC requires licensees to establish a safe work environment where (1) employees are encouraged to raise concerns either to their own management or to NRC without fear of retaliation and (2) employees’ concerns are resolved in a timely and appropriate manner according to their importance. DOE and contractor employees at Yucca Mountain have various means through which to raise concerns about safety, quality, or the work environment, including a corrective action program—a process in which any employee can formally cite a problem on the project, including the work environment, that needs to be investigated and corrective actions taken; a DOE or contractor employee concerns program; or filing a concern directly with NRC. NRC encourages, but does not require, licensees to establish employee concerns programs. Both the DOE and Bechtel concerns programs at Yucca Mountain have three main steps: 1. An employee notifies concerns program staff about an issue that he/she feels should be corrected, such as safety and health issues, free from harassment, retaliation, or quality assurance problems. 2. The concerns program staff documents and investigates the employee’s concern. 3. The concerns program notifies the employee of the results of the investigation and notifies management of any need for corrective actions. DOE and Bechtel each have established a communication network to allow employees to register concerns. These networks include brochures and regular newsletters on the program and numerous computer links to the program on the contractor’s intranet where employees can obtain concerns program forms on line. Recent statistics released by DOE show that most of the 97 concerns investigated by the DOE and Bechtel concerns programs in 2003 related to complaints against management. A summary of the concerns investigated in 2003 is shown in table 2. DOE has established a process for completing corrective actions associated with the 2002 corrective action plan and evaluating their effectiveness. According to this process, after managers report they have taken actions to correct management weaknesses and specific problems with models and software, a confirmation team of DOE and contractor personnel verify that the actions have been completed. Once this step is completed, DOE conducts internal and external effectiveness reviews to determine if the actions have been effective in correcting the reported conditions. After the reviews of effectiveness, the results are assessed and reported to the Director of the Office of Civilian Radioactive Waste Management (OCRWM). The director then notifies NRC officials of the results of the effectiveness reviews, and the 2002 corrective action plan is closed. Figure 2 shows the corrective action plan process and the status of each step. The following are GAO’s comments on the Department of Energy’s letter dated April 19, 2004. 1. We disagree. Our report states that the recent independent assessments have shown improvements in the key management areas identified in the 2002 corrective action plan. However, the assessments also showed that problems remain in these areas and thus the corrective actions have not yet been successful in correcting these weaknesses. DOE’s examples of progress illustrate our point regarding improperly specified goals. For example, DOE states in its comments that line management’s self-identification of conditions adverse to quality has increased approximately 100 percent in the last 15 months (as opposed to the identification of such conditions by quality assurance auditors). However, despite this seemingly dramatic increase, DOE has yet to meet its goal of line management’s self- identifying 80 percent of all quality problems. (DOE’s 100 percent increase brought them up to about 50 percent of all quality problems being self-identified by line managers.) Further, the goal continues to lack a time frame for when the 80 percent goal should be attained and for how long it should be sustained before the corrective actions can be judged successful. As our report points out, without such specificity, improvements cannot be evaluated in terms of overall success. 2. We disagree. The 2002 Management Improvement Initiatives clearly state that it was a “comprehensive corrective action plan necessary to address weaknesses in the implementation of quality assurance requirements and attain a level of performance expected of an NRC license applicant.” Contrary to DOE’s assertion, the initiative does not indicate it was a “springboard effort to address management issues and transition improvements into day-to-day line management activities.” Although the transitioning of improvements to the line is laudable, the initiative focused on implementing corrective actions and evaluating the effectiveness of the actions in correcting problems. This approach is consistent with DOE’s criteria for correcting significant conditions adverse to quality, and it is the criteria we relied on to determine whether the corrective actions specified in the initiatives were successful. 3. We agree. We did not include the full range of performance indicators (goals) that have recently been developed, and continue to change, to assess the 2002 plan. Instead, of the hundreds of indicators that are being developed to manage the project, we relied on those few that Bechtel officials told us were connected to the goals of the 2002 plan. As table 1 shows, some improvements have been made in specifying the quantitative aspects of the goals, but weaknesses continue to exist in the new goals. In fact, table 1 shows that DOE no longer has a goal in its performance tool that specifically tracks the trend in problems related to roles and responsibilities. This omission is particularly important because the area of roles and responsibilities was noted in the 2002 plan as one of the biggest sources of problems in the quality assurance process, and, as the recent assessments have found, this is an area with continuing problems. 4. We disagree. We acknowledge that these reviews found positive improvements in a number of management areas. However, we also note that continuing problems were found with management weaknesses despite all corrective actions having been implemented in 2003. 5. While DOE believes that it has achieved the objectives of the 2002 plan, it lacks evidence that its actions have been effective in addressing the management weaknesses and correcting the recurring quality problems with data, models, and software. Evaluating performance against measurable goals with time frames for meeting and sustaining the goals would provide the needed evidence. 6. The draft report that we sent to DOE for review included reviews of 9 of the 12 documents listed in the enclosure of DOE’s letter. We have since reviewed the 3 remaining documents. The information in the 3 documents did not change our assessment of DOE’s efforts to correct its quality assurance program. After full consideration of the information included in DOE’s comments, we believe that our findings are complete and our conclusions are accurate. The following is GAO’s comment on the U.S. Nuclear Regulatory Commission’s letter dated April 16, 2004. 1. We agree that alternative approaches could be used to measure performance; however, to ensure the success of any approaches, DOE must include objective measurements and time frames for reaching and sustaining desired performance and include an end point for closing out the corrective action plan. 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The Department of Energy (DOE) must obtain a license from the Nuclear Regulatory Commission (NRC) to construct a nuclear waste repository at Yucca Mountain, Nevada. In licensing, a quality assurance program helps ensure that the information used to demonstrate the safety of the repository is defensible and well documented. DOE developed a corrective action plan in 2002 to fix recurring problems with the accuracy of such information. This report assesses the status of corrective actions and the adequacy of DOE's plan to measure the effectiveness of actions taken. DOE has reportedly implemented most of the actions in its 2002 corrective action plan, but recent audits and assessments have identified lingering quality problems with data, models, and software and continuing management weaknesses. Audits revealed that some data sets could not be traced back to their sources, model development and validation procedures were not followed, and some processes for software development and validation were inadequate or not followed. DOE believes these problems have not affected the technical basis of the project; however, they could adversely affect the licensing process. Recent assessments identified continuing management weaknesses in the areas of roles and responsibilities, quality assurance policies and procedures, and a work environment that did not foster employee confidence in raising concerns without fear of reprisal. NRC has acknowledged DOE's effectiveness in identifying quality problems, but recently concluded that quality problems could delay the licensing process. DOE cannot assess the effectiveness of its 2002 plan because the performance goals to assess management weaknesses lack objective measurements and time frames for determining success. The goals do not specify the amount of improvement expected, how quickly the improvement should be achieved, or how long the improvement should be sustained before the problems can be considered corrected. DOE recently developed a measurement tool that incorporates and revises some of the goals from the action plan, but most of the revised goals continue to lack the necessary time frames needed to determine whether the actions have corrected the recurring problems. A recently completed DOE review of the 2002 plan found that the corrective actions have been fully implemented. However, the review also noted the effectiveness of the actions could not be evaluated because many of the plan's goals lacked the level of objectivity and testing needed to measure effectiveness.

You are an expert at summarizing long articles. Proceed to summarize the following text: Enemy sea mines were responsible for 14 of the 18 Navy ships destroyed or damaged since 1950, and producing countries have developed and proliferated mines that are even more difficult to detect and neutralize. After the Gulf War, during which two Navy ships were severely damaged by sea mines, the Navy began several actions to improve its mine warfare capabilities. The Navy’s current MCM capabilities are in a special purpose force that consists of 12 mine-hunter, coastal (MHC) and 14 MCM ships, 1 command and support ship, 24 mine-hunting and clearing helicopters, 17 explosive ordnance disposal detachments, a very shallow water detachment, and a marine mammal detachment. According to the Navy, the cost of operating and maintaining this MCM force from fiscal year 1992 through 2003 will be about $1.9 billion. Because the Navy’s MCM ships lack the speed and endurance they would need to accompany carrier battle groups and amphibious ready groups on overseas deployments, the Navy has changed its strategy of maintaining only a special purpose force to also developing mine countermeasure capabilities to be placed on board combat ships within the fleet. The Navy has consolidated operational control of all surface and airborne mine warfare forces under the Commander, Mine Warfare Command, and improved the readiness of these forces through exercises and training. The Navy also initiated research and development projects to address the weaknesses in its MCM program, especially the lack of on-board MCM capability throughout the fleet, and created a Program Executive Office for mine warfare, which brought together disparate MCM programs and their associated program management offices. In a prior report, we discussed weaknesses in the Navy’s ability to conduct effective sea mine countermeasures. We reported that critical MCM capabilities were unmet and reviewed the Navy’s efforts to address these limitations. At that time, the Navy had not established clear priorities among its mine warfare research and development programs to sustain the development and procurement of the most needed systems. Consequently, the Navy experienced delays in delivering new systems to provide necessary capabilities. DOD concurred with our recommendation that a long-range plan be developed to identify gaps and limitations in the Navy’s MCM capabilities and establish priorities. DOD said the process was ongoing and consisted of developing an overall concept of MCM operations and an architecture within which needs and shortfalls in capabilities could be evaluated and prioritized. DOD also said that critical programs would be identified and funded within the constraints of its overall budget. Congress previously expressed its concern that the Navy had failed to sufficiently emphasize mine countermeasures in its research and development program and noted the relatively limited funding allocation. As a result, mine warfare programs were designated as special congressional interest items. To support continuing emphasis on developing the desired mine countermeasures, Congress added a certification requirement in the National Defense Authorization Act for fiscal years 1992 and 1993. This required the Secretary of Defense to certify that the Secretary of the Navy, in consultation with the Chief of Naval Operations and the Commandant of the Marine Corps, had submitted an updated MCM master plan and budgeted sufficient resources for executing the updated plan. It also required the Chairman of the Joint Chiefs of Staff to determine that the budgetary resources needed for MCM activities and the updated master plan are sufficient. This certification requirement will expire with the fiscal year 1999 budget submission unless it is renewed. Although it has developed a strategy for overcoming deficiencies in its MCM capabilities, the Navy has not decided on the composition and size of its future on-board and special purpose MCM force. Navy officials have acknowledged the need to maintain some special purpose MCM force, while the Navy is moving toward an on-board MCM capability. The Navy currently has no on-board MCM capabilities and relies on a force of MCM capabilities that are specifically dedicated to that mission. The Navy has two assessments in progress to develop the information it needs to decide on the mix of its future on-board and special purpose forces. The objectives of these assessments are to determine (1) the quantities and types of on-board MCM systems the Navy will need to procure to meet fleet requirements in fiscal years 2005-2010; (2) the optimal force mix to meet fleet requirements in the 21st century; and (3) the numbers and types, if any, of special purpose MCM assets that will still be needed in the fiscal year 2010-2015 time frame. Initial results are expected to be available in October 1998, in time to influence the development of the fiscal year 2001 Navy resource program, with a final report in January 1999. Navy officials do not expect this phase of the assessments to provide them all of the information that is needed to tailor the future MCM force structure. They do expect, however, that it will give them a good idea of how to plan procurement, training, and maintenance for the on-board systems expected to be deployed in the fiscal year 2001-2005 time frame. To address the lack of on-board capability, the Navy accelerated the delivery of a Remote Minehunting System and established a contingency shallow-water mine-hunting capability in one Navy Reserve helicopter squadron using laser mine detection systems, and it is including mine-hunting systems in upgrades to existing and in new construction submarines. Maintaining the special purpose force is costly, and Navy resource managers have been evaluating how to pay for the operations and support costs of this force while pursuing costly development of on-board capabilities. A final force structure decision will likely be driven by the level of resources the Navy intends to dedicate to the MCM mission in the future—a decision that depends on numerous issues outside the MCM arena such as conflicting funding priorities among the various Navy warfare communities (aircraft, surface ships, and submarines). A decision on the future force structure is, however, still needed because that decision will determine the types and quantities of systems to be procured, set priorities among systems, and determine the level of resources required for development, procurement, and sustainment. For example, the Navy is currently debating whether to retire the current mine-hunting helicopters, the MH-53, in favor of maintaining only H-60 series helicopters. This helicopter decision will directly affect the types and quantity of airborne MCM capabilities the Navy will be able to field in the future. Since 1992, the Navy has invested about $1.2 billion in RDT&E funds to improve its mine warfare capabilities. The Navy plans to spend an additional $1.5 billion for RDT&E over the next 6 years. It is currently managing 28 separate MCM development programs and several advanced technology and advanced concept technology demonstrations. (See app. I for the status of selected programs.) So far, according to a Navy official, this investment has not produced any systems that are ready to transition to production. A few systems, such as the Airborne Mine Neutralization System, the Shallow-Water Assault Breaching system, Distributed Explosive Technology, and a Closed Loop Degaussing system, are scheduled for a production decision over the next 2 to 3 years. Other systems, such as communications data links for the MH-53 helicopters and the airborne laser mine-detection system (Magic Lantern Deployment Contingency), were not produced because the Navy never funded their procurement. Delays experienced in a number of MCM development programs result from the same kinds of problems that are found in other DOD acquisitions such as funding instability, changing requirements, cost growth, and unanticipated technical problems. For example, although the MCM funding program is small, the Navy has reduced funding for its MCM research and development programs after budget approval. (See app. II for two program examples.) These problems in MCM acquisition programs show that the design, development, and production of needed systems are complex and that technical processes must operate within equally complex budget and political processes. If programs are not well conceived, planned, managed, funded, and supported, problems such as cost growth, schedule delays, and performance shortfalls can easily occur. Two examples of mine warfare programs that have been in the research and development phase for many years without advancing to procurement are the AQS-20, an airborne mine-hunting sonar, and the Airborne Mine Neutralization System. The AQS-20 began in 1978 as an exploratory development model and was scheduled for a limited rate initial production decision in fiscal year 1999. The Navy terminated the program in 1997 in favor of a follow-on sonar, the AQS-X, with added mine identification capability and a tow requirement from a H-60 helicopter instead of a MH-53 helicopter. During the intervening 19 years, the program was plagued by cost growth, changing requirements, and a funding shortfall. The development of the Airborne Mine Neutralization System began in 1975, but a production decision is not scheduled until fiscal year 2000. The principal reason for the delay is that the program was canceled and restarted two times because of funding instability. Contributing to difficulties in transitioning programs into production are a number of management and internal control weaknesses noted during the annual Federal Manager’s Financial Integrity Act certification. Since 1992, the Program Executive Office has attempted to improve internal controls within five subordinate program offices by developing financial and acquisition management information and reporting systems. At its request, the Naval Audit Service is reviewing the state of internal controls within one of the program offices and expects to issue a report in the fall of 1998. A majority of officials we interviewed said that the annual certification requirement was useful because it served to increase the visibility of MCM requirements within DOD and the Navy. Most said that some form of the certification should continue to be required. However, as currently prepared, the annual certification does not address the adequacy of overall resources for this mission, nor does it provide for objective measures against which progress can be evaluated. Moreover, the Chairman, Joint Chiefs of Staff’s involvement in the certification process occurs too late to have a significant impact. The annual certification does not address the adequacy of overall resources for this mission because the Navy’s budget for MCM programs addresses only the adequacy of funding for the budget year, not the out years. Further, nothing in the certification process provides objective measures against which progress can be evaluated. Such measures have been developed within the MCM community. For example, the time required by a tactical commander to clear a certain area of mines with and without various capabilities could be used in making individual program decisions. Likewise, there are mean times between repairs and average supply delay times to gauge reliability and supportability for the MCM and MHC ships. In the past, the DOD staff has not been willing to challenge Navy decisions regarding the content and adequacy of its MCM program. Instead, it focused on analyzing the consistency of the program from year to year. Consequently, DOD has been able to certify annually that the budget contains adequate resources for the program. However, in November 1997, the Secretary of Defense expressed his concern about the Navy’s financial commitment to mine warfare programs. As a result, the Navy added about $110 million to MCM programs over the future years defense planning period. The inclusion of the Chairman, Joint Chiefs of Staff, in the certification process was intended to give the regional commanders in chief an opportunity to influence the development of the MCM budget. We believe, however, and DOD and Navy officials agree, that the Chairman, Joint Chiefs of Staff’s determination has not added any significant value. Although the Joint Staff has assessed joint MCM requirements and capabilities, its conclusions have not been used as a basis for challenging the Navy’s MCM programs or suggesting alternatives. Moreover, since the Joint Staff’s review has occurred after, rather than before, the Navy’s budget proposals for MCM programs have been formalized, it has had no impact on specific Navy acquisition programs or overall resource decisions. To have an effective program, the Navy needs to decide on the size, composition, and capabilities of its future MCM forces. This decision will assist in prioritizing and disciplining its research, development, and procurement efforts. As with other mission areas, the types and quantities of systems to be procured and their platform integration will most likely be driven by the level of resources the Navy allocates to the MCM mission in the future. What is required is for the Navy leadership and the various warfare communities to agree on the composition and structure (size) of future MCM forces and commit the necessary resources to their development and sustainment. Without such an agreement, budgetary pressures may result in degradation of the special purpose forces before the Navy has demonstrated and fielded effective, on-board capabilities within the fleet. The certification requirement has forced DOD and the Navy to pay increased attention to the MCM mission, and most officials involved support its continuation in some form. However, the certification has not provided any assurance that the resources for the MCM mission are “sufficient” because it has only addressed the adequacy of funding for the particular budget year and because the DOD staff and the Chairman of the Joint Chiefs of Staff have not challenged Navy resource allocation or budget decisions. If the Chairman of the Joint Chiefs of Staff’s involvement in the certification process is still considered important, it must occur in time to influence Navy decisions on requirements and funding. Overall budgetary pressures, the high operations and maintenance costs associated with the special purpose MCM fleet, and the Navy’s expectation of potential increased capabilities from on-board systems still early in development may combine to result in budgetary shifts from current special purpose forces before potential on-board capabilities are realized. We recommend that the Secretary of Defense, in conjunction with the Chairman, Joint Chiefs of Staff, and the Secretary of the Navy, determine the mix of on-board and special purpose forces DOD plans to maintain in the future and commit the funding deemed necessary for the development and sustainment of these desired capabilities. We also recommend that the Secretary of Defense direct the Secretary of the Navy to sustain the special purpose MCM forces until the Navy has demonstrated and fielded effective, on-board capabilities. The certification process has increased DOD’s and the Navy’s attention to the MCM mission. Since the certification requirement is scheduled to expire this year, Congress may wish to consider extending the annual certification requirement until the Navy has determined the mix of on-board and special purpose forces it will maintain in the future and has fielded effective, on-board MCM capabilities. To strengthen the certification process, Congress may wish to consider amending the requirement to ensure that the participation by the Chairman, Joint Chiefs of Staff, occurs before the Navy’s fiscal year budget is submitted to the Office of the Secretary of Defense. In commenting on a draft of this report (see app. III), DOD concurred with our recommendation that the Secretary of Defense direct the Secretary of the Navy to sustain the special purpose MCM forces until the Navy has demonstrated and fielded effective on-board capabilities. DOD partially concurred with our first recommendation that the Secretary of Defense determine the mix of on-board and special purpose forces DOD plans to maintain in the future and commit the necessary funding. DOD has directed the Navy to ensure that both current and future mine warfare programs are adequately funded. In an April 7, 1998, letter to the Secretary of the Navy, the Secretary of Defense expressed his concern about the Navy’s lack of commitment of the necessary resources to mine warfare and noted that currently, requirements exceed resources allocated. He directed the Navy to (1) protect the mine warfare program from any further funding reductions until some on-board capabilities are available, (2) avoid using the funds currently planned for the special purpose forces to fund the development of on-board capabilities, and (3) develop a future years funding plan that matches requirements with resources. DOD, however, cited the Navy as having primary responsibility for MCM forces, whereas our recommendation was directed to the Secretary of Defense. We agree that the Navy does have primary responsibility, but the Secretary of Defense has had a special role through the certification process. As we conclude in the report, the certification requirement has had a positive impact. Therefore, we have added a matter for congressional consideration to the report that suggests that the certification requirement be extended. DOD partially concurred with our recommendation that the Secretary of Defense direct that involvement by the Chairman, Joint Chiefs of Staff, occur early enough to affect annual Navy budget submissions. DOD said the Chairman is involved early enough to affect budget decisions. Our recommendation, however, is based on our conclusion that the certification process has not been effective in assuring the adequacy of resources. This conclusion is based, in part, on the late involvement of the Chairman, Joint Chiefs of Staff. For example, we note that the Navy’s fiscal year 1999 budget submission went to Congress in late January 1998, yet the Secretary of Defense’s certification, which includes the Chairman’s determination regarding the sufficiency of the Navy’s resources in fiscal year 1999, was submitted in May 1998. Although the Chairman, Joint Chiefs of Staff, has input in the budget process, the certification requirement provides an additional opportunity to have an effect in assuring the sufficiency of resources. Since DOD only partially concurred and to strengthen the certification process, we have deleted our recommendation regarding the Chairman’s participation and added a matter for congressional consideration that the annual certification requirement be amended to ensure the participation by the Chairman, Joint Chiefs of Staff, before the Navy’s budget is submitted to the Office of the Secretary of Defense. The intent of our matters for consideration is to give additional attention to the sufficiency of budget resources the Navy has devoted to MCM. DOD also provided some updated information in its comments and we have incorporated it into our report as appropriate. To obtain information on the status of Navy plans, programs, and the certification process, we interviewed and obtained documentation from officials of the Office of the Secretary of Defense, the Joint Staff, the Defense Intelligence Agency, the Secretary of the Navy, the Chief of Naval Operations, the Naval Air and Sea Systems Commands, the Office of Naval Intelligence, and the Office of Naval Research in the Washington, D.C., area, and the Navy Operational Test and Evaluation Force and the Surface Warfare Development Group in Norfolk, Virginia. We also interviewed and obtained information from officials engaged in MCM scientific and technical research and development activities at the Naval Undersea Warfare Center in Newport, Rhode Island; the Navy Coastal Systems Station in Panama City, Florida; and the Applied Physics Laboratory of Johns Hopkins University, in Laurel, Maryland. To gain an understanding of existing capabilities and requirements, and an operational perspective, we interviewed and obtained information from the staff and operational units of the Commander in Chief, Atlantic Command and the Commander in Chief, Atlantic Fleet in Norfolk, Virginia; and the Commander, Mine Warfare Command, in Corpus Christi, and Ingleside, Texas. We conducted our review between September 1997 and March 1998 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Chairman, Senate Committee on Armed Services; the Chairman, Subcommittee on Defense, Senate Committee on Appropriations; the Chairman, Subcommittee on National Security, House Committee on Appropriations; the Secretaries of Defense, the Army, and the Navy; and the Commandant of the Marine Corps. Copies will also be provided to other interested parties upon request. Please contact me at (202) 512-4841 if you have any questions about this report. The major contributors to this report are listed in appendix IV. Program description: The Remote Minehunting System program develops a new remotely operated mine-hunting system that is capable of detecting and classifying mines. It is intended to provide the surface fleet with an on-board means of finding and avoiding mined waters. The program has a three-fold strategy to develop a new vehicle, upgrade it with state-of-the-art mine-hunting sensors, and provide a supportable, incremental operational contingency system to the fleet during the development process. Platform: Surface combatants. Mine threat: Bottom & moored mines/deep to very shallow water. Program start date: Fiscal year 1993. Date of estimated completion of research & development phase: Fiscal year 2002, milestone III on version 4 (proposed). Current status: Milestone III on version 3 had been scheduled for fiscal year 1999; however, due to cost and schedule problems, the program has been restructured to drop version 3 and continue development of version 4. Funding (fiscal years 1992-97): $44.1 million. Programmed funding (fiscal years 1998-03): $103.7 million. Program description: The Magic Lantern is a helicopter mounted laser/camera system that detects and classifies moored mines. The objective of the Magic Lantern Deployment Contingency system is to field an advanced development model on one detachment of Naval Reserve SH-2G helicopters to provide on-board mine reconnaissance capability for surface and near surface water. In fiscal year 1996, Congress directed a competitive evaluation field test of the Airborne Laser Mine Detection System technologies. These technologies included Magic Lantern, ATD-111, and the Advanced Airborne Hyperspectral Imaging System. This field test took place in late 1997. The Navy expects to send the final report to Congress by the end of April 1998. Platform: SH-2G helicopters. Mine threat: Floating and shallow-water moored mines. Program start date: Fiscal year 1992 (Start of the Airborne Laser Mine Detection System program). Date of estimated completion of research & development phase: Fiscal year 1999. Current status: Installation of contingency systems on H-60 helicopters. Funding (fiscal years 1992-97): $73 million. Programmed funding (fiscal years 1998-03): $29.3 million. Program description: This system is intended to provide an unmanned undersea vehicle mine reconnaissance capability in the form of a single operational prototype, as a stop-gap, interim clandestine offboard system. The system is to be launched and recovered from a SSN-688 class submarine. Platform: SSN-688 class submarines. Mine threat: Bottom and moored mines in deep through very shallow water. Program start date: Fiscal year 1994. Date of estimated completion of research & development phase: Fiscal year 2003. Current status: Initial operational capability is scheduled for fiscal year 1998. The system is scheduled to participate in the Joint Countermine Advanced Concept Technology Demonstration II in June 1998. Funding (fiscal years 1994-97): $42.3 million. Programmed funding (fiscal years 1998-03): $29.6 million. Program description: Radiant Clear is a joint Navy-Marine Corps effort to graphically depict the littoral environment and coastal defenses through the application of advances in the processing of data collected by national systems. Platform: Not applicable. Mine threat: Very shallow water to the beach. Program start date: Fiscal year 1996. Date of estimated completion of research & development phase: Open. Current status: Demonstration, May 1998. Funding (fiscal years 1996-97): $2 million. Programmed funding (fiscal years 1998-03): $6 million. Program description: This system is an explosive line charge system that is delivered from a rocket motor and deployed from a manned Landing Craft, Air Cushion at a standoff range of 200 feet. Platform: Manned Landing Craft, Air Cushion. Mine threat: Very shallow water and surf zone, optimized for 3-10 feet water depth. Program start date: Fiscal year 1992. Date of estimated completion of research & development phase: Fiscal year 1999, milestone III. Current status: Fiscal year 1998, developmental and operational testing. Funding (fiscal years 1992-97): $35.3 million. Programmed funding (fiscal years 1998-03): $10.9 million. Program description: The Distributed Explosive Technology program is a distributed explosive net that is delivered by two rocket motors and deployed from a manned Landing Craft, Air Cushion at a standoff range of 200 feet. It is designed to provide a wide swath of mine clearance in the surf zone. Platform: Manned Landing Craft, Air Cushion. Mine threat: Surf zone, optimized for depths less than 3 feet to the beach. Program start date: Fiscal year 1992. Date of estimated completion of research & development phase: Fiscal year 1999, milestone III. Current status: Fiscal year 1998, developmental and operational testing. Funding (fiscal years 1992-97): $47 million. Programmed funding (fiscal years 1998-03): $19.5 million. Program description: The AQS-20 was to be an airborne towed high speed mine-hunting sonar. It was to work in conjunction with the Airborne Mine Neutralization System. The AQS-20 was to provide the capability to search, detect, localize, and classify mines. Platform: MH-53 helicopters. Mine threat: Bottom, close tethered, and volume mines in deep and shallow water. Program start date: 1978. Date of estimated completion of research & development phase: Fiscal year 2001. Current status: Transitioning to AQS-X, a follow-on advanced sonar with the addition of mine identification capability and towed capability from the H-60 helicopter. An advanced sonar fly-off is planned for fiscal year 1999. Funding (fiscal years 1992-97): $73.1 million. Programmed funding (fiscal years 1998-03): $76.3 million. Program description: This system is a magnetic and acoustic system and is to rapidly sweep and clear influence mines by emulating the signatures of amphibious assault craft. It is to be an on-board mine countermeasures asset and capable of night operations. Platform: Remotely controlled surface craft, but other platforms are being explored. Mine threat: Influence mines in shallow and very shallow water. Program start date: Fiscal year 1993. Date of estimated completion of research & development phase: Fiscal year 2000, scheduled transition from Advanced Technology Demonstration status to acquisition program. Current status: To be a part of the Joint Countermine Advanced Concept Technology Demonstration II in June 1998 (approximate 6 months slippage from original schedule). Funding (fiscal years 1992-97): $49.8 million. Programmed funding (fiscal years 1998-03): $7 million. Program description: This system is an expendable, remotely operated, explosive mine neutralization device that is towed by a helicopter. It is intended to rapidly destroy mines and operate in day or night. Originally, it was intended to operate in conjunction with the AQS-20 sonar. With the termination of the AQS-20 and transition to AQS-X, the system will operate with the AQS-14A sonar, which will be integrated with a laser line scan system to provide interim mine identification capability. Platform: MH-53 helicopters. Mine threat: Bottom and moored mines in deep or shallow water. Program start date: Fiscal year 1975. Date of estimated completion of research & development phase: Fiscal year 2000, milestone III is scheduled. Current status: Engineering, manufacturing, and development contract award scheduled for second quarter, fiscal year 1998. Funding (fiscal years 1992-97): $12.4 million. Programmed funding (fiscal years 1998-00): $22.6 million. Program description: This system is an advanced technology demonstration program and is intended to employ laser targeting and supercavitating projectiles to neutralize near surface moored contact mines. Its objective is to provide fast reacting organic helicopter capability to safely and rapidly clear mines. Platform: Helicopter. Mine threat: Near surface moored contact mines. Program start date: Fiscal year 1998. Date of estimated completion of research & development phase: Fiscal year 2004. Current status: Fiscal year 1998, demonstration of lethality against key mine types. Programmed funding (fiscal years 1998-04): $65 million. Program description: The Explosive Neutralization Advanced Technology Demonstration, as a group of four subsystems, is intended to demonstrate the capability to neutralize anti-invasion mines in the surf zone and craft landing zone. Two of the subsystems will consist of line charges and surf zone array, which are to be launched from an air cushion vehicle and propelled by new rocket motors for extended range and increased stand-off. These two subsystems will also have a third subsystem, a fire control system, for accurate placement of explosives. The fourth subsystem, the beach zone array, will consist of a glider and an array system. The glider, an unmanned, unpowered air vehicle, will be released by an air deployment vehicle. The glider will approach the beach by means of a global positioning system guidance and control system. To detonate and clear mines, it will deploy the array of nylon webbing and shaped charges over a predesignated target. Platform: Unmanned air vehicle. Mine threat: Anti-invasion mines in the surf and craft landing zones. Program start date: Fiscal year 1993. Date of estimated completion of research & development phase: Fiscal year 2005 for the line charges, surf zone array, and fire control system and fiscal year 2009 for the beach zone array. Current status: Demonstration of fieldable prototype of the beach zone array scheduled for fiscal year 1998. Funding (fiscal years 1993-97): $63.7 million. Programmed funding (fiscal years 1998-03): $87.8 million. Two examples of mine warfare programs that have been in the research and development phase for many years without advancing to procurement are the AQS-20, a mine-hunting sonar, and the Airborne Mine Neutralization System. The following tables illustrate the changes, including the recent series of internal Department of Defense (DOD) increases and decreases, to these programs’ funding. The changes depicted in table II. 1 resulted in a delay in the AQS-20 schedule. The production decision slipped 1 year, from second quarter fiscal year 1998 to second quarter fiscal year 1999. (Dollars in thousands) As presented in the fiscal year 1996 President’s budget $218 (actual) $12,791 (estimated appropriation) $20,123 (estimate) Reprogramming from Airborne Laser Mine Detection System Reinitiate Airborne Mine Neutralization System Realignment to Shallow Water Mine Countermeasures program element Realignment to Remote Minehunting System Total, as presented in the fiscal year 1997 President’s budget $9,165 (adjusted actual) $12,390 (adjusted appropriation) $13,164 (revised estimate) The changes depicted in table II.2 resulted in delays in the schedules of both the AQS-20 and the Airborne Mine Neutralization System. The production decision for the AQS-20 slipped an additional 6 months, to the fourth quarter fiscal year 1999. The production decision for the Airborne Mine Neutralization System slipped 1 year, from third quarter fiscal year 1999 to third quarter fiscal year 2000 due to funding constraints. Table II.2: AQS-20 and Airborne Mine Neutralization System Funding Profile, as of February 1997 $12,355 (actual) $13,164 (revised estimate) $13,069 (estimate) $5,694 (estimate) $11,974 (adjusted actual) $18,357 (adjusted appropriation) $16,503 (revised estimate) $19,937 (revised estimate) The changes depicted in table II.3 reflect the addition of two new initiatives, the Configuration Theory Tactical Decision Aid and the Shallow Water Influence Minesweep System. Congress increased the fiscal year 1998 budget request by $2 million for the Shallow-Water Influence Minesweep System program. (Dollars in thousands) As presented in the fiscal year 1998-99 President’s budget $18,357 (actual) $16,503 (estimated appropriation) $19,937 (estimate) Small Business Innovative Research assessment Configuration Theory Tactical Decision Aid Total, as presented in the fiscal year 1999 President’s budget $17,969 (adjusted actual) $17,905 (adjusted appropriation) $20,054 (estimate) Anton G. Blieberger, Evaluator-in-Charge 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 Navy's mine countermeasures efforts, focusing on the: (1) Navy's plans for improving mine countermeasures (MCM) capabilities; (2) status of current research, development, test, and evaluation (RDT&E) programs; and (3) process the Department of Defense (DOD) used to prepare the annual certification required by Public Law 102-190. GAO noted that: (1) the Navy has not decided on the mix of on-board and special purpose forces it wants to maintain in the future and committed the funding needed for developing and sustaining those capabilities; (2) this decision will determine the types and quantities of systems to be developed and their priority; (3) it also affects the schedule and cost of those developments and the design and cost of the platforms on which they will operate; (4) a final force structure decision will likely be determined by the level of resources the Navy decides to dedicate to the MCM mission in the future; (5) a few systems are scheduled for production decisions within the next 2 to 3 years, while other systems were not produced because the Navy never funded their procurement; (6) since 1992, the Navy has spent about $1.2 billion in RDT&E funds to improve its mine warfare capabilities; (7) however, this investment has not produced any systems that are ready to transition to production; (8) delaying factors include funding instability, changing requirements, cost growth, and unanticipated technical problems; (9) the Navy plans to spend an additional $1.5 billion for RDT&E over the next 6 years; (10) most officials interviewed said the annual certification process has served to increase the visibility of MCM requirements within DOD and the Navy, with positive results and should continue to be required; (11) however, as currently conducted, the annual certification process does not address the adequacy of overall resources for this mission, nor does it contain any measures against which the Navy's progress in enhancing its MCM capabilities can be evaluated; (12) the Chairman, Joint Chiefs of Staffs' review for resource sufficiency occurs after the Navy's budget proposals for its MCM program have been formalized; and (13) the review does not affect specific Navy MCM acquisition programs or overall MCM resource decisions.

You are an expert at summarizing long articles. Proceed to summarize the following text: Modern agricultural biotechnology refers to various scientific techniques, most notably genetic engineering, used to modify plants, animals, or microorganisms by introducing into their genetic makeup genes for specific desired traits, including genes from unrelated species. For centuries people have crossbred related plants or animal species to develop useful new varieties or hybrids with desirable traits, such as better taste or increased productivity. Traditional crossbreeding, however, can be very time-consuming because it may require breeding several generations to obtain a desired trait and breed out numerous unwanted characteristics. Genetic engineering techniques allow for faster development of new crop or livestock varieties, since the genes for a given trait can be readily introduced into a plant or animal species to produce a new variety incorporating that specific trait. Additionally, genetic engineering increases the range of traits available for developing new varieties by allowing genes from totally unrelated species to be incorporated into a particular plant or animal variety. In the 1970s, scientists learned how to extract a specific gene from a DNA strand and insert this gene into a different organism where it would continue to make the same protein that it did in its original organism. Scientists have applied this technology to bacteria, plants, and animals. For example, as shown in figure 1, scientists produced pest-resistant plants by identifying a gene responsible for pest resistance in an organism, isolating and copying the gene, and then inserting it into the target plant’s DNA. The plant was then tested to determine that the transferred trait (transgene) was inherited in subsequent generations and that the “transgenic” plant grew and functioned as well as the conventional variety. Biotechnology offers a variety of potential benefits and risks. It has enhanced food production by making plants less vulnerable to drought, frost, insects, and viruses and by enabling plants to compete more effectively against weeds for soil nutrients. In a few cases, it has also improved the quality and nutrition of foods by altering their composition. Table 1 summarizes the GM foods evaluated by FDA. Table 1 shows that the majority of modifications have been aimed at increasing crop yields for farmers by engineering a food plant to tolerate herbicides or attacks from pests such as insects and viruses (48 out of 62 modifications). Further, only two food plants have been altered to produce modified oil: the soybean and canola plants. According to industry officials, the modified soybean produces healthier oil. They also stated that the canola plant was modified to have a domestic source for laurate cooking oil. Because soybean oil is the most commonly consumed plant oil worldwide, scientists say that the new oil could significantly improve the health of millions of people. For three key crops grown in the United States—corn, soybeans, and cotton—a large number of farmers have chosen to plant GM varieties. In 2001, GM varieties accounted for about 26 percent of the corn, 68 percent of the soybeans, and 69 percent of the cotton planted in the United States. These crops are the source of various ingredients used extensively in many processed foods, such as corn syrup, soybean oil, and cottonseed oil, and they are also major U.S. commodity exports. The United States accounts for about three-quarters of GM food crops planted globally. However, the use of biotechnology has also raised concerns about its potential risks to the environment and people. For example, some people fear that common plant pests could develop resistance to the introduced pesticides in GM crops that were supposed to combat them. Further, some fear that crops modified to be tolerant to herbicides could foster the evolution of “super weeds.” Finally, some fear that scientists might unknowingly create or enhance a food allergen or toxin. Therefore, as biotechnology was being developed, U.S. scientists, regulators, and policymakers generally agreed that GM plants should be evaluated carefully before being put into widespread use. As a result, the United States published a Coordinated Framework for Regulation of Biotechnology in 1986. This framework outlined the regulatory approach for reviewing GM plants, including relevant laws, regulations, and definitions of GM organisms. Responsibility for implementing the coordinated framework fell primarily to three agencies: USDA, the Environmental Protection Agency (EPA), and FDA. Within USDA, the Animal and Plant Health Inspection Service (APHIS) bears the main responsibility for assessing the environmental safety of GM crops. The primary focus of APHIS’ review is to determine whether or not a plant produced through biotechnology has the potential to harm natural habitats or agriculture. Developers can petition APHIS to exempt a GM plant from regulation once sufficient and appropriate data have been collected regarding the potential environmental impact of a GM plant. To safeguard the environment and human health, EPA is responsible for regulating genetic modifications in plants that protect them from insects, bacteria, and viruses. These protectants are subject to the agency’s regulations on the sale, distribution, and use of pesticides. EPA must review and grant a permit for field-testing plants with such protectants on more than 10 acres of land. Prior to commercialization of a GM plant with such a protectant, EPA reviews the application for approval of the protectant, solicits public comments, and may seek the counsel of external scientific experts. FDA has primary authority for the safety of most of the food supply. The Federal Food, Drug, and Cosmetic Act establishes the standard for food safety as food being in an unadulterated condition. FDA established its basic policy regarding the review of GM foods in its 1992 Policy on Foods Derived from New Plant Varieties. According to this policy, FDA relies on companies developing GM foods to voluntarily notify the agency before marketing the foods. Notification leads to a two-part consultation process between the agency and the company that initially involves discussions of relevant safety issues and subsequently the company’s submission of a safety assessment report containing test data on the food in question. At the end of the consultation, FDA evaluates the data and may send a letter to the company stating that the agency has no further questions, indicating in effect that it sees no reason to prevent the company from marketing the GM food. In 1997, FDA supplemented its 1992 Policy with the current Guidance on Consultation Procedures, clarifying procedures for the initial and final consultations. In January 2001, FDA issued a proposed rule in the Federal Register that provides further information on these procedures and, more importantly, would require pre-market notification by companies. Among the reasons that FDA cited for this change are concerns expressed by consumers and public interest groups about the limited transparency and voluntary nature of the current process. FDA also pointed to the growing power of biotechnology to create potentially more complex safety issues that could require more stringent regulatory evaluations. FDA, tentatively, expects to finalize this rule as early as fiscal year 2003. All foods, including those from GM plants, pose the same types of inherent risks to human health: they can cause allergic or toxic reactions, or they can block the absorption of nutrients. Although some foods from GM plants have contained allergens, toxins, and antinutrients, scientists agree that the levels of these compounds have been comparable to those found in the foods’ conventional counterparts. To reach such a finding, each GM food is evaluated using a regimen of tests. This regimen begins with tests on the source of the gene being transferred, proceeds to tests examining the similarity of the GM food to conventional varieties with known allergens, toxins, and antinutrients, and may include tests on the safety of the modified protein from the GM food in simulated digestive fluids. At every phase, test results are compared to the risk levels found in the food’s conventional counterpart. If the risk levels are within the same range as those for the conventional food, the GM food is considered as safe as its conventional counterpart. Despite the limitations of individual tests, several experts agree that this regimen of tests has been adequate for ensuring the safety of GM foods. According to reports from the Organization for Economic Cooperation and Development, the Codex Alimentarius, and FDA, foods from GM plants pose three types of risk to human health: they can potentially contain allergens, toxins, or antinutrients. These risks are not unique to GM foods. People have consumed foods containing allergens, toxins, and antinutrients throughout human history. The small percentage of the population with food allergies (1-2 percent of adults and 6-8 percent of children) tries to prevent allergic reactions by avoiding offending foods. Additionally, people commonly consume toxic substances in foods, but they usually do so at levels that are considered safe. People also frequently consume foods containing antinutrients, such as certain proteins that inhibit the digestion of nutrients in the intestinal tract, but common food preparation techniques, such as cooking, break down the antinutrients. Moreover, consumption of a varied diet, in which a person is exposed to multiple nutrient sources, mitigates the risk of malnutrition from antinutrients, according to FDA officials and various academicians. Because conventional foods contain allergens, toxins, and antinutrients, scientists recognize that food cannot be guaranteed to pose zero risk. The primary concern with the genetic modification of food with respect to human health, state industry officials, is the potential for unintentional introduction of a new allergen, an enhanced toxin, or an enhanced antinutrient in an otherwise safe food. For this reason, developers evaluate GM foods to determine if they are as safe as their conventional counterparts. An allergic reaction is an abnormal response of the body’s immune system to an otherwise safe food. Some reactions are life threatening, such as anaphylactic shock. To avoid introducing or enhancing an allergen in an otherwise safe food, the biotech food industry evaluates GM foods to determine whether they are “as safe as” their natural counterparts. For example, in 1996 FDA reviewed the safety assessment for a GM soybean plant that can produce healthier soybean oil. As part of a standard safety assessment, the GM soybean was evaluated to see if it was as safe as a conventional soybean. Although soybeans are a common food allergen and the GM soybean remained allergenic, the results showed no significant difference between its allergenicity and that of conventional soybeans. Specifically, serums (blood) from individuals allergic to the GM soybean showed the same reactions to conventional soybeans. A toxic reaction in humans is a response to a poisonous substance. Unlike allergic reactions, all humans are subject to toxic reactions. Scientists involved in developing a GM food aim to ensure that the level of toxicity in the food does not exceed the level in the food’s conventional counterpart. If a GM food has toxic components outside the natural range of its conventional counterpart, the GM food is not acceptable. To date, GM foods have proven to be no different from their conventional counterparts with respect to toxicity. In fact, in some cases there is more confidence in the safety of GM foods because naturally occurring toxins that are disregarded in conventional foods are measured in the pre-market safety assessments of GM foods. For example, a naturally occurring toxin in tomatoes, known as tomatine, was largely ignored until a company in the early 1990s developed a GM tomato. FDA and the company considered it important to measure potential changes in tomatine. Through an analysis of conventional tomatoes, they showed that the levels of tomatine, as well as other similar toxins in the GM tomato, were within the range of its conventional counterpart. Antinutrients are naturally occurring compounds that interfere with absorption of important nutrients in digestion. If a GM food contains antinutrients, scientists measure the levels and compare them to the range of levels in the food’s conventional counterpart. If the levels are similar, scientists usually conclude that the GM food is as safe as its conventional counterpart. For example, in 1995 a company submitted to FDA a safety assessment for GM canola. The genetic modification altered the fatty acid composition of canola oil. To minimize the possibility that an unintended antinutrient effect had rendered the oil unsafe, the company compared the antinutrient composition of its product to that of conventional canola. The company found that the level of antinutrients in its canola did not exceed the levels in conventional canola. To ensure that GM foods do not have decreased nutritional value, scientists also measure the nutrient composition, or “nutrition profile,” of these foods. The nutrient profile depends on the food, but it often includes amino acids, oils, fatty acids, and vitamins. In the example previously discussed, the company also presented data on the nutrient profile of the GM canola and concluded that the significant nutrients were within the range of those in conventional canola. Companies that may wish to submit new GM foods for FDA evaluation perform a regimen of tests to obtain safety data on these foods. FDA’s 1992 policy on safety assessments of GM foods describes the data the agency recommends it receive to evaluate these foods. Figure 2 provides an example of the regimen of tests. This regimen usually includes an analysis of the source of the transferred genetic material, specifically whether the source of the transferred gene has a history of causing allergic or toxic reactions or containing antinutrients; the degree of similarity between the amino acid sequences in the newly introduced proteins of the GM food and the amino acid sequences in known allergens, toxins, and antinutrients; data on in vitro digestibility (i.e., how readily the proteins break down in simulated digestive fluids) the comparative severity of individual allergic reactions to the GM product and its conventional counterpart as measured through blood (serum) screening—when the conventional counterpart is known to elicit allergic reactions or allergenicity concerns remain; and data on any changes in nutrient substances, such as vitamins, proteins, fats, fiber, starches, sugars, or minerals due to genetic modification. Occasionally, the regimen of tests also includes animal studies for toxicity. As shown in figure 2, the tests provide evidence at key decision points to direct which tests are subsequently performed. Tests on the source of the newly expressed protein, amino acid sequence similarity, and digestibility are typical for both allergenicity and toxicity assessments, while serum screening is used only for allergenicity assessment. Also, while the complete regimen is not necessary for every GM food safety assessment, companies often perform extra tests in the regimen to corroborate the results of previous tests. Using allergenicity as an example, if a company transfers a gene from a source that is not an allergen, the company evaluates the amino acid sequence of the GM protein. If the GM protein has an amino acid sequence similar to that of known allergens, the company initiates further, more specific allergenicity testing. The company would undertake in vitro digestibility tests to see if the GM protein was broken down in simulated digestive fluids. If there were any concerns about the speed with which the GM protein was broken down, the company would use serum-screening tests to support or refute the results of the digestibility tests when serums are available. If the serum screening yields results showing that the GM protein does not react with antibodies in serum, then the company concludes the GM protein does not raise allergenicity concerns. The results from this regimen of tests provide the weight of evidence necessary to determine the safety of a GM food. Examining the source of the transferred genetic material is the starting point in the regimen of tests for safety assessments. According to a scientist from a biotechnology company, two principles of allergenicity assessment underlying the regimen of tests contribute to adequate safety assessments: scientists (1) avoid transferring known allergenic proteins and (2) assume all genes transferred from allergenic sources create new food allergies until proven otherwise. If the source contains a common allergen or toxin, industry scientists must prove that the allergenic or toxic components have not been transferred. However, as a practical matter, biotechnology companies repeatedly state that if the conventional food is considered a major food allergen, they will not transfer genes from that source. Accordingly, experts from FDA and the biotechnology industry agree that the probability of introducing a new allergen, enhancing a toxin, or enhancing an antinutrient is very small. The next step involves a comparison between the amino acid sequences of the transferred proteins of the GM food plant and those of known allergens, toxins, or antinutrients. If scientists detect an amino acid sequence in a GM food identical or similar to one in an allergen, toxin, or antinutrient, then there is a likelihood that the GM food poses a health risk. Overall, sequence similarity tests are very useful in eliminating areas of concern and revealing areas for further evaluation. In vitro digestibility tests are a primary component of all GM food safety assessments. These tests analyze the breakdown of a GM protein in simulated human digestive or gastric fluids. The quick breakdown of a GM protein in these fluids indicates a very high likelihood that the protein is not allergenic or toxic. Safe dietary proteins are almost always rapidly digested, while allergens and toxins are not. If a gene raises allergenicity concerns, a company can include serum screening tests in its safety assessment of a GM food. Serum screening is used only for allergenicity assessment. Serum screening involves evaluating the reactivity of antibodies in the blood of individuals with known allergies to the plant that was the source of the transferred gene. Antibody reactions suggest the presence of an allergenic protein. Serum screening tests are valuable because they can expose allergens whose presence was only suggested in amino acid sequence similarity tests. Since there are neither abundant, appropriate stored serums nor many suitable human test subjects, these tests cannot always be used. Scientists also create a nutritional and compositional profile of the GM food to assess whether any unexpected changes in nutrients, vitamins, proteins, fibers, starches, sugars, minerals, or fats have occurred as a result of the genetic modification. While changes in these substances do not pose a risk of allergenicity, toxicity, or antinutrient effects to human health, creating a nutritional and compositional profile further ensures that the GM food is comparable to its conventional counterpart. Biotechnology companies occasionally use animal studies to confirm the results of prior toxicity tests. For the most part, these studies have involved feeding extraordinarily high doses of the modified protein from a GM food to mice. The doses of the modified protein are often hundreds to thousands of times higher than the likely dose from human diets. Scientists perform these studies to determine if there are any toxic concerns from the GM food. Animal studies also have the potential to predict allergenicity in humans, although scientists have not yet identified an animal that suffers from allergic reactions the same way that humans do. The brown Norway rat has provided the closest approximation to human allergic reactions to several major food allergens. However, animal models—as predictors of allergenic responses in humans—are not scientifically accepted at this time. Biotechnology experts whom we contacted from a consumer group, FDA, academic institutions, research institutions, the European Union and biotechnology companies said that the current regimen of tests has been adequate for assessing the safety of GM foods. All but one expert considered the regimen of tests to be “good” or “very good” for ensuring the safety of GM foods for public consumption, and the remaining expert viewed the tests as “fair.” While the experts noted that individual tests have limitations, most experts agreed that results from the regimen of tests provide the weight of evidence needed for scientists to make an accurate assessment of risk. A distinction made by an academician and regulatory officials is that the available tests do not guarantee absolute safety of GM foods, but comparable safety. There is no assurance that even conventional foods are completely safe, since some people suffer from allergic reactions, and conventional foods can contain toxins and antinutrients. Because they have been consumed for many years, though, conventional foods are used as the standard for comparison in assessing the safety of GM foods, and experts note that the available tests are capable of making this comparison. While experts agree that the available regimen of tests is adequate for safety assessments, there are limitations to individual tests. For example, there are limitations to the acceptability of amino acid sequence similarity test results, in part because there is not agreement on what level of amino acid similarity indicates a likelihood of allergenicity and, therefore, the need for additional testing. Industry scientists assert that as long as amino acid sequences in a protein are less than 50 percent identical to those in known allergens, then the protein should not raise concerns. On the other hand, a scientist associated with a consumer group, as well as a report from the United Nations’ Food and Agriculture Organization, believe a more conservative level, such as less than 35 percent identical, is appropriate. Thus, experts from industry and consumer groups suggest that reaching agreement on this parameter would increase the consistency with which these tests are applied. In vitro digestibility tests also have limitations because they can yield inaccurate results when performed under inappropriate parameters, such as improper digestive fluid pH levels. If a GM food protein is tested at a pH level representative of intestine digestion, yet the protein in real life is digested at a different pH level in the stomach, then the results of the test are not valid for reaching conclusions on the GM food’s likely effect in humans. FDA officials note that there is growing acceptance that the proper pH level for digestive stability tests is the pH level of the human stomach. As a result, experts from industry and consumer groups suggest that reaching agreement on the parameters in digestive stability tests— such as proper pH ranges—would help ensure that they are performed properly. Information on acceptable testing procedures (including parameters) is available from a variety of sources. For instance, AOAC Internationaldocuments standardized tests and test procedures, such as test procedures for examining nutrient levels in a GM food. Other groups, such as the American Oil Chemists’ Society and the American Association of Cereal Chemists also have information on official tests and test procedures. However, there is no centralized source of information on these procedures. Although FDA maintains a Web site with guidance for consultations, the Web site does not contain information about acceptable testing procedures. According to FDA, it has the necessary controls to ensure it obtains the safety data needed for its GM food evaluations. In examining a selection of submissions, we found that companies adhered to FDA’s recommended procedures for the type of data to be submitted. However, biotechnology experts state that the agency’s overall evaluation process could be enhanced by randomly verifying the test data that companies provide and by increasing the transparency of the evaluation process—including more clearly communicating the scientific rationale for the agency’s final decision on GM food safety assessments. FDA believes that making these changes would enhance the public’s confidence in the agency’s evaluation process. According to agency officials, FDA has several management practices that, in aggregate, constitute internal controls. The officials state that these practices effectively ensure FDA obtains the data necessary for evaluating the potential risks of GM foods. These practices include: communicating clearly what safety data are important to FDA’s evaluations of GM food safety, having teams of FDA experts representing diverse disciplines perform the evaluations, and tailoring the level of evaluation to match the degree of each GM food’s novelty. One key indication of the effectiveness of these practices is FDA’s ability to determine when data are inadequate and to specify the additional data important to a complete evaluation. In the cases we examined when the company’s initial submission of data was insufficient, FDA was able to specify and obtain additional data from the company. For a GM food, the evaluation process, known as a consultation, generally lasts between 18 months and 3 years, according to FDA officials. In what FDA calls the “initial” phase of the consultation, FDA and company officials discuss what safety data will be needed for a GM food submission. In the next or “final” phase, the company prepares a detailed report summarizing this data and submits it to FDA. After receiving and evaluating the report, FDA officials prepare a “memo to file.” This memo is the formal document in which FDA summarizes and evaluates everything the company has submitted. Consultation is complete when FDA determines that it has no further questions regarding the safety of the GM food and informs the company of this conclusion in a letter signed by the director of the FDA’s Office of Food Additive Safety. Receiving such a letter is generally helpful to companies in marketing their product. In FDA’s 1992 policy statement and its subsequent 1997 guidance, the agency clearly states what information companies should submit for FDA to assess the safety of GM foods. Specifically, the 1992 statement includes several risk assessment decision trees that provide a step-by-step approach to testing. FDA recommends that companies follow this approach in their assessments of GM foods. Using this approach, companies must show whether any allergens, toxins, or antinutrients have been introduced or enhanced. FDA’s 1997 guidance builds upon the 1992 policy statement by describing in more detail the process, procedures, and time frames pertaining to the initial and final consultations. FDA officials stated that the principles embodied in their 1992 policy statement guided the consultations for the 50 GM foods evaluated so far and that companies have closely adhered to these principles. In examining five submissions, we found that companies adhered closely to the 1992 policy statement. For example, a 1996 submission for a GM soybeanshows step-by-step adherence to the allergenicity decision tree established in the 1992 policy statement. Extensive data submitted by the company enabled FDA to conclude that it had no unanswered questions about the safety of the soybean. Later submissions involving an herbicide-tolerant sugar beet and pest-resistant corn also showed a close adherence to the 1992 policy statement. Evaluations of GM food safety submissions must include concurrence from every member of a highly qualified team known as the Biotechnology Evaluation Team. The 1997 guidance states that the evaluation teams generally will be composed of a consumer safety officer (who serves as the project manager), molecular biologist, chemist, environmental scientist, toxicologist, and nutritionist. The guidance also states that the evaluation teams may be supplemented with additional expertise on a case-by-case basis. According to agency officials, these experts are qualified to perform what is effectively a peer review of each submission. Consumer safety officers, who generally have doctorates in relevant disciplines, including molecular biology, cell biology, or immunology, chair the teams. According to FDA officials, in addition to their scientific credentials, the consumer safety officers know what is needed for the administrative record for each submission. This knowledge encompasses the laws and regulations, such as the Federal Food, Drug, and Cosmetic Act, as well as specific pertinent procedures, such as FDA’s 1992 policy statement. According to FDA officials, the combination of scientific and administrative expertise makes the consumer safety officers effective leaders of the teams. FDA officials indicated that each member of an evaluation team reviews the entire file for a given GM food submission. These officials viewed this as another strength of the evaluation process. In particular, they stressed that the final evaluation is not a “piecemeal” evaluation in which, for example, the toxicologist receives only the toxicological data to review. Rather, each team member receives and examines all the data that the company has submitted. Further, team members must document in writing the results of all key interactions with a company throughout the course of the evaluation; this documentation is then available for the whole team to evaluate. Lastly, the entire team must concur with the final draft of the memo to file, which is usually prepared by the consumer safety officer. In summary, FDA officials told us that the expertise of the Biotechnology Evaluation Team members coupled with the multiple reviews of information enables the team to adequately evaluate safety assessments and determine if and when more data is needed. According to agency officials, FDA’s practice of varying its level of evaluation based on the degree of novelty of the GM food submission allows it to devote resources where they are most needed, thus assuring that Biotechnology Evaluation Teams have time to obtain necessary safety data. FDA’s evaluation of one company’s GM tomato provides an example of a detailed evaluation of a novel submission that went through both the initial and final consultations. Specifically, the Biotechnology Evaluation Team requested extensive detail from the company on the modification of the tomato, which involved the insertion of one gene to delay ripening and another gene to show that this trait was transferred. FDA’s documentation of its evaluation presented background information on these modifications, a point-by-point evaluation of the company’s food safety assessment, and FDA’s conclusion that the tomato was not significantly different from conventional tomatoes. By contrast, FDA officials stated that evaluations of company submissions for GM foods similar to GM foods previously evaluated by the agency (such as a virus-resistant squash and various herbicide-tolerant corns) required fewer agency resources because these submissions skipped the initial consultation and proceeded to the final consultation. In fact, FDA’s 1997 guidance states that a company might skip the initial consultation and go directly to the final consultation by submitting its final report. According to FDA officials, this skipping often occurs when a company has made multiple submissions for similar GM foods involving only minor variations from one case to the next. Having once gone through the full consultation process for a specific genetic modification, such a company is familiar with the kinds of safety information that FDA expects and thus can proceed directly to preparing a final report for similar cases. FDA’s documentation of its evaluation of such submissions can be less detailed. According to FDA officials, in cases in which the agency determines that the data submitted by a company are insufficient, the company has always cooperated with FDA by performing additional tests and/or submitting the data needed. FDA officials described three types of situations where they have requested additional data and companies have responded: (1) the absence of a reliable or “validated” method for performing a test; (2) reliance on a prevailing scientific “assumption” that, when tested at FDA’s request, was proven incorrect; and (3) inconsistent or incomplete data in the final reports. The first situation involved the lack of a reliable method for testing tomatine, a naturally occurring toxin in tomatoes. The company that encountered this problem was inexperienced in analytical chemistry, and the laboratory with which it was working did not have an acceptable method. In evaluating the measurements of tomatine submitted by the company, FDA officials found these data unconvincing. As a result, FDA officials suggested that the company find a more appropriate method. In response, the company obtained a suitable method from another laboratory and later provided FDA with new data that the agency found convincing. The second situation is illustrated by FDA’s evaluation of a GM tomato altered to delay ripening. In this submission, the company assumed that only a certain segment of DNA was transferred. FDA asked the company to prove the accuracy of this assumption. Testing by the company then revealed that additional DNA had been transferred. This discovery led to more thorough analysis of the genetic modifications, including additional efforts to ensure that the transfer of extra DNA did not cause unintended changes. In the third situation, FDA noted discrepancies in the data in final reports involving GM cotton, rice, and canola and requested the relevant companies to correct the information, which they did. Biotechnology experts state, and FDA agrees, that its overall evaluation process for assessing the safety of GM foods could be enhanced by verifying the GM food-related test data that companies provide, and increasing the transparency of the evaluation process. Biotechnology experts from consumer groups and academia state that FDA’s evaluation process could be enhanced if the agency validated companies’ test results on proposed GM products by reviewing raw data (e.g., the actual, unverified test results). Further, FDA believes that occasional reviews of the raw data developed by companies would further enhance the credibility of, and public confidence in, the overall safety data that companies submit. In addition, we believe occasional data verification by a federal agency is necessary to (1) identify the risk of the agency’s receiving faulty data from external sources and (2) ensure that no one agent is allowed to control every key aspect of a safety assessment. FDA officials stated that they do not believe it is necessary for the agency to routinely review raw data for two reasons. First, the risk of incurring criminal penalties for deliberately submitting false data to FDA provides a significant degree of deterrence. Second, FDA’s evaluation process constitutes a peer review of the safety data that will generally detect any problems. However, these officials added that an occasional review of raw data, performed on a random basis, would further help ensure the reliability of FDA’s evaluation of these foods, and thus enhance public confidence in the agency’s evaluation process. Officials from a major biotech company described three types of GM food safety data developed for each submission and available for FDA’s review: (1) raw data, (2) refinements and comprehensive interpretations of the raw data, and (3) summaries of these interpretations. According to these officials, FDA has reviewed the summaries, and in some instances the comprehensive interpretations, but has not reviewed the raw data. These officials note, and FDA officials concur, that nothing prevents FDA from reviewing these raw data. In general, these raw data are readily available from companies. The company officials also note that EPA has occasionally reviewed raw data in its safety assessments of GM plants regarding their environmental effects. Moreover, FDA officials stated the agency reviews raw data in its safety assessments of new drug applications. Experts from consumer groups and academia have stated that the transparency of the agency’s evaluation process for GM foods could be enhanced if FDA described more clearly the scientific rationale for its safety decisions in its memo to file. FDA agrees. Guidelines issued by the Office of Management and Budget on the quality of information disseminated by federal agencies state that transparency is important in reviews of technical information and that these reviews should be conducted in an open and rigorous manner. Yet critics have stated that FDA’s current memos to file do not adequately communicate the scientific rationale for the decisions. Some consumer groups have pointed out the brevity of some of the memos and described them as “perfunctory” summaries of company data that provide little or no insight into FDA’s evaluation of the data. Likewise, the Council for Agricultural and Science Technology, a group of universities and companies established to provide a more scientific basis for analyzing and prioritizing agricultural issues, stated that FDA does not adequately clarify in its memos to file the basis for its decisions on GM food submissions. Our review of memos to file for the 50 GM food products evaluated by FDA as of April 2002 confirms that these memos do not clearly explain the scientific rationale for FDA’s decisions. In response to these concerns, FDA officials note that the memos to file had originally been created for FDA’s internal use rather than as public documents. Thus, they were not designed to provide detailed rationales of FDA’s decisions on GM food submissions. In addition, FDA officials said that some memos are brief because they record decisions on GM foods that are very similar to previously evaluated GM foods. However, FDA officials acknowledge that FDA could do more to inform the public of the basis for their decisions. For example, FDA could include comments in the memos to file that better reflected the context of the evaluation (for instance, its similarity to previous evaluations), the adequacy of the tests performed by the company, and the level of evaluation provided by FDA. For those memos to file on submissions for GM foods that are similar to GM foods previously evaluated, FDA could make reference to earlier, similar submissions having a more detailed memo to file. Scientists expect future GM foods to include modifications of plant composition that may enhance the nutritional value of these foods but may also increase the difficulty of assessing their safety. While current tests have been adequate for evaluating the small number of relatively simple compositional changes made so far, some scientists believe that new testing technologies under development may be needed to assess the safety of these more complex GM foods. Scientists have diverging views on the potential role of these new technologies: some view them as a useful supplement to existing tests, while others view them as a new, more comprehensive way to assess the safety of all changes in GM foods. However, the lack of technical standards for these new technologies and proof of their reliability prevents their current use. Until now, most genetic modifications of plants have been aimed at increasing or protecting crop yield. These modifications have generally focused on the portions of plants, such as cornstalks, that are not consumed by humans. However, many scientists believe that the current wave of yield-related modifications will expand to include a new wave of genetic modifications involving compositional changes in the foods to enhance their nutritional value. For example, “golden” rice is a GM food under development that was modified to contain beta-carotene, a precursor of vitamin A. Golden rice may help to reduce the incidence of blindness in countries where rice is a dietary staple and malnutrition is common. Also under development are compositional changes that will increase the levels of vitamin E in foods. Plants are the primary source of this vitamin, which is believed to have cancer-preventing properties, but plants generally contain it in relatively low concentrations. A gene controlling vitamin E production was transferred recently to a member of the mustard plant family, which subsequently exhibited a nine-fold increase in this vitamin. According to a recent report, incorporation of this gene into major crops such as soybeans, canola, and corn is probably not far in the future. In addition to increasing nutrients in GM foods, scientists are working to reduce the presence of allergens, toxins, and antinutrients. For example, scientists have genetically modified wheat, one of the major allergenic foods, to stimulate a gene that diminishes wheat’s allergenic properties. Scientists are also seeking ways to reduce toxic substances, such as alkaloids in potatoes, by inserting genes that block their production. Preliminary findings have indicated that GM potatoes produced fewer of these alkaloids. Likewise, some plants, especially cereals and legumes, are nutritious foods but contain varying amounts of antinutrients. Genetic modifications are being explored to reduce these antinutrients. If adopted, FDA’s proposed rulemaking mandating the testing of all GM foods prior to commercialization will represent a timely response to this new wave of GM foods. For example, the preamble to the rule notes that some of the new ingredients in GM foods will significantly differ from ingredients that have a history of safe use. The rule also notes that products derived from this advanced biotechnology will present more complex safety and regulatory issues than those seen to date. The proposed rule concludes that nontraditional strategies for evaluating food safety will become the norm as the use of biotechnology expands. FDA officials explained that “nontraditional strategies” could include new technologies under development such as those described in the next section. Some scientists believe that testing technologies being developed but not yet widely applied to GM foods may be useful in assessing the safety of compositional changes and detecting unintended effects. In contrast to current tests that examine the human health effects of transferred genes and other relevant components on a highly selective basis, the new technologies will examine essentially all of the components—such as DNA, proteins, and metabolites—in conventional and GM plants simultaneously to detect any differences. These new technologies include gene chips that use thousands of droplets of DNA on glass chips to identify gene sequences and determine the expression level or abundance of the genes; proteomics which can analyze up to 100,000 proteins simultaneously; and metabolic profiling that can analyze the 2,000 to 3,000 metabolites in people and 3,000 to 5,000 metabolites in plants. In essence, these new technologies combine huge increases in automated computing power with traditional testing technologies to identify differences between conventional and GM foods in ways that would have been impossible even a few years ago. A university scientist further explained the contrast between the current and new technologies by noting that traditional tests focus on known toxins and nutrients in a “targeted” approach, whereas new technologies use a “non-targeted” approach to increase the chance of detecting unintended effects of genetic modifications such as the creation of a toxin. According to this scientist, the latter approach has particular applicability to second-generation plants with extensive modifications, which may be more likely to have unintended effects. For example, a scientist with a consumer group stated that the new technologies may be useful in detecting unintended effects that traditional tests, such as those for digestibility, are not likely to identify. Other scientists expressed the need for caution and additional information to determine the potential role of these new technologies. Gene chips consist of grids of thousands of droplets of DNA on small glass surfaces. The chip-based DNA can bind with the DNA or RNA being tested to determine which genes are present or are being activated. Used in conjunction with DNA and RNA databases under development at various universities and other research institutions, this testing technique has yielded insights into areas such as the ripening process of tomatoes and its relation to toxins and nutrients. The major advantage of gene chips over conventional testing techniques is that they allow small-scale analysis of thousands of genes at the same time in a precise and quantitative manner. According to a university scientist, researchers are determining the extent to which this technology may be effective in assessing GM food safety. Proteomics is a biotechnology technique used to identify many proteins simultaneously in a given organism. Using chemical analyses and computers, proteomics goes beyond plant studies focusing on DNA and RNA, which do not provide information on the actual creation of the proteins. Proteomics has been introduced successfully in medical disciplines such as oncology, where it has helped to identify proteins associated with cancer, but it has not yet been used to evaluate the safety of GM foods for two reasons. First, there are a large number of proteins that need to be analyzed in any given plant. Second, the function of proteins in a plant may change depending on their interaction with different cells and tissues. According to a university scientist, researchers are working to expedite the analysis of proteins in plants. Metabolic profiling uses chemical analyses and computers to obtain a simultaneous, detailed look at all of the small molecules (metabolites) in a given GM plant to determine the extent to which these molecules have changed in comparison to a conventional plant, if at all. According to scientists at one company involved in developing metabolic profiling, this technique can determine whether a specific, intended change in a small molecule has been achieved. It can also identify any unintended changes in other small molecules—changes such as increased alkaloids, which are a major source of toxicity in plants. If the profiling finds no unintended changes in these molecules, then it offers a reasonable certainty that the genetic modification has not led to any changes with potentially adverse health consequences. In general, metabolic profiling has not yet been used commercially. However, scientists working with this technique believe that it may play a potentially important role as a safety screening tool for companies developing complex, compositionally altered GM foods in the future. In addition, scientists state that it shows promise in the health care field in assessing the safety of future new drugs. Despite progress in developing and applying gene chips, proteomics, and metabolic profiling, technical limitations currently prevent their use to assess the safety of GM foods. Biotechnology experts told us that internal standards must be developed for the methods and chemicals used in these new technologies and that the reliability of these technologies must be proven. For example, in gene chip testing, experts state that standardization of the thousands of genes represented on the chips is essential to improve the quality of this technology. Further, experts state that the chemical analysis used in proteomics needs to be enhanced to improve its reliability. Beyond these technical challenges, however, lies a more fundamental problem. Because these new technologies are more sensitive, they may identify a flood of differences between conventional and GM food products that existing tests could not detect. Not all of these differences will stem from genetic modification. Some of the differences will stem from the tremendous natural variations in all plants caused by factors such as the maturity of the plants and a wide range of environmental conditions, such as temperature, moisture, amount of daylight, and unique soil conditions that vary by region of the country. For example, there can be a tenfold difference in the level of key compositional elements, such as nutrients, depending on the region in which soybeans are grown. Thus, according to a biotechnology company expert, it will be difficult to differentiate naturally occurring changes from the effects of deliberate genetic modifications. Industry and university scientists have expressed strong concerns about the problem of interpreting the potential significance of these differences. They believe that the new technologies will be of limited value unless baseline data on the natural variations of nutrients and other compositional values for each of the major food crops can be developed. However, experts disagree on the difficulty of developing this baseline. Some experts, including those at FDA, assert that developing the baseline will be difficult because of the extreme sensitivity of plants to environmental variations. Other experts, especially those pioneering the new techniques, state that a baseline can definitely be established in the next few years. Some companies have started to respond to the need for baseline information. New developments in technology have begun to provide an encyclopedic database on natural variations in plants and on the variations resulting from deliberate genetic modification. For example, using metabolic profiling, one company has analyzed approximately 150 characteristics, such as the size and rate of growth, of individual plants. The company has also examined about 12,000 genes in one species of plant—a member of the mustard family—and analyzed the consequences of eliminating or stimulating particular genes. About one million mustard plants of this type have been analyzed in this line of research. Even with the development of baseline data and the detection of differences, scientists will still need to evaluate the significance of these differences for human health. Appendix II provides more information regarding advancements in the development of baseline information and the experimental use of metabolic profiling to assess the safety of GM foods. Scientists and federal regulatory officials we contacted generally agreed that long-term monitoring of the human health risks of GM foods through epidemiological studies is not necessary because there is no scientific evidence suggesting any long-term harm from these foods. These scientists and officials also stated that it would be very difficult, if not impossible, to develop a process for monitoring the long-term health risks of GM foods because of the technical challenges in developing such a system. A recent report by the United Nations also expresses skepticism about the feasibility of identifying long-term health effects from GM foods. The scientists and federal regulatory officials generally agreed that because there is no scientific evidence that GM foods cause long-term harm, such as increased cancer rates, there is no plausible hypothesis of harm. Researchers need such a hypothesis in order to know what problem to search for, test, and potentially measure. For example, in the Framingham Heart Study of Massachusetts, researchers hypothesized that there were biological and environmental factors that contributed to cardiovascular disease. Using this hypothesis, researchers were able to design a study that established a relationship between the levels of cholesterol and the risk of heart disease. The resulting effort, comprising more than 10,000 participants over two generations (more than 50 years), developed groundbreaking information on the major risk factors associated with heart disease, stroke, and other diseases. For example, researchers found that a lifestyle typified by a faulty diet, sedentary living, or unrestrained weight gain exacerbated disease risk factors and influenced the occurrence of cardiovascular problems. Without a plausible hypothesis such as that used in the Framingham study, most scientists we contacted said that epidemiological studies on GM foods would not provide any useful information. Two of these scientists also noted that the primary ways in which foods might cause long-term harm are through (1) proteins that remain stable during human digestion, thereby retaining the potential to exert adverse effects such as a toxic reaction, and (2) detrimental changes in nutrients and other food components. However, for all 50 GM food plants reviewed by FDA as of April 2002, the genetically modified proteins in those foods that potentially could be cause for concern have been shown in tests to be rapidly digested. Further, the two GM food plants reviewed that produced modified oils—soybean and canola—had nutritional profiles that were similar to or better than their conventional counterparts. As discussed previously, the soybean oil was modified to be more nutritious than conventional soybean oil. The canola oil was modified to contain a higher level of laurate, which would allow it to substitute for imported tropical oils, such as palm kernel oil. However, industry determined that the total intake of laurate in the diet would not change significantly by substituting the improved canola oil for the tropical oil. Accordingly, industry officials stated, and FDA officials concurred, that long-term studies of health effects of this oil would not be needed. Scientists and federal regulatory officials also stated that there are substantial technical challenges that make long-term monitoring of the health effects of GM foods virtually impossible. The challenges cited include the following: Conducting long-term monitoring would require both an experimental group that has consumed GM foods and a control group. The control group would consist of people who could confirm that they do not eat GM foods. In countries such as the United States, where labeling is not required for GM foods, reliably identifying such control groups would be virtually impossible. Even if GM foods were labeled in the United States, it would be very difficult to separate the health effects of GM foods from those of their conventional counterparts, since to date there has been very little nutritional difference between these foods. Further, over long periods of time, there would be practical challenges in feeding both the experimental and controls groups diets comprising large amounts of GM food, such as soybeans or corn, and their conventional counterparts. Since the long-term human health effects of consuming most foods are not well understood, there is no baseline information against which to assess health effects caused by GM foods. Changes in human food consumption patterns, specifically the addition and removal of various foods, add new variables to the diet and compound the difficulty of conducting long-term monitoring. The fairly recent introduction of the kiwi fruit (to which some individuals are allergic) and the reduction of the use of cotton seed (to which some individuals have also been allergic) as a protein source in candy or breads illustrate the challenges in monitoring food consumption patterns when conducting a 20-to-30 year epidemiological study. A report issued in June 2000 by the United Nations’ Food and Agriculture Organization and World Health Organization supports the scientists’ and regulators’ views about the infeasibility of identifying long-term health effects from GM foods. The report states that, in general, very little is known about the potential long-term effects of any foods, and that identification of such effects is further confounded by the great variability in the way people react to foods. The report also states that epidemiological studies are not likely to differentiate the health effects of GM foods from the many undesirable effects of conventional foods, which according to scientists include the effects of consuming cholesterol and fats. Accordingly, the report concludes that the identification of long-term effects specifically attributable to GM foods is highly unlikely. Given the challenges to long-term monitoring, federal regulatory officials, as well as some U.S. and European scientists, state that the best defense against long-term health risks from GM foods is an effective pre-market safety assessment process. Biotechnology experts believe that the current regimen of tests has been adequate for ensuring that GM foods marketed to consumers are as safe as conventional foods. However, some of these experts also believe that the agency’s evaluation process could be enhanced. Specifically, FDA could verify companies’ summary test data on GM foods, thus further ensuring the accuracy and completeness of this data. In addition, the agency could more clearly explain to the public the scientific rationale for its evaluation of these foods’ safety, thereby increasing the transparency of, and public confidence in, FDA’s evaluation process. By addressing these issues, FDA’s assurance to consumers that GM foods are safe could be strengthened. To enhance FDA’s safety evaluations of GM foods, we recommend that the Deputy Commissioner of Food and Drugs direct the agency’s Center for Food Safety and Applied Nutrition to obtain, on a random basis, raw test data from companies, during or after consultations, as a means of verifying the completeness and accuracy of the summary test data submitted by companies; and expand its memos to file recording its decisions about GM foods to provide greater detail about its evaluations of the foods, including the level of evaluation provided, the similarity of the foods to foods previously evaluated, and the adequacy of the tests performed by the submitting companies. We provided FDA with a draft of this report for review and comment. In its written comments, FDA stated it believes that its current process for evaluating bioengineered foods provides appropriate oversight but agreed that enhancements can be made. Specifically, concerning the need to randomly review raw safety data, FDA agreed that occasional audits would provide additional assurance to the public that pre-market decisions about bioengineered foods are based on sound science and that safety and regulatory issues are resolved prior to commercial distribution. Concerning the expansion of its memos to file, the agency agreed that providing greater detail on its decisions about the safety of GM foods would enhance public understanding and confidence in the evaluation process. The agency noted that actions in its proposed rule—titled Premarket Notice Concerning Bioengineered Foods (66 FR 4706, January 18, 2001)—are relevant to our recommendations. FDA explicitly states it will evaluate whether to adopt occasional audits as it evaluates comments on its proposed rule. Since FDA officials told us that some of its proposed rule changes in the Federal Register have taken years to implement, we believe that the public’s interests would be served by implementing our recommendations separately from the proposed rule approval process. FDA also had general comments about the terms and definitions used in discussing agricultural biotechnology. FDA stated that our draft report avoided many of the pitfalls in terminology and in general was written in a manner that will be understandable to the public. However, the agency believes the use of terms such as “Genetically Modified Food” in the title and “GM food” in the text can be misleading and such foods are more commonly referred to as bioengineered foods. While perhaps the scientific community refers to these foods as bioengineered, the lay public is more familiar with the term genetically modified foods. Accordingly, we have continued to use the term genetically modified, which is defined on page one of our report. Separately from its written comments, FDA provided us with some technical changes, which we incorporated into the report where appropriate. FDA’s written comments are presented in appendix III. We performed our review from July 2001 through May 2002 in accordance with generally accepted government auditing standards. (See app. I for our objectives, scope, and methodology.) We are sending copies of this report to congressional committees with jurisdiction over food safety programs, the Deputy Commissioner of Food and Drugs, the Director, Office of Management and Budget, 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 call me at (202) 512-3841. Key contributors to this report are listed in appendix IV. Representatives John Baldacci and John Tierney asked us to (1) identify the types of potential human health risks associated with genetically modified (GM) foods and experts’ views on the adequacy of tests used to evaluate these risks, (2) describe the Food and Drug Administration’s (FDA) controls for ensuring that companies submit test data it requests and identify experts’ views on the agency’s overall evaluations of these foods, (3) describe potential changes in future GM foods and any associated changes needed in tests to evaluate them, and (4) identify experts’ views on the necessity and feasibility of monitoring the long-term health risks of these foods. In addressing our review objectives, we interviewed representatives from U.S. consumer groups, academic and research institutions, federal regulatory agencies, and the biotechnology industry. We also E-mailed a set of questions to experts representing a variety of positions on biotechnology issues. We selected these experts in consultation with officials from the National Academy of Science’s National Research Council. These experts included scientists from the Center for Science in the Public Interest, the Union of Concerned Scientists, the Biotechnology Center of the University of Illinois, the Health Sciences Center of Tulane University, FDA, the Aventis Corp., the DuPont Corp., the Monsanto Corp., and Paradigm Genetics, Inc. In addition, we analyzed reports, policy documents, or issue papers from the Center for Science in the Public Interest, the Consumer Federation of America, the Union of Concerned Scientists, the Council for Agricultural Science and Technology, the National Academy of Sciences, the Pew Initiative on Biotechnology, the Environmental Protection Agency, FDA, the Biotechnology Industry Organization, the Institute of Food Technologists, the Codex Alimentarius, and the National Institute for Quality Control of Agricultural Products at the Wageningen University and Research Center of the Netherlands. We did not assess the potential environmental risks associated with GM food production. In addition, since there have been no GM animals evaluated for commercialization, we did not assess the potential environmental or human health risks associated with them. To identify the types of potential health risks of GM foods, we analyzed and synthesized information from the interviews, E-mail question responses, and documents regarding these risks. To identify tests commonly used by industry to assess GM food safety, we examined several FDA evaluations of GM food. In examining these evaluations, we also analyzed how FDA addresses any potential limitations in these tests and what guidance FDA provides to industry regarding scientifically acceptable tests. In our E-mail questions, we also asked the experts to describe any limitations to these tests, and then analyzed and synthesized their responses, particularly regarding test-specific limitations and suggestions for improving the tests. In addition, we asked whether there were any limitations to FDA’s guidance on acceptable tests. We then synthesized their responses, including suggestions for improving FDA’s guidance. To describe FDA internal controls for ensuring that companies submit safety test data requested by the agency, we interviewed FDA officials and reviewed agency documents about the functions of these internal controls, specifically (1) FDA’s 1992 Policy on Foods Derived from New Plant Varieties and its 1997 Guidance on Consultation Procedures that describe what safety data companies should submit; (2) the qualifications and roles of the FDA Biotechnology Evaluation Teams responsible for evaluating these submissions; and (3) FDA’s practice of matching its level of evaluation to the degree of novelty of the GM food submitted. Further, we compared the safety data specified in FDA’s 1992 policy with data provided by companies in five GM food submissions and analyzed the extent of the companies’ adherence to FDA’s recommended procedures for safety assessments. We contacted officials at the Department of Health and Human Services’ Office of Inspector General to determine if they had reviewed FDA’s internal controls. (They had not.) We did not, however, independently verify the adequacy of FDA’s internal controls. To identify experts’ views on the agency’s overall evaluations of GM foods, we interviewed consumer groups, industry officials, and other experts, analyzed their views and concerns—including any suggestions for improving FDA’s evaluation process—and reviewed related literature. For each concern identified with the process, we obtained FDA’s response and then determined the extent to which FDA’s response effectively addressed the concern or suggested a need for additional action by FDA. Further, we examined Office of Management and Budget and GAO guidance and policies relevant to these concerns. To describe the potential changes in future GM foods and associated changes needed in the tests to evaluate them, we interviewed scientists and regulators on the likely changes in GM foods and new testing approaches under development. We also focused several of our E-mail questions on this topic and analyzed the responses. In addition to E-mail respondents, we contacted experts from biotechnology companies concerning research on new, more complex GM foods as well as new testing approaches that may supplement or replace existing tests. We synthesized these respondents’ and experts’ views on likely changes to GM food and the value and challenges of using these new testing approaches. Further, we reviewed the relevant scientific literature for discussions of anticipated changes in GM foods and information on specific tests under development. We also met with scientists developing one of these new testing approaches to understand its potential value for assessing GM food safety. To identify the views of experts on the necessity and feasibility of monitoring the long-term health risks of GM foods, we asked respondents to our E-mail questions for an assessment of whether such an effort is necessary or feasible and then analyzed their responses. Further, we reviewed a variety of documents concerning the necessity and feasibility of long-term monitoring, including a recent joint United Nations’ Food and Agriculture Organization and World Health Organization report, as well as a recent report by the National Institute for Quality Control of Agricultural Products at the Wageningen University and Research Center of the Netherlands. We also discussed the topic with other regulatory officials connected with monitoring food safety. In particular, we discussed whether the long-term effects of GM foods could be separated from other factors that may influence human health. Finally, we submitted a draft of this report for technical review by scientists from industry, academia, and a consumer group, and we incorporated their comments as appropriate. We conducted our review from July 2001 through May 2002 in accordance with generally accepted government auditing standards. Metabolic profiling could be used as a safety-screening tool for GM foods. Specifically, as shown in figure 3, special software has allowed one company to graph the metabolic profile of one variety of mustard plants and analyze the effects of genetic modifications. In the figure, the vertical axis in each graph provides a list of different small molecules, or metabolites, in mustard plants from this variety. The horizontal axis measures variation or deviation from the metabolite levels in this conventional variety. The vertical line in the middle of each graph represents the average value for a range of small molecules, or metabolites, in this conventional variety. In this example, the company analyzed thousands of conventional plants from this variety to come up with a range of naturally occurring metabolite levels. The company then used the averages of these ranges to generate the vertical line in the middle of the graphs. The points plotted with squares represent the levels of small molecules in GM mustard plants. Points appearing to the right of the center vertical line indicate increased levels of specific small molecules, while points appearing to the left indicate decreased levels. The graphs in figure 3 illustrate three scenarios: graph (a) shows a GM mustard plant with small molecule levels nearly identical to its conventional counterpart; graph (b) shows a GM mustard plant with a few easily measurable decreases; and graph (c) represents a GM mustard plant with many significant differences from the small molecule levels of its conventional counterpart. If baseline data on normal ranges of variation, such as those developed for the mustard plants, can be made available for all GM food crops, companies might use this type of testing to develop safety data. For example, in graph (a), the absence of significant changes in the small molecules would strongly indicate that no significant changes had resulted from the genetic modification. Hence, a change in the risk of allergenicity, toxicity, or antinutrients would be very unlikely. In the case represented by graph (b), the software could determine which small molecules have changed. Then, traditional testing techniques such as toxicity testing, could be used to determine if the altered small molecules would have any effect on human health, plant growth, or crop yield. In the case shown in graph (c), scientists would probably not proceed with development and commercialization of the GM food in the absence of extensive evaluations for allergens, toxins, or antinutrients, due to the significant differences in small molecules between it and its conventional counterpart. In addition to the individuals above, Nathan J. Anderson, Dennis S. Carroll, Kurt W. Kershow, and Cynthia C. Norris made key contributions to this report. International Trade: Concerns Over Biotechnology Challenge U.S. Agricultural Exports GAO-01-727. Washington, D. C.: June 15, 2001. Biotechnology: Information on Prices of Genetically Modified Seeds in the United States and Argentina GAO/T-RCED/NSIAD-00-228. Washington, D. C.: June 29, 2000. Biotechnology: Information on Prices of Genetically Modified Seeds in the United States and Argentina GAO/RCED/NSIAD-00-55. Washington, D. C.: January 21, 2000.

Genetically modified foods pose the same risks to human health as do other foods. These risks include allergens, toxins, and compounds known as antinutrients which inhibit the absorption of nutrients. Before marketing a genetically modified food, company scientists seek to determine whether these foods pose any heightened risks. The Food and Drug Administration (FDA) published guidelines in 1992 to ensure that companies worked with the agency to assess the safety of genetically modified foods. GAO found that FDA's evaluation process could be enhanced by randomly verifying the test data provided and by increasing the transparency of the evaluation process, including communicating more clearly the scientific rationale for FDA's final decision on an assessment of genetically modified food. Scientists expect that genetic modifications will increasingly enhance the nutritional value of genetically modified foods. Although current tests have been adequate for evaluating the few genetically modified foods that have, so far, undergone relatively simple compositional changes, new technologies are being developed to evaluate the increasingly complex compositional changes expected. Monitoring the long-term health risks of genetically modified foods is generally neither necessary nor feasible. No scientific evidence exists, nor is there even a hypothesis, suggesting that long-term harm, such as higher cancer rates, results from these foods. Moreover, technical challenges make long-term monitoring infeasible.

You are an expert at summarizing long articles. Proceed to summarize the following text: The three major programs that SSA administers—OASI, DI, and SSI—provide cash income support to diverse populations. The Social Security Act established the OASI program to protect workers and their dependents and survivors from wages lost due to retirement. DI, enacted in 1956, provides monthly cash benefits to disabled workers and their families. The OASI and DI programs are funded through payroll taxes and are based on the contributions of individual workers and their employers. About 90 percent of all U.S. jobs are covered by these insurance programs. In 1995, the OASI and DI programs paid over $326 billion in benefits to more than 43 million eligible beneficiaries. SSI, enacted in 1972, provides cash assistance to aged, blind, or disabled individuals with limited income and assets. The federal SSI program replaced federal grants to state-administered programs, which varied substantially in benefit levels. The Congress intended SSI as a supplement to the OASI and DI programs for those with little or no Social Security coverage. Federal SSI benefits are funded by general revenues and based on financial need. In 1995, over 6 million recipients received about $25 billion in federal benefits, including 2 million individuals aged 65 and over and almost 1 million children. To administer these three programs, SSA must perform the following essential tasks: issuing Social Security numbers to individuals; maintaining earnings records for workers by collecting wage reports from employers, which are used to determine the dollar amount of OASI and DI benefits; and processing benefit claims for all three programs. SSA must also determine which applicants for disability benefits under DI and SSI meet the federal definition of disability; for SSI, the agency must also determine applicants’ levels of income and assets. In addition, SSA performs many actions to maintain accurate records for program recipients once they are enrolled. Moreover, SSA must periodically conduct reviews of the health status of disabled beneficiaries to ensure that those no longer eligible are removed from the rolls. For SSI recipients, SSA must also review their financial status. Table 1 gives an overview of the three programs. At this time of heightened attention to the costs and effectiveness of all federal programs, the Congress and the administration have supported efforts to promote a more efficient federal government that is responsive and accountable to the public. This is especially critical at SSA because the agency deals with thousands of individuals daily and nearly 90 percent of its employees directly serve the public. SSA has surpassed many federal agencies in these efforts by assessing and improving its service to the public, gaining experience in managing for results, and emphasizing financial accountability. Two federal efforts, the Government Performance and Results Act of 1993 (GPRA) and the National Performance Review (NPR), promote cost-effective service delivery governmentwide. To ensure that it is meeting the needs of the public and the requirements of GPRA and NPR, SSA regularly seeks customer feedback through mail and telephone surveys, comment cards in its field offices, focus groups, and special studies. It has also taken steps to use this information to improve its services. As demand for its 800-number telephone service increased, for example, SSA found its service lacking. Customer feedback indicated that this convenient telephone service was important to the public, yet SSA’s performance data showed that in fiscal year 1995, the “busy” rate for the 800 number was almost 49 percent; only about 74 percent of callers were able to get through within 5 minutes of their first try. SSA set a goal of answering 85 percent of its 800-number calls within 5 minutes of a caller’s first try in fiscal year 1996 and made operational changes to increase public access. As a result, the busy rate decreased to 34 percent, and 83 percent of calls were answered within 5 minutes. For fiscal year 1997, SSA’s goal is to answer 95 percent of its 800-number calls within 5 minutes of a caller’s first try. We are currently reviewing SSA’s efforts to improve this service. SSA has also worked under GPRA to strengthen its strategic management process and to identify and develop performance measures to help its managers, the Congress, and the public assess how well it is accomplishing its mission. During SSA’s recently completed participation as a pilot agency under GPRA, SSA gained experience in developing specific and quantifiable annual performance goals and measures. On the basis of this experience, it expects to develop performance measures for fiscal year 1998 that focus more on outcomes and results than in previous years. For SSA’s fiscal year 1997 goals and performance measures, see appendix I. In addition, SSA is a leader among federal agencies in producing complete, accurate, and timely financial statements that promote accountability to taxpayers. For fiscal years 1995 and 1996, SSA issued audited financial statements 3 months before its legal mandate. Moreover, SSA was among the first federal agencies to produce an accountability report, which is designed to consolidate current reporting requirements under various laws and provide a comprehensive picture of an agency’s program performance and its financial condition. In addition, for fiscal year 1996, as a pilot project, SSA and its Office of Inspector General collaborated to further streamline financial reporting by including the Inspector General’s Semiannual Report to Congress as part of the Accountability Report. To be most effective, SSA’s ongoing efforts to cost effectively serve its customers and be accountable to taxpayers will need to be well coordinated and continually improved. The agency has taken steps to better integrate its strategic planning, performance measurement, and customer service efforts and to improve the ways that it collects and uses customer feedback. SSA faces challenges, however, as do all federal agencies, in integrating results-oriented management into its agency culture and daily activities. Moreover, SSA must determine how to balance its customers’ needs and expectations with those of taxpayers by assessing the cost-effectiveness of its customer service improvements. As the baby boom generation ages, growing numbers of people will receive Social Security retirement and survivors benefits through OASI in the years to come, as shown in figure 1. By the year 2015—as baby boomers begin entering their mid-60s—the numbers of individuals receiving benefits will reach an estimated 50.4 million: more than one-third greater than the 37.4 million people receiving Social Security retirement and survivors benefits in 1995. Once on the rolls, retirees can be expected to receive benefits for longer time periods than past recipients. A 65-year- old male who began receiving Social Security benefits in 1940—the first year SSA began paying monthly benefits—was expected to live, on average, about an additional 12 years. By 2015, a 65-year-old male will be expected to live about an additional 16 years—a 33-percent increase. During that same time period, the life expectancy for women aged 65 will increase by almost 50 percent—from an average of over 13 years to an average of nearly 20 years. Meanwhile, the ratio of contributing workers to beneficiaries will decline. By 2015, an estimated 2.6 workers will be paying taxes into the Social Security system per beneficiary; in 1950, 16.5 workers were paying Social Security taxes per beneficiary. This retirement explosion threatens the long-term solvency of the Social Security system. Beginning in 2012—15 years from now—program expenditures are projected to exceed tax income. By 2029, without corrective legislation, the trust funds are expected to be depleted, leaving insufficient funds to pay the expected level of OASI and DI benefits. (In an upcoming report, we will discuss in greater detail the issues affecting the major sources of retirement income—Social Security, private pensions, savings, and earnings.) Concerns about the long-term solvency of the Social Security system are fueling a public debate about the fundamental structure of this system. The Advisory Council on Social Security, for example, has put forth three different approaches to addressing the Social Security system’s long-term deficit. All three approaches call for some portion of Social Security payroll taxes to be invested in the stock market. Two of these approaches call for allowing individuals to invest some portion of their payroll taxes in individual retirement accounts. This would be a significant departure from the current program design, in which benefits are based on past earnings and trust fund moneys are invested and managed centrally. Given the magnitude of the financial problems facing the Social Security system and the nature of the proposals for changing the system, we can expect the debate over the financing and structure of the Social Security system to continue and intensify in the coming years. In our report on SSA’s transition to independence, we noted that the agency’s independence would heighten the need for it to work with the Congress in developing options for ensuring that revenues are adequate to make future Social Security benefit payments. SSA could, for example, analyze options and assess their possible effects on individuals and on SSA’s operations. Nearly 2 years after gaining independence, however, SSA is not yet ready to fully support policymakers in the current public debate on financing issues. SSA has acknowledged that it has not undertaken the policy and research activities it needs to examine critical issues affecting its programs, including long-term financing, and to provide support to policymakers. The agency recognizes the need to be more active in these areas and, in May 1996, took steps to reorganize and strengthen its policy analysis, research, and evaluation offices. It believes this reorganization will better position it to take a leadership role in critical policy and research issues related to its programs. By November 1996, SSA’s reorganized Office of Research, Evaluation, and Statistics had formed new links with outside experts to strengthen its research and evaluation capabilities. In addition, it had created an office to coordinate all policy planning activities. Although this is a positive first step, SSA officials also acknowledge that they are just beginning to focus on Social Security’s long-term solvency. SSA is in a unique position to inform policymakers and the public about the nature of long-term financing issues. Focus groups conducted by SSA have demonstrated that the public’s knowledge of Social Security programs is generally low and the public’s confidence in the Social Security system is undermined by its future financing problems. To address these issues, SSA is conducting a public education campaign that discusses what the current system offers in disability, retirement, and survivors benefits. It also emphasizes that the Social Security system can pay benefits for many more years and that the Congress has time to act before the trust funds are depleted. SSA, however, is not discussing options for maintaining or changing the current system. Feedback SSA has received from its focus groups indicates that addressing the public’s lack of knowledge without also discussing possible options for ensuring the system’s future solvency does not instill confidence and weakens the agency’s credibility with the public. We are concerned that SSA has not seized the opportunity as an independent agency to speak out on the importance of addressing the long-term financing issues sooner rather than later. As we have noted in our previous work, the sooner action is taken to resolve the future funding shortfall, the smaller the changes to the system need to be and the more time individuals will have to adjust their financial and retirement plans. In recent years, disability caseloads have faced unprecedented growth. To manage this caseload growth and the resulting slow processing times, SSA plans to redesign and dramatically improve its disability claims process. However, the scope and complexity of its many redesign initiatives risk the likelihood that SSA will accomplish its redesign goals. Moreover, while SSA is taking steps to improve the process for moving eligible individuals onto the disability rolls more quickly, it has not sufficiently emphasized helping beneficiaries return to work and leave the disability rolls. During the past decade, SSA has faced significant increases in caseloads and expenditures for its two disability programs—DI and SSI. DI and SSI caseloads and expenditures increased dramatically between 1986 and 1995, and the pace of this growth accelerated in the early 1990s. In 1986, 4.4 million blind and disabled people under age 65 received DI or SSI benefits; by 1995, this number had soared to 7.5 million—a 69-percent increase. As the number of DI and SSI beneficiaries increased, so did the amount paid in cash benefits. The combined DI and SSI cash benefits increased from $25 billion to $57 billion in 10 years. Adjusted for inflation, the increase in the value of these cash benefits was 66 percent. As these programs have grown, the characteristics of new beneficiaries have changed in ways that pose additional challenges for SSA. Beneficiaries are, on average, younger and more likely to have longer lasting impairments. Increases in beneficiaries with mental illness or mental retardation, especially, have driven this trend. Between 1982 and 1992, for example, mental impairment awards to younger workers increased by about 500 percent. This growing proportion of younger beneficiaries with longer lasting impairments means that the beneficiary population, on average, is likely to spend more time on the disability rolls. In 1992, for example, new DI awardees were, on average, 48 years old. Depending on the type of impairment that qualified them for benefits, these beneficiaries could spend nearly one-third of their adult lives on disability before reaching age 65. As more and more people have filed for disability benefits, SSA has been slow to process initial claims, and appealed case backlogs have grown. To manage the disability caseload growth, increase efficiency, and improve service to its customers, SSA has started a major effort to change how disability decisions are made. Making disability decisions is one of the agency’s most demanding tasks; it accounted for more than half of SSA’s total administrative budget—about $3 billion—in fiscal year 1995. Even so, many claimants face long waits for disability decisions. As of June 1996, the wait for initial decisions averaged 78 days for DI claims and 94 days for SSI claims, with an additional 373-day wait for appealed decisions. Overall, the current disability claims process is not meeting the needs of claimants, the agency, or taxpayers. To deal with these problems, in 1993 SSA formed a team to fundamentally rethink and develop a proposal to redesign the disability claims process. Efforts like SSA’s—business process reengineering—have been used successfully by leading private-sector organizations to dramatically improve their operations. In April 1994, we informed the Congress that the agency’s redesign proposal was its first valid attempt to address the fundamental changes needed to cope with disability workloads. At that time, however, we also cautioned that many implementation challenges would have to be addressed. These include new staffing and training demands, developing and installing technology enhancements, and confronting entrenched cultural barriers to change. SSA’s redesign plan, released in late 1994, had an extensive scope and complexity. It included 83 initiatives to be accomplished during a 6-year period (fiscal years 1995 to 2000), with 38 of these to be completed or into a research and development or testing phase by September 30, 1996. In a recent report on the implementation challenges SSA faces as it redesigns its disability claims process, we concluded that SSA’s disability redesign is proving to be overly ambitious. Undertaking many initiatives at one time is likely to limit the chances for success and has already led to implementation delays. Although SSA has begun many of its planned initiatives, none are complete and many are behind schedule. Consequently, SSA has not progressed as intended in determining whether specific initiatives will achieve their desired results. Without concrete and measurable results, stakeholder support is hard to maintain. SSA has faced significant challenges in implementing some of the more complex initiatives. For example, SSA considers technology vital to redesign; it has, therefore, undertaken a technology initiative to more fully automate the processing of disability claims. Completion of this initiative, however, has been delayed by more than 2 years due to software development problems and the need for additional testing to assess redesign changes. Another complex initiative involves consolidating two distinct jobs, federal claims representative and state disability examiner, into a new disability claim manager (DCM) position. SSA is considering the establishment of about 11,000 DCM positions in more than 1,350 federal and state locations, recruiting these DCMs from its current workforce. Before fully implementing the DCM position, SSA must first provide several critical support features, including technology enhancements and a simpler method for making disability decisions, that SSA does not expect to be available for several years. Moreover, SSA has struggled to resolve stakeholder disagreements among representatives of federal and state employees about this new position. SSA has determined that it will not decide to implement the DCM until valid and reliable testing demonstrates that the position is viable. Although SSA has focused on improving its processes for moving eligible claimants onto the disability rolls, it has placed little priority on helping them move off the rolls by obtaining employment. We have reported that SSA’s disability programs are out of sync with societal attitudes, as embodied in the Americans With Disabilities Act, that have shifted toward goals of economic self-sufficiency and the right of people with disabilities to fully participate in society. At one time, the common business practice was to encourage someone with a disability to leave the workforce. Today, however, a growing number of private companies have been focusing on enabling people with disabilities to return to work. In contrast, SSA’s programs lack a focus on providing the support and assistance that many people with disabilities need to return to work. Eligibility requirements, for example, focus on applicants’ inabilities, not their abilities; once on the rolls, beneficiaries receive little encouragement to use rehabilitation services. A greater emphasis on beneficiaries’ returning to work is needed to identify and encourage the productive capacities of those who might benefit from rehabilitation and employment assistance. Although the main reason for emphasizing returning to work is so that people maximize their productive potential, it is also true that an estimated $3 billion could be saved in subsequent years if only an additional 1 percent of the 6.6 million working-age people receiving disability benefits in 1995 were to leave the rolls by returning to work. SSA needs to develop a comprehensive return-to-work strategy that includes providing return-to-work assistance to applicants and beneficiaries and changing the structure of cash and medical benefits. As part of an effort to place greater priority on beneficiaries’ returning to work, we recommended that SSA identify legislative changes required to implement such a strategy. Although evaluating any SSA response to our recommendations would be premature, we will continue to assess SSA’s efforts to help beneficiaries return to work. SSA has also missed opportunities to promote work among disabled beneficiaries where it has the legislative authority to do so. In 1972, the Congress created the plan for achieving self-support (PASS) program as part of SSI to help low-income individuals with disabilities return to work.However, SSA has not translated the Congress’ broad goals for the PASS work incentive into a coherent program design. We recently reported that SSA needs to improve PASS program management, and the agency has taken steps to better manage the program in accordance with our recommendations. Limiting opportunities for fraud, waste, and abuse in government programs is essential to promoting public confidence in the government’s ability to wisely use taxpayers’ dollars. Moreover, problems in any one of the programs that SSA administers can undermine confidence in all of its programs. Recent media reports on SSI fraud and abuse have focused attention on SSA’s management of this program. Several of our recent reviews of the SSI program have shown that SSA’s oversight and management of SSI have been inadequate and that the agency is not aggressively pursuing opportunities to increase program efficiencies. Although quantifying the extent of fraud, waste, and abuse is difficult, we have repeatedly identified program weaknesses that SSA needs to address. This suggests more pervasive problems with SSA’s overall management of, and attention to, the SSI program. SSA has awarded SSI benefits, for example, to unknown numbers of non-English-speaking immigrants who are actually ineligible for SSI benefits. These awards are very costly to the government, accounting in each case for thousands of dollars in improper payments over the years. And even though individual SSA field offices have developed their own creative approaches to this problem, SSA’s programwide efforts for ensuring that only people who are eligible for SSI benefits receive them have been limited. SSA has also lacked an effective program to prevent erroneous payments to prisoners. Even though prisoners are ineligible for SSI if they have been in jail for 1 calendar month or longer, prisoners in many large county and local jail systems have received millions of dollars in cash benefits. This means that taxpayers have been paying twice to support these individuals—both for SSI benefits and the cost of imprisonment. SSA has begun to obtain information on current prisoners; however, it has not tried to develop information that would allow it to recover benefits paid to incarcerated or formerly incarcerated individuals who may have received benefits in prior years, although this information is available. In addition, SSA’s PASS program internal controls have been inadequate, compromising the program’s integrity. SSA’s internal program controls provide only limited guarantees that program moneys are being used appropriately and taxpayer dollars spent judiciously. For example, the lack of adequate guidance on acceptable PASS expenditures has resulted in inconsistent decisions on purchases. In one instance the proposed purchase of a $13,000 automobile was denied because the applicant did not provide sufficient evidence to justify the car’s cost; in other instances, however, purchases of similarly expensive vehicles were approved or less justification was provided for purchases. SSA is also missing opportunities to more efficiently administer the SSI program and to prevent or more quickly detect overpayments to recipients. Millions of dollars could be saved, according to our estimates, if SSA field offices had and used direct online access to computerized state income information during initial and subsequent assessments of eligibility. Although SSA has begun to develop and expand online access in several field offices, it has not aggressively sought to use this technology to reduce benefit overpayments. SSA acknowledges that it needs to do more to prevent and detect fraud, waste, and abuse. It has several initiatives under way to accomplish this, and we will be monitoring these efforts. In addition, the new SSA Inspector General’s Office, created when SSA gained independence from HHS, is increasing its emphasis on fraud and abuse. While SSA is grappling with policy and program challenges, it will also need to meet customer expectations in the face of growing workloads and reduced resources. SSA expects to redesign inefficient work processes and modernize its information systems to increase productivity, knowing that its customer service will deteriorate to unacceptable levels if it continues to conduct business as in the past. In addition, it faces the urgent need to complete year 2000 software conversion to avoid major service disruption at the turn of the century. SSA will also need to effectively manage its workforce and consider what service delivery structure will work best in the future. The need to effectively balance public service needs with costs will become even more important in the future. As the baby boom generation ages, more and more people will be applying for and receiving SSA program benefits. In addition to increasing retirement and disability caseloads, SSA’s other workloads will grow because of the following increasing responsibilities: SSA’s workloads over the next few years will increase substantially as a result of recent congressional efforts to overhaul the nation’s welfare system. The Congress has made changes that eliminate disability benefits for drug addicts and alcoholics, restrict noncitizens’ SSI benefit eligibility, and tighten the SSI eligibility criteria for disabled children. SSA will have to manage the large influx of appeals and reapplications that is expected following the changes in benefit eligibility. SSA has already received appeals for more than half of the over 200,000 drug addicts and alcoholics who were notified in June 1996 that their benefits would be terminated, according to SSA officials. These workloads will also have an impact on SSA’s capacity to meet other workload challenges. SSA must meet a legislative requirement that most workers be mailed annual statements of their earnings and estimated retirement benefits,called Personal Earnings and Benefit Estimate Statements. The creation and mailing of these annual statements to all workers aged 60 and older, begun in 1995, must be expanded to those aged 25 and older—about 123 million individuals—by the year 2000. We recently recommended that these statements be improved to more effectively communicate important information to the public; improving these statements could result in fewer inquiries about them, reducing the impact on SSA workloads. SSA has not fully met legislative requirements to periodically review the status of disabled beneficiaries to ensure that those who are no longer disabled are removed from the rolls. About 4.3 million DI and SSI beneficiaries were due or overdue for continuing disability reviews in fiscal year 1996. SSA now has plans to review the status of more than 8 million beneficiaries in the next 7 years. To accomplish this, SSA would have to conduct about twice as many reviews as it has conducted over the past 20 years combined. SSA knows that it must meet these increasing demands in an era of federal downsizing and spending reductions. In early 1996, SSA estimated that it would need the equivalent of about 76,000 work-years to handle its workloads by the end of the century if it conducted business as usual. It expected to handle this work with fewer work-years than it has today. SSA is in the process of revising these estimates. To handle increasing workloads and improve public service, SSA has begun to redesign inefficient work processes and develop supporting modernized information systems. SSA is in the process of a multiyear, multibillion dollar systems modernization effort expected to support new ways of doing business and improve productivity. SSA’s Automation Investment Fund of $1.1 billion supports its 5-year plan, from fiscal years 1994 to 1998, of moving from reliance on computer terminals linked to mainframe computers in its Baltimore headquarters to a nationwide network of personal computers. The new network is expected to improve productivity and customer service in field offices and teleservice centers and allow for further technology enhancements. Although this new computer network environment may yield productivity improvements, it poses significant challenges for SSA. The usefulness of new computer systems will depend on the software developed for them. Software development has been identified by many experts as one of the most risky and costly aspects of systems development. To mitigate the risk of failing to deliver high-quality software on time and within budget, SSA must have a disciplined and consistent process for developing software. SSA has already experienced problems, however, in developing its first major software application for use in its new network. These problems include (1) using programmers with insufficient experience, (2) using software development tools that have not performed effectively, and (3) developing initial schedules that were too optimistic. We have reported that these problems have collectively contributed to a delay of over 2 years in implementing this new software. Although SSA has begun to take steps to better position itself to successfully develop and maintain its software, it faces many challenges as it works to develop software in its new computer network environment. SSA faces another systems challenge—one of the highest priority—that affects not only its new network but computer programs that exist for both its mainframe and personal computers. Most computer software in use today is limited to two-digit date fields, such as “97” for 1997. Consequently, at the turn of the century, computer software will be unable to distinguish between 1900 and 2000 because both would be designated “00.” By the end of this century, SSA must review all of its computer software—about 30 million lines of computer code—and make the changes needed to ensure that its systems can handle the first change to a new century since the computer age began. This year 2000 software conversion must be completed to avoid major service disruption, such as erroneous payments or failure to process benefits, at the turn of the century. Errors in SSA programs could also cause difficulties in determining who is eligible for retirement benefits. For example, an individual born in 1920 could be seen as being 20 years old—not 80—and therefore ineligible for benefits. Similarly, someone born in 1980 could be seen as 80 years old—not 20—and therefore entitled to receive Social Security benefits. Beginning work on this problem in 1989, SSA has reviewed and corrected about 50 percent of the computer code that must be checked, according to its Deputy Commissioner for Systems. To complete the job, SSA estimates that it will take about 350 work-years. Agency officials reported that the amount of resources dedicated to the year 2000 effort could impact staff availability for lower priority projects and SSA’s ability to tackle new systems development work. SSA recognizes that to maximize the effectiveness of its reengineered work processes and investments in technology, it must invest in ongoing employee training and career development. Ultimately, SSA envisions a less specialized workforce with a broader range of technical skills that can be flexibly used in areas of greatest need. In addition, SSA has taken steps to reduce its number of supervisors, as part of the administration’s efforts to eliminate unnecessary bureaucracy by working with fewer supervisory layers. To manage these changes, SSA is training some of its headquarters employees in the concepts and techniques of teamwork. To manage with fewer supervisors in its field operations, SSA also plans to work with its unions to test a number of team concepts. Complicating SSA’s efforts is its aging workforce: 51 percent of SSA’s senior executives and 35 percent of its mid-level managers are eligible to retire over the next 5 years. In the last 2 fiscal years, SSA has lost two of its seven Deputy Commissioners to retirement. SSA has acknowledged the importance of having skilled managers to prepare for the demands of heavier workloads, new technology, and expected changes in its employee and client base. However, it has been nearly 5 years since SSA has conducted an executive-level management development program. SSA also has not selected candidates for its mid-level management development program since 1993. The agency recognizes the need for management development programs but has not yet scheduled future programs. Although SSA has begun to discuss its use of improved technology and a more flexible workforce to conduct its business in new ways in the future, it has maintained its traditional service delivery structure, including 1,300 field offices. Given the significant changes facing SSA, it has not adequately considered whether its current service delivery structure is really what is needed for the future. According to SSA officials, the agency has not developed specific plans for restructuring its organization and redeploying staff in response to demographic and workforce changes and shifting customer expectations. As noted earlier, the demand for SSA’s 800-number telephone service continues to grow, and SSA’s surveys show that callers prefer to use the telephone for more and more of their business. Customer feedback also indicates that customers would like to complete their business in a single contact. Over time, SSA will likely need to restructure how it does business to cost-effectively meet changing customer preferences; this may ultimately involve office closures. Issues of where, how, and by whom work will be done entail sensitive human resources issues and may have negative impacts on local communities; to resolve these, SSA will need to work closely with its unions, employee groups, and the Congress. To improve its 800-number service, for example, SSA has many initiatives under way, which we are reviewing. SSA currently has 37 teleservice centers. Studies indicate that this is far too many teleservice centers to operate SSA’s 800-number system in the most cost-effective way. A 1990 report from HHS’ Inspector General, for example, indicates that SSA could operate more efficiently and cost-effectively with one-third the number of centers it currently has. SSA has studied this issue but has not developed specific plans for reducing the number of teleservice centers. As the 21st century approaches, SSA faces dramatic challenges: funding future retirement benefits, rethinking disability processes and programs, combating fraud and abuse, and restructuring how work is performed and services are delivered. How SSA performs in these areas can have a powerful effect on its success in fulfilling its mission and on the public’s confidence in this agency and the federal government. To help SSA meet these challenges, the Congress took steps through the independence legislation to build public confidence in and strengthen the agency. The independence legislation provides that SSA’s Commissioner be appointed by the President with the advice and consent of the Senate for a fixed 6-year term, with removal from office by the President only for a finding of neglect of duty or malfeasance in office. As the Congress was considering the legislation, we testified that a fixed term of several years for the Commissioner would help stabilize and strengthen SSA’s leadership. We continue to support the need for a fixed term. The legislation also calls for a fixed 6-year term for a Deputy Commissioner, also to be appointed by the President with the Senate’s advice and consent. The Commissioner and Deputy Commissioner head the leadership team needed to address the agency’s existing problems and manage its future challenges. SSA’s efforts to maintain an effective cadre of leaders are complicated by the impending retirement of many of its executives and managers and by the absence of a Commissioner and Deputy Commissioner with the stability of fixed terms. This leadership must be in place for SSA to progress on the four fronts we have highlighted. First, SSA must step up to its role as the nation’s expert on Social Security issues; it is uniquely positioned to inform the public policy debate on the future financing and structure of Social Security. Second, SSA must redesign the disability claims process and place greater emphasis on return to work in its disability programs. To increase the redesign project’s likelihood of success, SSA needs to focus on those initiatives most crucial to producing significant measurable reductions in claims-processing time and administrative cost. SSA also needs to place greater emphasis on return to work by changing both the design and administration of the disability programs. Third, SSA must better protect taxpayer dollars. As the administrator of the nation’s largest cash welfare program, SSA must ensure program integrity in SSI. Reports of fraud and abuse trigger public perceptions that SSA is not making cost-effective and efficient use of taxpayer dollars. Finally, SSA must manage technology investments and its workforce and make difficult decisions about handling increasing workloads with reduced resources. It must also continue to focus on and closely manage its year 2000 conversion to help ensure that SSA will move into the 21st century with systems that function correctly. Moreover, as SSA prepares to meet greater demands and changes in its employee and client base, it may have to make difficult workforce decisions to better respond to customer needs. For example, SSA may need to close offices and move its workers to different locations to better meet growing demand. In an environment of shrinking budgets and increased expectations for government agency performance, ensuring that agency decisions are based on comprehensive planning and sound analyses will be even more essential. SSA’s success in meeting these challenges is critical. The agency is all important, touching the lives of almost all Americans. How it meets its challenges as it moves into the next century can make a significant difference in the well-being of America’s vulnerable populations—the aged, disabled, and poor—and in how the public feels about its government. In commenting on a draft of this report, SSA discussed the accomplishments of Commissioner Chater during her tenure and stated that many challenges remain. The agency also made technical comments on our report, which we incorporated where appropriate. See appendix II for a copy of the agency’s comment letter. We are sending copies of this report to the Commissioner of the Social Security Administration and other interested parties. Copies also will be available to others on request. If you or your staff have any questions concerning this report, please call me on (202) 512-7215 or Cynthia M. Fagnoni, Assistant Director, at (202) 512-7202. Other major contributors to this report include Gale C. Harris and Valerie A. Rogers. Percent of public “very well informed” or “fairly well informed” about Social Security Number of personal earnings and benefit estimate statements issued upon request and automatically Percent of people who rate SSA service as “courteous” or “very courteous” Percent of people who rate SSA service as “good” or “very good” Percent of Social Security numbers issued within 5 calendar days after receipt of needed information Percent of earnings items posted correctly Percent of OASI claims paid when due or within 15 days from effective filing date An OASI initial payment accuracy rate An SSI initial payment accuracy rate Percent of DI claims decided within 6 months after onset or within 60 days after the effective filing date, whichever is later Percent of SSI disability claims decided within 60 days of filing Number of DI and SSI initial disability claims processed Percent of Disability Determination Service decisional accuracy Percent of hearings decisions made and notices sent within 120 days of filing Percent of budgeted continuing disability reviews (CDR) processed to completion Percent of people with an appointment who have waiting times of 10 minutes or less in a field office Percent of people without an appointment who have waiting times of 30 minutes or less in a field office Percent of callers who reach 800 number within 5 minutes Percent of calls handled accurately (continued) SSA Disability Redesign: Focus Needed on Initiatives Most Crucial to Reducing Costs and Time (GAO/HEHS-97-20, Dec. 20, 1996). SSA Benefit Statements: Well Received by the Public but Difficult to Comprehend (GAO/HEHS-97-19, Dec. 5, 1996). Social Security Disability: Alternatives Would Boost Cost-Effectiveness of Continuing Disability Reviews (GAO/HEHS-97-2, Oct. 16, 1996). Supplemental Security Income: SSA Efforts Fall Short in Correcting Erroneous Payments to Prisoners (GAO/HEHS-96-152, Aug. 30, 1996). Supplemental Security Income: Administrative and Program Savings Possible by Directly Accessing State Data (GAO/HEHS-96-163, Aug. 29, 1996). Social Security Administration: Effective Leadership Needed to Meet Daunting Challenges (GAO/T-OCG-96-7, July 25, 1996 and GAO/HEHS-96-196, Sept. 12, 1996). SSA Disability: Program Redesign Necessary to Encourage Return to Work (GAO/HEHS-96-62, Apr. 24, 1996). PASS Program: SSA Work Incentive for Disabled Beneficiaries Poorly Managed (GAO/HEHS-96-51, Feb. 28, 1996). Deficit Reduction: Opportunities to Address Long-Standing Government Performance Issues (GAO/T-OCG-95-6, Sept. 13, 1995). Supplemental Security Income: Disability Program Vulnerable to Applicant Fraud When Middlemen Are Used (GAO/HEHS-95-116, Aug. 31, 1995). Social Security Administration: Leadership Challenges Accompany Transition to an Independent Agency (GAO/HEHS-95-59, Feb. 15, 1995). Social Security Administration: Major Changes in SSA’s Business Processes Are Imperative (GAO/T-AIMD-94-106, Apr. 14, 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. 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.

GAO reviewed the challenges facing the new Commissioner of the Social Security Administration (SSA). GAO found that: (1) SSA is ahead of many federal agencies in developing strategic plans, measuring its service to the public, and producing complete, accurate, and timely financial statements; (2) this gives SSA a sound base from which to manage significant current and future challenges; (3) these challenges include the aging of the baby boom generation, coupled with increasing life expectancy and the declining ratio of contributing workers to beneficiaries, which will place unprecedented strains on the Social Security program in the next century; (4) unless Congress acts, Social Security funds will be inadequate to pay all benefits by 2029; (5) SSA, however, has not preformed the research, analysis, and evaluation needed to inform the public debate on the future financing of Social Security, the most critical long-term issue facing SSA; (6) SSA has recently taken initial steps to more actively participate in the financing debate by reorganizing and strengthening its research, policy analysis, and evaluation activities; (7) also challenging SSA have been disability caseloads that have grown by nearly 70 percent in the past decade; (8) to its credit, SSA has undertaken an important effort to fundamentally redesign its inefficient disability claims process, however, while SSA has begun many of its planned initiatives, none is far enough along for SSA to know whether specific proposed process changes will achieve the desired results; (9) SSA has not sufficiently promoted return-to-work efforts in the administration and design of its disability programs; (10) if even an additional 1 percent of the 6.6 million working-age people receiving disability benefits were to leave SSA's disability rolls by returning to work, lifetime cash benefits would be reduced by an estimated $3 billion; (11) in its Supplemental Security Income program, SSA has not done enough to combat fraud and abuse and address program weaknesses; (12) SSA faces increasing responsibilities in the future and must manage its growing workloads with reduced resources; (13) to successfully meet its workload challenges, SSA knows that it must increasingly rely on technology and build a workforce with the flexibility and skills to operate in a changing environment; (14) SSA faces significant challenges, however, in modernizing its information systems, a complex, multiyear effort that could easily cost billions of dollars; (15) compounding this challenge will be the possible loss of many senior managers and executives; and (16) at this critical juncture, effective leadership is needed so SSA can take actions to better ensure its success in the 21st century.

You are an expert at summarizing long articles. Proceed to summarize the following text: DOD’s Real Property Management Program is governed by statute and DOD regulations, directives, and instructions that establish real property accountability and financial reporting requirements. These laws, regulations, directives, and instructions require DOD and the military departments to maintain a number of data elements about their facilities to help ensure efficient property management which, among other things, could help identify potential facility consolidation opportunities. Logistics and the Secretaries of the military departments. Specifically, the directive assigns overall responsibility and oversight of DOD real property to the Under Secretary of Defense for Acquisition, Technology and Logistics, but assigns specific responsibilities for real property management to the Secretaries of the three military departments, including implementing policies and programs to acquire, manage, and dispose of real property. Accordingly, each of the military departments has developed its own procedures and guidance for managing its infrastructure. Some of the key guidance used by the military departments for managing real property includes Army Regulation 405-70; Naval Facilities Engineering Command P-78; and Air Force Policy Directive 32- 10. Military department guidance requires, among other things, that real property records be accurate and be managed efficiently and economically. It also requires the military departments to maintain a complete and accurate real property inventory with up-to-date information, to annually certify that the real property inventory has been reconciled, and to ensure that all real property holdings under the military departments’ control are being used to the maximum extent possible consistent with both peacetime and mobilization requirements. In managing the real property under their control, the Secretaries of the military departments are responsible for implementing real property policies and programs to, among other things, hold or make plans to obtain the land and facilities they need for their own missions and for other DOD components’ missions that are supported by the military departments’ real property. Additionally, the military departments are required to (1) budget for and financially manage so as to meet their own real property requirements; (2) establish and maintain accurate inventory to account for their land and facilities; and (3) maintain a program monitoring the use of real property to ensure that all holdings under their control are being used to the maximum extent possible consistent with both peacetime and mobilization requirements. Generally, the military departments rely on the installations to manage and monitor the utilization of facilities. According to OSD guidance, installations are required to conduct inventories for each real property asset every 5 years except for those real property assets designated as historic, which are to be reviewed and physically inventoried every 3 years. According to DOD Instruction 4165.70, the military departments’ real property administrators are accountable for maintaining a current inventory count of the military departments’ facilities and up-to-date information regarding, among other things, the status, condition, utilization, present value, and remaining useful life of each real property asset. Inventory counts and associated information should be current as of the last day of each fiscal year. In addition, DOD Instruction 4165.70 requires the DOD components to periodically review their real property holdings, both land and facilities, to identify unneeded and underutilized property. Underutilized property represents assets that are needed to meet current or projected defense requirements, but are not currently utilized to the maximum extent possible. Such assets can be considered for temporary use by other DOD entities, other federal agencies, state and local governments, or private entities which is also referred to as outgranting. DOD guidance establishes the types of agreements that are used to document the support that military installations provide to their tenants. See 40 U.S.C. § 102 (3) and Department of Defense Directive 4165.06, Real Property. external factors that may affect future disposal efforts. DOD concurred with this recommendation and stated that it would work with the military departments to continue to develop and implement the most effective and efficient methods to eliminate excess facilities and capacity, but did not provide any details or specific time frames for these efforts. GSA has key leadership responsibilities related to real property management for the federal government. First, GSA is authorized by law to acquire, manage, utilize, and dispose of real property for most federal agencies, a function that is commonly referred to as the landlord role. This function is performed by GSA’s Public Buildings Service; GSA has an inventory of about 9,000 government-owned or government-leased facilities. GSA is responsible for managing the life cycle of federally owned assets, including eventually disposing of such properties and entering into, renewing, and terminating contracts for leased properties. Second, in a government-wide policy role, GSA sets real property management policy for the federal government as a whole. GSA’s Office of Government-wide Policy is tasked, among other things, to identify, evaluate, and promote best practices to improve efficiency of management processes. In this policy role, GSA also supports the Federal Real Property Council by providing oversight guidance, publishing performance measures, and maintaining the Federal Real Property Profile (FRPP) database. Additionally, the Freeze the Footprint policy assigns GSA leadership responsibilities, directing GSA to consult with other agencies on promoting full implementation of the policy, including how to use technology and space management to consolidate, increase occupancy rates in facilities, and eliminate lease arrangements that are not cost or space effective. DOD and military department guidance identify the real estate instruments used to issue outgrants, and—depending on the type of non- DOD tenant and type of facility occupied—the appropriate instances in which to use each real estate instrument. The military installations can use a variety of real estate instruments to issue outgrants. Leases grant a nonfederal entity exclusive possession of real property for a specified term in return for rent or other consideration. For example, an installation may grant a lease for a credit union to build a branch office. Enhanced Use Leases (EUL) refer to more complex leases into which the military departments may enter. EULs generally provide for in-kind consideration, and some EULs involve complex agreements and long terms. For example, an EUL might provide for a 50-year lease of military land to a private developer that would be expected to construct office or other commercial buildings on the land and then rent the facilities to private-sector tenants for profit. Consideration refers to cash or in-kind payment by the lessee in exchange for the lease. In the context of DOD’s general leasing authority, payment in kind may take the form of maintenance, protection, alteration, improvement, or restoration of property or facilities, among other things. Licenses grant any entity the use of space at an installation for a specific purpose generally in return for rent or other in-kind consideration. For example, an installation may grant a license to a YMCA program for carrying out activities for youths. Permits are licenses granted to non-DOD federal agencies generally in return for reimbursement of direct and indirect costs, as required by DOD guidance. Examples of direct and indirect reimbursement for costs include utilities, maintenance, and other services. Easements grant any entity a right to use or pass over parcels of land in specific ways; for example, to install and run utility lines across an installation, or to build roads, streets, or railroad tracks. Officials at all seven of the installations that we visited reported selecting the appropriate real estate instrument based on the type of non-DOD entity occupying space at the installation, the type of facility, and the proposed use of the asset. The type of entity can include federal agencies other than DOD, state and local governments, and nongovernmental and private organizations, while the type of facility can include buildings, structures, and linear structures. Table 1 below illustrates the relationship that exists among the type of non-DOD entity, the type of real estate instrument, and the type of real property asset. All seven of the installations we visited had established outgrants with at least one non-DOD federal agency as well as with other DOD entities, state and local governments, and private organizations to varying degrees. For example, these installations had established leases with public school districts, credit unions, and nonprofit organizations and had easements with local utility companies and state transportation agencies. None of the installations we visited had any EULs in place with nonfederal entities. DOD and military department guidance also outline several types of support agreements that installations can use to document specific provisions of their agreements with tenant organizations. The support agreements used at the installations that we visited include the following: DD Form 1144: This form is used in instances where there is a need to document recurring reimbursable support that an installation provides to a federal agency, such as utilities, refuse disposal, and other services. Memorandums of Understanding: These document areas of general understanding that do not involve reimbursement, such as expiration dates and procedures to mediate disputes. Memorandums of Agreement: These document specific terms and responsibilities for a single reimbursable purchase, nonrecurring reimbursable support, or nonreimbursable support, and include financial provisions, such as billing and payment terms. While DOD and military service guidance provide the tools for installations to issue several types of outgrants, officials must first determine the viability and desirability of bringing a tenant onto the base. Prior to granting the use of space to a non-DOD entity, officials at the installations we visited reported considering several factors. These factors generally fit into three categories: (1) general factors, (2) mission-related factors, and (3) local factors. General factors include considerations related to the availability of space, mission-related factors take into account the effect that a proposed tenant would have on the ability of the installation to perform its mission, and local factors include unique circumstances that exist on a particular installation. The factors discussed below represent the considerations identified by officials at the seven installations that we visited, but are not an exhaustive list of all the possible factors that an installation could consider in granting the use of space to a non-DOD entity. One of the general factors that officials at all seven installations we visited reported considering is whether they have space available that is suitable for the tenant. In making this determination, installation officials considered whether the installation had the amount and type of space available to support the proposed activity that the tenant would be bringing onto the installation. If suitable space is identified, a second factor that officials at all seven installations reported considering was whether the installation had competing interests for real property assets that are available. Generally, installations are required to prioritize the order in which non-DOD entities are granted space. DOD Instruction 4165.70 provides the priorities for considering requests from DOD or non- DOD entities to use unutilized or underutilized space. According to the instruction, an installation’s first priority is DOD entities. Assuming no DOD organizations have a need, the next priority for outgrants is federal agencies whose mission on the installation is closely associated with the installation’s national defense mission. Third, installations should provide space to other federal agencies above local government or private entities. Fourth, installations must prioritize nonfederal government entities, such as state and municipal agencies, over private organizations. Finally, in the event that there are no competing interests, installations may grant space to private organizations. One of the mission-related factors officials at all seven of the installations we visited reported considering is whether the installation needs to allow unutilized or underutilized space to remain vacant in order to meet future DOD needs in support of its mission. Installation officials estimated their facility needs to address anticipated changes in DOD’s force structure or mission such as needing more facilities to move or house service members and supporting civilian employees in the event of a new contingency, including the need to mobilize reserves. In this instance, granting space to a tenant may preclude the installation from accommodating fluctuations in its force. A related factor that officials at six of the seven installations we visited reported considering is whether the requested space conforms to the Installation Master Plan, which contains the installation’s planned layout of its assets to support the mission. Officials stated that any space that is granted to non-DOD entities cannot be used for a purpose that conflicts with the Master Plan’s layout of the installation’s infrastructure. For example, installations will not grant space to a tenant that requests industrial space in an area that the Master Plan has designated for residential use. Another mission-related factor officials at five of the seven installations we visited reported considering is whether the tenant’s presence will negatively affect the installation’s required level of security. Installations have different security measures with varying degrees of stringency, in part to safeguard the integrity of the mission. For example, Kirtland Air Force Base, New Mexico, controls civilian access to its premises in part to safeguard the sensitive nature of some material and information that is housed within its premises, including some work that is carried out by the Department of Energy. In this case, officials would have to consider whether having a non-DOD tenant would increase the number of civilians on the base, which could in turn create additional vulnerabilities that would not be mitigated through existing security measures. Another mission-related factor that officials at all of the installations we visited reported considering when bringing additional tenants onto the base is the effect on the installation’s infrastructure. Specifically, officials said they considered whether the installation’s existing infrastructure, such as the electrical distribution system, sewage lines, water pipes, and roads can adequately accommodate additional tenants. For example, officials with whom we spoke at Marine Corps Base Quantico, Virginia, explained that the installation’s existing roads could not accommodate the increase in traffic volume that resulted from an increase in personnel inside the Federal Bureau of Investigation compound. To mitigate this problem, Marine Corps officials worked with the bureau and the Department of Justice to secure funding for the construction of additional roads to accommodate the added traffic on the installation. Officials that we spoke with at three of the seven installations we visited mentioned that local topography can be a factor that is considered when evaluating whether to grant space to a non-DOD tenant. For example, according to officials at Joint Base Elmendorf-Richardson, Alaska, partly because of the presence of mountains on the boundary of the installation and its proximity to a significant amount of marshlands—and environmental regulations related to these—the installation has limited opportunity to expand, which limits its ability to bring entities onto the base. Officials at all seven of the installations we visited stated that the effect that tenants may have on the local environment must be considered. For example, officials at Naval Base Coronado, California stated that there are a large number of endangered species present on the installation, which requires the completion of an environmental assessment prior to authorizing additional tenants coming onto the installation. Finally, some officials also mentioned that there are local agreements that are considered. For example, Kirtland Air Force Base must consider the local effect that existing regional and federal agreements with Native American groups may have on the installation’s ability to grant space to non-DOD tenants. Several limitations can affect a military installation’s ability to bring non- DOD tenants onto an installation. First, the installation would have to have available space that is suitable for a tenant’s needs to successfully bring a potential tenant onto a base. Officials at all seven of the military installations we visited cited limitations in accommodating space requests from potential tenants due to a lack of vacant space that aligns with the tenant’s request, such as the amount of space or type of space needed, or vacant space that is not in suitable condition. Specifically, officials at the seven installations we visited reported that they were either short on suitable space or that the vacant space they did have was in poor condition, or both. Officials at one installation said that because the space may not be in good condition, the need for renovations may limit the desirability of the space for potential tenants. A second limitation that can affect the ability of an installation to bring non-DOD tenants onto the installation is that the process is reactive in nature. Specifically, officials from OSD and the services stated that the process of providing space to non-DOD federal agencies generally starts when potential tenants approach the installations to request space and is usually not initiated by the services or installations in an effort to find tenants. Officials at six of the seven installations we visited stated that they did not actively pursue opportunities to bring non-DOD federal agencies onto the installation, but reacted to space requests initiated by the potential tenants. At one installation—Fort Bliss, Texas—officials stated that previous installation commanders pursued potential tenants with compatible missions using informal networking and meetings. According to the officials, this approach is not currently needed because new missions assigned to Fort Bliss have increased use of space at the installation. Moreover, installation officials reported a lack of non-DOD federal agency requests for space. While all the installations we visited had non-DOD federal tenants as of March 2015, officials at four of the seven installations stated that they receive few new requests for space from non-DOD federal agencies. In some cases, this may stem from a limited demand for space in particular areas. For example, at Eielson Air Force Base outside of Fairbanks, Alaska, officials reported that the base received few space requests because there are few non-DOD federal agencies in the local area. Also, the base is located approximately 20 miles from Fairbanks, which installation officials said may not be desirable for potential tenants. In other cases, this may be the result of a lack of information sharing among agencies that may have a need for space. For example, at each of the installations we visited, none had shared information routinely with other federal agencies or GSA concerning available space at the installation. For example, none of the installations had contacted or were contacted by GSA, which has a key role in acquiring real property for the federal government and would have knowledge of the space needs of multiple federal agencies regionally or locally. We discuss this issue in greater detail later in this report. Finally, officials at each military installation we visited also reported that limitations specific to their location could affect their ability to bring non- DOD tenants onto the installation. For example, Joint Base Elmendorf- Richardson officials explained that because of certain agreements that affect the rights to land on the installation, the installation must exercise care when creating an outgrant to ensure that the outgrant agreement does not conflict with the preexisting agreements. According to officials at Kirtland Air Force Base, New Mexico, when Kirtland was expanded in 1971 to incorporate two nearby installations, the new boundaries of the installation encompassed land that remains under the control of other federal entities. Consequently, Kirtland does not have the unilateral authority to authorize the use of these lands or the facilities located on them. While there are limitations to bringing tenants onto military installations, according to installation officials, both the installation and tenant agency can benefit when a match can be made between an installation’s available space and the tenant agency’s needs. Specifically, an installation can receive benefits in the form of services provided by the tenant agency. For example, officials at Kirtland Air Force Base, New Mexico, said that the Federal Aviation Administration provides air traffic control services to the base, and officials at Camp Pendleton, California, said the U.S. Coast Guard presence provides offshore security to the installation. In addition, installations can receive financial benefits from having non-DOD federal agency tenants on the installation by avoiding utility and maintenance costs for tenant-occupied facilities that would have otherwise been incurred. Officials at six of the seven installations we visited noted that the reimbursement of direct and indirect costs for these facilities can provide a financial benefit to the installations. Non-DOD federal agencies can also benefit from using space on military installations. For example, non-DOD federal agencies could receive a financial benefit from being located on a military installation due to differences in costs charged by DOD when compared with the costs of commercial leases. Specifically, a DOD instruction allows military installations to collect reimbursements from non-DOD federal agencies for direct and indirect costs such as utilities, maintenance, and services provided, but generally do not allow installations to collect additional rent beyond cost recovery. According to installation officials at all seven installation we visited, the installations did not collect more than the reimbursements for direct and indirect costs, and did not charge any additional rent beyond cost recovery, which represented a savings to the tenant agency. In addition, there are occasions where the non-DOD federal tenant receives nonfinancial benefits from being located on a military installation. For example, the Department of Energy receives the benefit of the installation security for its facilities located on Kirtland Air Force Base, New Mexico, which represents potential cost avoidance for the department. Finally, both the installation and the agency can benefit from having the non-DOD federal agency on the military installation to accomplish a shared mission. For example, the Coast Guard recently became a tenant at Joint Base Elmendorf-Richardson, enabling both the installation and the Coast Guard to better accomplish their search and rescue mission. Specifically, the installation is responsible for the air portion of the mission and the Coast Guard is responsible for the sea portion of the mission. Being located on the same installation enables them to coordinate training in preparation to execute the search and rescue mission. Despite the benefits to DOD and non-DOD federal agencies, routine information sharing does not occur between DOD and GSA concerning opportunities to move non-DOD federal agencies onto military installations to make better use of unutilized and underutilized facilities, although GSA may have information on agencies near an installation needing space. Government-wide efforts continue to focus on the need to better utilize existing real property assets in order to promote efficiency and leverage government resources, which can be facilitated by coordination between federal agencies. The 2015 National Strategy for Real Property states that execution of opportunities to improve space utilization is one way in which the federal government can improve its management and use of federal assets to maximize the use of scarce budgetary resources. The strategy includes a focus on reducing and promoting more efficient use of the federal office and warehouse footprints—property categories in which DOD controls approximately 35 percent and 48 percent of the federal space, respectively. One way agencies can become better stewards of government resources is through enhancing and sustaining collaboration and coordination, which can be accomplished through various practices, including operating across agency boundaries through compatible policies, procedures, and frequent communication. Frequent communication would encourage the sharing of information that could be used to better utilize facilities on military installations. For example, in July 2012 we concluded that coordinated efforts at the local and regional level could enhance information sharing and facilitate increased utilization of federal real property, which could in turn result in cost savings or avoidance through the reduction of leased space. As part of its role of acquiring, managing, and utilizing federal real property, according to GSA, it provides workspace to federal agencies at the best value for the American taxpayer by leveraging limited government resources and proactively working with agencies to maximize use of space. GSA works with non-DOD federal agencies to help them seek and obtain space. Non-DOD federal agency clients can begin this process by calling a regional GSA office and providing information on their program and mission requirements, such as the required geographic area, estimated total square footage needed, and how long the space is needed, among other things. GSA will then review that information, work with the agency to clarify and refine the requirements as necessary, and search within the defined geographic area for suitable federally controlled space—either owned or leased. According to GSA, placing a federal agency in owned space is generally a better long-term solution and provides cost-savings over time. According to GSA officials, the search for suitable federally controlled space includes a check of GSA-owned and GSA-leased real property. If there is no suitable GSA space available, GSA will then seek space in United States Postal Service facilities, per a memorandum of agreement between the two agencies and the Federal Management Regulation, before helping its clients to acquire space through a commercial lease. Even though DOD holds over 60 percent of all federal real property and GSA may have information on agencies near an installation needing space, according to GSA officials, the process to seek and assign space to its non-DOD federal agency clients does not include sharing this information with DOD or other federal landholding agencies, with the exception of the Postal Service. Specifically, the GSA officials with whom we spoke reported that generally regional GSA offices do not communicate with military installations to identify whether there may be suitable vacant space in the installation-level real property inventories, which is information maintained by the installations. The officials also stated that if a client were to express interest in space on a military installation, GSA would direct the client to contact the installation directly and would have little to no involvement with the installation concerning the details of any agreement between DOD and the non-DOD federal agency for the use of space on a military installation. For example, the officials identified one instance where GSA provided the Department of State with a point of contact in the Army so that the Department of State could inquire directly with the Army concerning the potential for using training space on a local installation. The GSA officials with whom we spoke said that a primary reason GSA does not routinely coordinate with DOD concerning the availability of unutilized and underutilized space is that they assume that space in DOD-owned facilities typically would not meet the needs of GSA’s non- DOD federal agency clients because installation security requirements and locations are not likely to be compatible with the non-DOD federal agency missions. However, DOD reports having non-DOD federal tenants on many of its installations, although such factors can limit some non- DOD federal agencies from being located on a military installation in some circumstances. Therefore, there are instances when a non-DOD federal agency’s space needs can be met on military installations. Further, GSA’s assumption that agencies’ needs cannot be met on a military installation may preemptively limit options available to the agencies for which GSA is working to find space and thus the non-DOD federal agency tenants do not receive full information on potential facilities located on the installations. DOD also does not routinely share information with GSA or other non- DOD federal agencies when space is available on military installations. In addition to the government-wide guidance to better utilize federal property, DOD Instruction 4165.70 directs the Secretaries of the military departments to maintain a program that monitors the use of real property to ensure that it is being used to the maximum extent possible consistent with both peacetime and mobilization requirements. We found that military installations do not routinely share information with GSA or other non-DOD federal agencies when space is available in part because, as stated before, military installations generally wait for non-DOD federal agencies to inquire about available space. DOD officials at the OSD, service, and installation levels said that they do not conduct outreach to communicate information regarding unutilized and underutilized space on military installations in part because the installations primarily focus on supporting missions within DOD, not other non-DOD federal agencies. However, when there is available space on military installations that is not currently used by other DOD entities, DOD’s process to wait for agencies to approach installations does not assist the installation in utilizing their space to the maximum extent possible consistent with military requirements as required by DOD policy. Further, department-level and installation-level officials said they had not interacted or shared information with GSA concerning the availability of space on installations that might be suitable for non-DOD federal agencies that are working with GSA, including providing details about installation-level real property inventories, because DOD’s real property management process does not require coordination with GSA until the property has been declared excess. Although coordination is not required, if space is available but not currently in use, it would likely benefit the installation to have a tenant use the space rather than allowing the space to remain unutilized or underutilized for the following reasons. As discussed earlier, DOD guidance directs the military departments to utilize their space to the maximum extent possible consistent with military requirements. Also, because a tenant offsets some direct and indirect costs, such as utilities and maintenance, in a constrained budget environment installations can keep facilities in good condition that would otherwise be unutilized or underutilized. Officials at the OSD, service, and installation levels told us that actively pursuing potential tenants would be an administrative burden on the installations, especially if there is not a significant amount of available space on the installation. However, there are ways that DOD could accomplish this without significantly increasing the administrative burden on the installation. For example, DOD does not provide regional or local contacts or information on the process for requesting space for installations to GSA or other non-DOD federal agencies. Each installation we visited already had an established process for evaluating requests for space from non-DOD entities. However, installation officials at some of the locations we visited said that non-DOD federal agencies are not always aware of the process or the proper organization at the installation to which requests should be submitted. For example, some agencies route their requests to the wrong organization at the installation, which can lead to delays in processing the request. Further, GSA officials told us that not knowing whom to contact locally or regionally for military installations is one factor that inhibits information sharing between GSA and DOD, including information about non-DOD federal agencies requesting space through GSA. Without actions to share information at the regional and local level, GSA offices working with non-DOD federal agencies may risk missing opportunities for clients to use available underutilized or unused federal space at lower cost than commercial leases. In addition, DOD may be missing opportunities to leverage resources with GSA to enhance utilization of its unutilized and underutilized facilities and reduce costs associated with maintaining these facilities. DOD and the federal government as a whole face challenges in continuing to operate and maintain unutilized and underutilized facilities that use valuable resources that could potentially be eliminated from the budget or allocated to other uses. Coordinated efforts among federal agencies, as called for in the 2015 National Strategy for Real Property, could enhance utilization of federal real property. At this time, DOD and GSA do not share information concerning unutilized and underutilized space at military installations or potential clients working with GSA that could facilitate the use of available space by non-DOD federal agencies. Without such information sharing, DOD may be missing opportunities for installations to maximize the use of space and reduce costs, and GSA risks missing opportunities for some of its clients to reduce or avoid rental costs altogether and to reduce their reliance on commercial leases. We recommend that the Secretary of Defense direct the Assistant Secretary of Defense for Energy, Installations, and Environment, in collaboration with the Administrator of GSA, to identify and implement actions to enable and enhance routine information sharing between DOD and GSA about the utilization of facilities on military installations. Such actions should include establishing recurring processes to (1) share information about non-DOD federal agencies seeking workspace, and (2) ensure that GSA and DOD organizations are aware of the appropriate points of contacts within their organizations at the regional and local levels. We provided a draft of this report to DOD and GSA for official review and comment. We received written comments from both agencies. In its comments, DOD concurred with our recommendation and stated that it would be supportive of GSA’s efforts to share information about the non-DOD federal agencies seeking workspace. It would work with GSA to ensure that GSA and DOD organizations are aware of the appropriate points of contacts within their organizations at the regional and local level. In its comments, GSA concurred with our recommendation and stated that it agreed with our findings and would take actions to implement our recommendation. It further stated considering DOD military installations as potential housing solutions prior to going to the open market will help ensure that government-owned assets are used to capacity. GSA also outlined four specific actions to address our recommendation: (1) convene a working group with DOD real property officials to understand DOD’s national land holding portfolio and identify unutilized and underutilized space at military installations; (2) collaborate with DOD to establish a shared real property inventory database; (3) review GSA’s inventory of customer agencies’ current and future needs; and (4) revise the Federal Management Regulations to include DOD in GSA’s priorities for housing federal agencies. We agree that the actions outlined by DOD and GSA represent a positive step toward ensuring that government-owned assets are used to capacity. DOD’s and GSA’s official comments are reprinted in appendix II and appendix III, respectively. We are sending copies of this report to the appropriate congressional committees; the Secretaries of Defense, the Army, the Navy, and the Air Force; and the Administrator, General Services Administration. 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) 512-4523 or [email protected]. Contact points for our office 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. To evaluate the potential for and obstacles to federal agencies other than Department of Defense (DOD) organizations relocating onto military installations to save costs and enhance security, this report identifies (1) what options, if any, are available for DOD to allow non-DOD entities, including federal government agencies, to use unutilized (vacant) and underutilized (partially vacant) space on military installations, and what factors DOD considers when considering exercising each option; (2) any limitations and benefits of bringing non-DOD federal agencies onto installations; and (3) the extent to which DOD and other federal agencies coordinate to do so. To determine what options are available and factors to consider for DOD to allow non-DOD entities, including federal government agencies, to use unutilized and underutilized space on military installations, we reviewed applicable DOD and military department guidance to identify the circumstances under which non-DOD tenants are allowed to utilize space on military installations, the order of priority for considering non-DOD tenants for use of space, the types of real estate instruments used to grant non-DOD entities use of space on military installations, and the documents used to record the terms and conditions associated with the use of space on military installations. In addition, we interviewed responsible officials within the Office of the Secretary of Defense (OSD) and the military department headquarters to determine their roles in bringing non-DOD tenants onto military installations and identify the factors that are considered when determining whether to grant a non- DOD entity use of space on a military installation. Finally, we selected seven installations to visit to identify what non-DOD entities are present on installations, the process the installations used to determine whether to grant non-DOD entities access to space on the installations, and the factors that installations considered when determining whether to grant While our observations from these non-DOD entities access to space.installations are not generalizable, the observations do provide context concerning non-DOD entities using space on military installations. The primary factor we considered in selecting the installations we visited was the number of real property assets that were identified as being used by non-DOD federal agencies in DOD’s Real Property Assets Database (RPAD) at the end of fiscal year 2013. While we have previously reported on inaccurate and incomplete utilization data in the database, we determined that the RPAD data were sufficiently reliable for the purposes of selecting installations to visit. The secondary factor that we considered, in order to respond to a consideration in the mandate, was whether the installation supported DOD’s Arctic mission. Specifically, the National Defense Authorization Act for Fiscal Year 2014 included a provision for GAO to consider the potential for and obstacles to consolidation of federal tenants on installations that support Arctic missions, focusing on federal entities with homeland security, defense, international trade, commerce, and other national security functions that are compatible with the missions of military installations, or can be used to protect national interests in the Arctic region. Using these factors, we selected the installation from each military service that had the greatest number of real property assets identified as being used by non-DOD federal agencies, two installations that supported DOD’s Arctic mission, and two installations that had a relatively small number of real property assets identified as being used by non-DOD federal agencies. Our selected installations included Kirtland Air Force Base, New Mexico; Fort Bliss, Texas; Naval Base Coronado, California; Marine Corps Base Quantico, Virginia; Joint Base Elmendorf-Richardson, Alaska (Arctic mission); Eielson Air Force Base, Alaska (Arctic mission and few non-DOD federal agencies); and Marine Corps Base Camp Pendleton, California (few non-DOD federal agencies). To identify the limitations and benefits of bringing non-DOD federal agencies onto installations, we reviewed applicable DOD and military department guidance, including regulations and instructions, to determine whether any procedures are identified for promoting the use of unutilized or underutilized space by non-DOD federal agencies and whether any limitations and benefits are identified. In addition, we interviewed responsible OSD, military department headquarters, and installation officials to obtain their perspectives concerning the process by which non- DOD entities are provided space on DOD installations as well as the limitations and benefits that exist to allowing non-DOD federal agencies to use space on military installations. To determine the extent to which DOD and other federal agencies coordinate to better use unutilized and underutilized space on military installations, we reviewed General Services Administration (GSA) guidance on its process to seek and assign space to its clients and interviewed cognizant GSA officials concerning that process, to determine whether it includes coordination with landholding agencies such as DOD. We also interviewed responsible OSD, military department headquarters, and installation officials to obtain their perspectives on coordination between DOD and GSA. We compared that information with criteria on practices to enhance collaboration among federal agencies that we identified previously. We conducted this performance audit from March 2014 to June 2015 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 provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Gina Hoffman, Assistant Director; Alberto Leff; Kelly Liptan; Tamiya Lunsford; Michael Silver; Erik Wilkins- McKee; Michael Willems; and John Wren made key contributions to this report. High Risk: 2015 Update. GAO-15-290. Washington, D.C.: February 11, 2015. Defense Infrastructure: DOD Needs to Improve Its Efforts to Identify Unutilized and Underutilized Facilities. GAO-14-538. Washington, D.C.: September 8, 2014. Federal Real Property: Better Guidance and More Reliable Data Needed to Improve Management. GAO-14-757T. Washington, D.C.: July 29, 2014 Defense Infrastructure: DOD’s Excess Capacity Estimating Methods Have Limitations. GAO-13-535. Washington, D.C.: June 20, 2013. Federal Real Property: Excess and Underutilized Property Is an Ongoing Challenge. GAO-13-573T. Washington, D.C.: April 25, 2013. High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February 14, 2013. Federal Real Property: Improved Data and a National Strategy Needed to Better Manage Excess and Underutilized Property. GAO-12-958T. Washington, D.C.: August 6, 2012. Federal Real Property: Strategic Partnerships and Local Coordination Could Help Agencies Better Utilize Space. GAO-12-779. Washington, D.C.: July 25, 2012. Federal Real Property: National Strategy and Better Data Needed to Improve Management of Excess and Underutilized Property. GAO-12-645. Washington, D.C.: June 20, 2012. Excess Facilities: DOD Needs More Complete Information and a Strategy to Guide Its Future Disposal Efforts. GAO-11-814. Washington, D.C.: September 19, 2011. Defense Infrastructure: The Enhanced Use Lease Program Requires Management Attention. GAO-11-574. Washington, D.C.: June 30, 2011.

GAO has designated DOD's Support Infrastructure Management as a high-risk area in part due to challenges in reducing excess infrastructure. DOD installations can establish agreements to allow entities such as non-DOD federal agencies and private entities to use property on DOD installations that are unutilized or underutilized. DOD reports that, as of the end of fiscal year 2013, its real property portfolio consisted of more than 562,000 facilities with an estimated value of $850 billion. The National Defense Authorization Act for Fiscal Year 2014 included a provision that GAO review the potential for relocating federal government tenants onto military installations. This report identifies (1) available options for DOD to allow non-DOD entities to use unutilized and underutilized space on military installations, and what factors DOD considers for each option; (2) any limitations and benefits of bringing non-DOD federal tenants onto military installations, and (3) the extent to which DOD and other federal agencies coordinate to do so. GAO evaluated DOD and military service guidance; visited selected installations having non-DOD tenants, including two that support the Arctic mission; and interviewed cognizant officials. Department of Defense (DOD) guidance outlines options for granting the use of unutilized (vacant) and underutilized (partially vacant) space on military installations to non-DOD entities, such as other federal agencies, and installations consider several factors when contemplating such grants. For example, DOD and military department guidance identifies the real estate instruments, such as leases and licenses that are to be used to issue grants to non-DOD entities. All seven of the installations that GAO visited reported using this guidance to select the appropriate instrument based on the type of non-DOD entity, type of facility, and proposed use of the asset. For example, installations selected permits as the appropriate real estate instrument when issuing grants to a non-DOD federal agency as outlined in DOD and military department guidance. Prior to granting the use of space to a non-DOD entity, officials at installations reported considering several factors, including the availability of space, effect on the mission, and factors unique to the installation. In instances where there are competing interests for space, officials reported considering priorities set forth in DOD guidance for assigning available space on the installation. Officials also reported considering whether the tenant could potentially have a negative effect on the installation's ability to comply with any regulations, such as preserving protected habitats. DOD faces both limitations and benefits from moving non-DOD agencies onto installations. Limitations such as the availability of suitable space affect DOD's ability to bring non-DOD federal agencies onto military installations. For example, officials at all seven of the installations GAO visited reported a lack of vacant space or vacant space that is usable, which limited their ability to accommodate space requests. However, when a match can be made between an installation's available space and a potential tenant agency's needs, both parties can benefit. For example, installations can potentially benefit through the avoidance of direct and indirect costs, such as the cost for utilities and maintenance incurred for unused or underutilized space. Non-DOD federal agencies can save costs on commercial leases because DOD charges for use of space by other federal entities on a cost-recovery basis. Despite the potential benefits, routine information sharing does not occur between DOD and the General Services Administration (GSA) concerning opportunities to move non-DOD federal agencies onto military installations. Specifically, when GSA is working to satisfy the space needs of its clients, it does not routinely contact DOD installations to inquire whether space might be available. DOD, on the other hand, waits for non-DOD federal agencies to inquire whether space is available and does not generally reach out to GSA or agencies that may be interested in space. Without taking actions to share information, GSA offices working with non-DOD federal agencies to find them space may risk missing opportunities for their clients to reduce or avoid costs. In addition, both GSA and DOD may miss opportunities to leverage resources and enhance utilization of federal real property. GAO recommends that DOD and GSA collaborate to enhance routine information sharing concerning non-DOD federal agencies seeking workspace at military installations. DOD and GSA concurred and agreed to take action to help ensure that government-owned assets are used to capacity.

You are an expert at summarizing long articles. Proceed to summarize the following text: Broadband allows users to access information via the Internet through one of several high-speed transmission technologies. Broadband capacity, typically referred to as “speed,” is described in download and upload capabilities and is measured by the number of bits of data transferred per second and include kilobits (1 thousand bits per second— kbps), megabits (1 million bits per second—Mbps), and gigabits (1 billion bits per second—Gbps). Download speed refers to the rate at which data is transferred from the Internet to the consumer. Upload speed refers to the rate at which data is transferred from the consumer to the Internet. A range of broadband technologies provides high-speed Internet access. Digital subscriber line (DSL) service is delivered by local telephone companies over upgraded copper-wire telephone networks that were originally built to provide traditional wireline voice service. Cable modem service is delivered by cable television companies through the same coaxial cables that deliver sound and pictures to television sets. Fiber-optic lines are a wired technology that converts electrical signals carrying data into light and sends the light through transparent glass fibers about the diameter of a human hair. Telephone companies provide most fiber-optic broadband service. Satellite is a wireless technology that transmits data using a subscriber’s receiver dish and a satellite in a fixed position above the equator. Other wireless services, such as Long Term Evolution (LTE)—a commercial data standard for wireless technologies—use cellular radio links for consumers to access the Internet using their smart phones, tablets, and other portable devices. Broadband speeds vary significantly depending on the particular type of service provided and may range from as low as 256 kbps to 1 Gbps. In 2010, the National Broadband Plan stated that every household and business in America should have access to affordable broadband service with a speed of at least 4 Mbps download and at least 1 Mbps upload. In 2011, FCC adopted this 4 Mbps/1Mbps benchmark for broadband projects to be eligible to receive universal service support. The federal benchmark allows for such Internet applications as accessing websites, emailing with attachments like pictures, and simple video conferencing, but does not support some of the newer Internet applications that require faster speeds to use, as shown in figure 1. For example, applications such as distance learning, telecommuting, and telemedicine, which can involve transmitting large amounts of data and images in real-time, cannot perform acceptably at the federal benchmark speed of 4 Mbps/1Mbps. Unserved and underserved areas tend to have conditions that increase the cost of constructing and maintaining broadband networks. These conditions include low populations who might also be widely dispersed and in remote areas that might have challenging terrain, such as mountains, that increase construction costs. The choice of broadband technology and the ability to use or extend existing infrastructure also affects the costs of constructing and maintaining broadband networks. Certain technologies like cable and fiber, which must be buried underground or placed on raised poles, could be more expensive to deploy in remote areas than wireless technologies, such as cellular towers. Within the federal government, FCC, the Department of Commerce, and the Department of Agriculture (USDA) have roles in broadband deployment. In particular, Congress gave FCC a large role in fostering broadband deployment when it directed FCC to “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans.” In responding to that directive, FCC developed goals to broaden broadband deployment to unserved areas and encourage investment and innovation in broadband technologies and services. As part of the Recovery Act, the Department of Commerce’s National Telecommunications and Information Administration (NTIA) received $4.7 billion to create the Broadband Technology Opportunities Program (BTOP). Through this program, as of September 2013, NTIA had awarded 233 competitive grants for a total of $4 billion to a variety of entities for broadband infrastructure, public computer centers, and innovative projects to stimulate demand for and adoption of broadband. In addition, the Department of Commerce’s Economic Development Administration also had programs in 2008 through 2012 that supported the construction of public infrastructure, which could include broadband infrastructure. USDA administers programs that support broadband deployment, including three Rural Utilities Service (RUS) programs: the Rural Broadband Access Loan and Loan Guarantee Program, the Community Connect Grant Program, and the Telecommunications Infrastructure Loan Program. USDA provided over $7 billion in grants and loans for broadband projects from 2008 through 2012. See www.broadbandmap.gov. The map is a joint effort of NTIA and FCC to report broadband speeds and technology available across the United States. According to NTIA and FCC, the map represents the most comprehensive nationwide data on broadband availability. receive BTOP grants.show underserved areas, it is unknown how many of these areas exist or what percentage of the population they represent. Since the National Broadband Map does not The National Broadband Plan noted that because Internet service providers are unlikely to earn enough revenue to cover the costs of deploying and operating broadband networks in unserved areas, it is unlikely that private investment alone will bring service to these areas. To improve Americans’ access to broadband, the National Broadband Plan recommended that FCC create the Connect America Fund to provide funds in geographic areas where there was no private sector business case to provide broadband. FCC established the Connect America Fund In doing so, FCC in 2011 as part of the Universal Service Fund (USF). reformed the USF high-cost program and adopted new rules to allow USF monies to be used to support voice and broadband capable networks. FCC established a $4.5-billion annual program budget for the Connect America Fund for 6 years. Project sponsors we spoke with pursued various approaches for financing and deploying broadband in unserved and underserved areas that differed from more traditional commercial project models, such as those often built by incumbent providers in more urban areas. In particular, types of project sponsors included (1) municipalities, (2) non-traditional private providers, (3) a consortiums of sponsors in a region, and (4) cooperatives. The following examples describe some of the alternative ownership and financing approaches we found (for summaries of all our 21 case study projects, see app. II). Municipal networks are eligible to receive federal funding, but not all municipal networks discussed in this report received federal funding. Some municipalities support broadband deployment by funding, building, and operating networks to provide broadband access to their communities, much as some cities offer utilities such as water and electricity. The municipal entity providing this service may be, for example, a department within the city government or a cooperative formed among several communities. Communities have used federal funds, issued bonds, and taken out loans to fund the construction of municipal broadband networks. In some instances, voter referendums have been required for the city to take out loans or bonds for this purpose. East-Central Vermont Community Fiber-Optic Network (EC Fiber); publicly owned, privately funded. A group of 23 Vermont municipalities collaborated to build this “open-access” fiber-optic network to provide Internet and voice service to homes and businesses. EC Fiber contracts with a non-profit Internet service provider to operate the network. Construction costs were approximately $5 million, most of which was financed through local private investors. By December 2013, EC Fiber had 550 subscribers and had raised $4.7 million from 365 investors—90 percent of whom are residents of towns the network serves or will serve. The founders decided on a local private-funding model after the 2008 financial crisis made private financing from the U.S. capital markets difficult to obtain and after the project did not receive the Recovery Act’s broadband deployment funds. However, project sponsors said one of the challenges of privately funding a publicly owned network was that the time frame for completing the network depends on the rate at which investments can be raised, which can vary according to the economic circumstances of each area’s residents. For example, the construction of the network is progressing in phases, with new segments being built as investments are raised by residents, a process that makes rapid expansion difficult. The service provider operating the network leases 39 miles of middle-mile and last-mile fiber-optic capacity from a statewide open access network being built by the Vermont Telecommunications Authority, a state agency that in 2013 provided EC Fiber a grant of $167,569 that funded an expansion into unserved portions of two communities. Utah Telecommunication Open Infrastructure Agency (UTOPIA); publicly owned, publicly funded. UTOPIA is a local government agency owned by 16 Utah municipalities, 11 of which raised public funding through bonds to build a $177-million fiber-optic open-access network over which private providers offer Internet, voice, and video services. Five municipalities decided not to raise funds, but remain on the network’s board and can decide to pursue financing for their cities at a later date. Some of the network’s municipalities own infrastructure, such as utility poles, which sponsors said helps reduce the cost and increase the speed of deploying broadband. Project sponsors said their goal is for the network to be financially self- sufficient, but said that goal has yet to be attained for various reasons. The project used $16.2 million of BTOP funds to connect 288 community institutions with middle-mile service over UTOPIA’s fiber backbone. In addition, UTOPIA received partial funding from a $66 million RUS loan for broadband deployment to rural areas. After disbursing $21 million to UTOPIA, RUS suspended the loan until UTOPIA could demonstrate improved financial performance. Project sponsors told us that they have taken steps to improve the performance and that 3 years ago they began deploying the network to areas that promise greater return on investment. Private networks are eligible to receive federal funding but not all private networks discussed in this report received federal funding. Some private companies fund, build, and operate networks to provide broadband access to communities. In some instances, companies have used federal funds, contributed capital, and taken out loans to fund the construction of broadband networks. Some private companies we contacted used municipal resources, such as fiber-optic infrastructure or took construction loans backed by the federal government. Lit San Leandro; privately owned, privately and publicly funded. Lit San Leandro is a private venture that built, owns, and operates an 11-mile fiber-optic network providing Internet service directly to over 150 businesses and some community institutions in San Leandro, California. The network cost approximately $5 million to build, and was financed in two stages. The owner of a local software company, who committed a total of $3 million to the project, paid for initial construction; the second construction phase, covering the last 7.5 miles, was paid for with a $2.1 million grant from the Department of Commerce’s Economic Development Administration. The project was designed to use “dark fiber”—fiber-optic cable that had already been installed by the city but was not being used—and 10 percent of that capacity was reserved for the city’s current and future municipal needs. In exchange for financing and constructing the network, the city waived leasing costs for the first 10 years of Lit San Leandro’s operation, at which time the costs revert to prevailing market rates, should the venture be profitable. Valu-Net; privately owned, privately funded. This fiber-optic network in Emporia, Kansas, provides Internet, voice, and video services directly to over 300 businesses and over 400 residences. While a survey issued by the city’s Chamber of Commerce indicated strong demand by business owners for broadband, project sponsors said there was substantial opposition against the city using tax revenue to deploy a broadband network, and there was a general consensus that a private service provider should develop the infrastructure and provide the service. The network is being built first to areas where the most businesses operate, and project sponsors told us they would only connect a home once a subscriber requests service. They told us the company financed approximately $5 million of the construction cost so far through community investors and approximately $5 million through bank loans, including a low-interest Small Business Administration loan. They anticipate needing up to $3 million more to complete construction. In addition, a healthcare firm in the northern part of the city that desired higher capacity broadband service helped finance part of the construction costs to deploy fiber- optic cable under a highway. Regional networks are eligible to receive federal funding and all regional networks discussed in this report either received federal funding or are planning to apply for it. These networks focus on building middle-mile infrastructure and providing broadband services to schools, medical providers, public safety agencies, and other community anchor institutions. The availability of broadband service to end users depends upon access to adequate middle-mile facilities, which can be costly to deploy in rural areas, especially in mountainous or heavily forested areas where additional infrastructure can be required. In some cases, regional networks also provide the last-mile service to end users. MassBroadband 123; publicly owned, publicly funded. Built by a state economic development agency, this open-access, middle-mile network provides 122 towns in western and central Massachusetts with a fiber-optic backbone over which private service providers offer Internet, voice, and video directly to community institutions across western and central Massachusetts. The project is owned by a state technology agency and includes a public-private partnership with a company to sell network capacity to Internet service providers on a wholesale, open-access basis. Officials said they assigned the risk for operating and maintaining the network to the company, and structured a revenue-sharing agreement with it so that it would be motivated to operate the network efficiently. The project cost approximately $90 million to build and was financed through a $45.5 million BTOP grant in combination with $44.5 million in state funds. New Hampshire FastRoads; publicly owned, privately and publicly funded. This open-access middle-mile and last-mile network provides last-mile connectivity to 233 community institutions in 19 communities, and 1,300 residences and businesses in two towns. Four private Internet service providers use the network to serve customers directly. The venture is a wholly-owned limited liability corporation of a local economic development non-profit, and officials structured the network as a for-profit to allow them to raise additional private equity to expand service in the future. Two local economic development organizations and 42 towns collaborated on the project, which cost $7.6 million to build, and was financed using $5.4 million of BTOP funds, as well as additional funding from a variety of sources including banks, a county economic development corporation, individual donors, and vendors who offered in- kind contributions. Networks that are owned by cooperatives may qualify to receive federal funding. According to project sponsors for the cooperative networks we contacted, three rural electric cooperative networks received no federal funding and the fourth plans to seek support payments from FCC’s Connect America Fund. Rural electric cooperative networks serve areas that have lower customer-per-mile density levels than those of privately owned or municipal utilities, levels that can make return on investment projections for broadband deployment less attractive to investors. Some cooperative networks link their broadband deployment efforts with “smart grid” efforts that allow two-way communications between the cooperative and the customer. Douglas Fast Net; privately owned, privately funded. This subsidiary of the Douglas Electric Cooperative in southwest Oregon owns and operates a hybrid fiber-optic, DSL, and wireless network in collaboration with five other rural electric cooperatives and one Native American tribe, and provides connectivity, Internet, and voice services to businesses, residences, schools, and medical and community institutions in Douglas County. In extremely rural areas, rather than using wireless technology to reach residences, the fiber-optic network uses leased copper telephone lines—DSL. Like most rural electric cooperatives, Douglas Electric is a non-profit corporation incorporated under state statutes; however, its broadband subsidiary was established as a for-profit entity, so it can declare dividends and channel excess funds back to the electric cooperative. Officials financed $6.5 million in construction costs using a $300,000 grant from a county economic development entity, a loan of $4.2 million from the electric cooperative, and $2 million from customer installation charges. Project sponsors said existing infrastructure and personnel improved the project’s business case, and they cited experienced line crews and ownership of most of their own plant—with the exception of a limited number of leases from third parties—as beneficial project components. While they have not sought federal funds for commercial deployment yet, officials said USF E-Rate funding allowed them to deploy broadband to schools and libraries, which lowered the deployment costs when they subsequently expanded the network to businesses and homes. Midwest Energy Cooperative, Pilot Project; privately owned, privately funded. Midwest Energy is building a 243-mile fiber-optic network to create a high-speed communication link to allow smart grid applications. As part of that effort, project sponsors said the cooperative has begun building a $9.5-million pilot project connecting 963 homes and businesses with fiber-optic cable in order to assess the feasibility of a potentially larger future network deployment. Officials said they hope to reach 24,000 homes and 2,500 businesses by potentially financing approximately half the construction costs for the larger project with monies from FCC’s Connect America Fund, should they be eligible for those funds in the future. Project sponsors cited the cooperative’s experience maintaining utility rights-of-way and electrical power infrastructure as factors that would allow them to deploy a broadband network quickly and cost-effectively. In making broadband deployment decisions, project sponsors told us they considered various factors related to their ability to fund successful projects, including the (1) likelihood of near-term service upgrades by incumbent broadband service providers; (2) potential demand for new service; (3) potential broadband technologies; and (4) existing infrastructure and potential local assistance for providers. Project sponsors told us that in evaluating the market, they considered existing broadband service, including speed available from current providers in their area, and whether further deployment or upgraded service from these providers was likely. The following examples describe some of the projects for which sponsors told us they considered existing service, including by asking incumbent providers about their plans to expand or improve service: Camino Fiber Network Cooperative, Northern California (Planned, but currently inactive). This municipal network was planned as a consumer telecommunications cooperative corporation, and was designed to provide open-access fiber-optic broadband service to about 50,000 mostly rural residences in El Dorado County, California. Officials told us that while planning the network, they asked the incumbent provider companies whether they had plans to extend broadband service to currently unserved areas in the county and were told the population density was too low in many areas to justify the cost of extending service. As a result, officials said they decided to attempt to build their own fiber-optic service over an open-access network. However, officials told us they could not secure enough public or private funding to hire engineering consultants to design the network and plan the business, and as a result the project is inactive. Greenlight, Wilson, North Carolina. Project sponsors for this municipal network said they approached both local cable and telephone incumbent carriers to ask if they had plans to improve their cable and DSL broadband networks for underserved areas or to extend their networks to unserved areas, and were told the companies had no plans to do so. Officials said they then asked if the companies would consider entering into a public-private partnership with Wilson; the companies declined to do so. As a result, officials said they decided to build, own, and operate their own fiber-optic network, and to use existing city-owned infrastructure, such as telephone poles and utility rights-of-way, to do so. Officials said they decided to offer retail Internet, voice, and video services directly to customers to secure enough subscribers to support the network. To finance the $35 million cost of construction, the city issued certificates of participation—a form of extended lease agreement secured by city property, payments on which are subject to annual appropriation by the city, and which are not considered a long-term obligation or debt. Project sponsors told us they considered potential demand for new service in their area. The following examples describe some of the ways sponsors told us they estimated potential demand for new service to ascertain the business case for deployment: Gold Country Broadband Consortium, Northern California (Planned). Project sponsors for this open-access regional network are investigating potential technologies and partners to bring broadband service to residential and commercial customers across five counties in the foothills of the Sierra Mountains. Officials told us a non-profit economic development agency leads the consortium. To determine the demand for broadband service, the agency held community meetings and conducted telephone and Internet surveys about current and desired levels of service and willingness to pay a competitive rate to subscribe. Currently the agency is presenting this demand data to independent Internet service providers at community meetings to determine when and if they are planning to offer service, and to investigate technologies they could use to deploy broadband. The agency helped potential Internet service providers apply for state and federal grants, and plans to use the knowledge gained to pursue other opportunities in the future. Vermont Telecommunications Authority, Montpelier, Vermont. This state-chartered entity provides infrastructure grants to finance regional open-access fiber-optic and wireless broadband networks, and develops infrastructure such as dark fiber, on which it leases capacity to multiple private service providers that serve customers. Authority officials told us they helped lower the cost of deployment in rural areas where population density is low by building and funding telecommunications infrastructure that is open to multiple uses and by gauging the combined demand of businesses, municipal governments, healthcare facilities, and community institutions such as libraries and state colleges that want broadband service and working to meet their broadband requirements. They said aggregating demand in this way, when combined with lowering the capital costs of the infrastructure, improves the business case for investing in broadband networks, and may encourage providers to consider investing in network construction. Project sponsors told us they considered various broadband technology options available to meet potential demand for service. The following examples describe some of the technologies sponsors told us they are using, have considered using, or have been unable to use: Rappahannock Electric Cooperative, Fredericksburg, Virginia. Officials from the rural electric cooperative said they have investigated various technologies and are considering using any one of them, or a combination of different technologies, to make broadband service available to cooperative members. They acknowledged that it might not be possible to deploy fiber-optic cable because of the high cost. Previously, the cooperative invested in a wireless company to provide broadband service, but the company went bankrupt before it could complete the network. Rappahannock officials said they are now considering marketing the services of a satellite broadband provider to customers, rather than constructing a network, primarily due to the expense of building a network. Co-Mo Comm, a Subsidiary of Co-Mo Electric Cooperative, Tipton, Missouri. Officials told us they considered deploying a wireless broadband network, but decided that the terrain in their area would obstruct wireless signals. They also considered satellite broadband, but cited concerns about speed and latency—that is, the time it takes for a set, or packet, of data to travel from one designated point to another in a network. They were also concerned about caps on data use that would make satellite service too expensive for larger- capacity users such as businesses. Officials said they decided to deploy a $1.3 million fiber-optic pilot network, and possibly a larger $60 million expansion project mainly because their members will need increasing amounts of bandwidth capacity in the future as new applications emerge. Project sponsors told us they considered their existing available assets as well as the extent to which assets or assistance from local governments is available to reduce costs for broadband providers. The following are examples of project sponsors who told us using existing assets can improve the business case for deploying broadband: Google Fiber, Kansas City, Missouri. This private network received assistance from Kansas City to deploy broadband. Kansas City officials counted among the city’s available assets ownership of the rights-of-way and city properties, including public parks. The city helped facilitate an agreement for use of certain utility easements— the areas surrounding power lines—for approximately 90,000 utility poles owned by Kansas City Power and Light, a local utility owned by private investors. The city negotiated with Google Fiber the use of these rights-of-way and of city properties free of charge in exchange for the company’s construction of a $250—$300 million fiber-optic network to serve homes with Internet and video service, as well as an agreement to provide free Internet connectivity to 300 public buildings, schools, community centers, and libraries. As the authority in charge of local regulation, the city streamlined the regulatory process governing permitting, fee waivers, and other requirements to allow for the accelerated construction of the Google Fiber network, and of any other potential future broadband networks. As part of that effort, the city utilized its online permitting system and expedited its reviews of pole attachment applications. Municipal Power Utility, Princeton, Illinois. The municipality initially installed fiber-optic cable to enhance its internal communications capacity. Princeton officials said the town’s mayor then led a subsequent effort to deploy broadband on a larger scale as part of an economic development initiative to attract industrial companies. They said the combined cost for equipment, design, and construction for both networks was approximately $1.2 million, and they told us they considered their utility crews’ previous experience installing the fiber- optic cable as an asset that helped attract an independent service provider to provide broadband service to customers over the network. Stakeholders we contacted, including project sponsors, broadband providers, and industry experts, told us that broadband deployment projects in unserved and underserved areas face challenging economic issues. As noted above, remote areas generally have high costs to deploy broadband due to the expense of deploying technologies over long distances and potentially difficult terrain to often relatively few potential subscribers. For these reasons, stakeholders told us that being able to cover costs with potential revenues and thus make a return on investment is a key issue to deploying broadband in unserved and underserved areas. Stakeholders told us that deployment costs can be reduced if there is easier access to rights-of-way, public facilities, and conduits already underground. For example, the opportunity to install cellular antennas on public water towers or thread fiber into existing conduit can reduce construction costs while leveraging public infrastructure. Stakeholders also told us that the costs of financing projects affect the projects’ overall costs. Project sponsors that could use public-financing, such as municipal bonds, had lower capital costs than private companies and thus could more cheaply finance their projects. Project sponsors that could use revenues from existing services, such as electricity subscribers, had funds available to deploy broadband which allowed them to leverage financing. Project sponsors noted that the projects receiving federal funds were able to reduce their own costs of the project and obtain better financing terms due to the federal subsidy. However, project sponsors we contacted told us they are challenged by a lack of clear information about which federal funds are available for broadband deployment, which entities can make use of the funds, and how to apply for them. One sponsor from a small town said his staff lacked the expertise necessary to meet reporting requirements tied to using federal funds and his department did not have the financial resources available to hire consultants to assist. Another sponsor in a rural area said paying for telecommunications-engineering consultants to estimate construction and operating costs was the main challenge the project faced, because without such estimates, the project could not apply for federal funds. We found some trade associations provided educational materials about federal broadband programs, but such associations typically only provided information or resources to their members. We also found the mission of some trade and industry groups steered them to advocate for a particular technology, rather than offering neutral advice on technological alternatives. Project sponsors and industry experts we contacted told us that some states have laws that limit or ban companies that are not telecommunications companies from deploying broadband, on the basis that it creates unfair competition. As a result, project sponsors told us they considered their state’s legal environment when considering alternate broadband service options. For example, in Vidalia, Louisiana, an official told us that state laws bar any municipality from deploying broadband directly to consumers, so the city is planning to build and own a new fiber-optic network, but will not offer retail service in order to comply with the law and avoid competing with incumbent cable and telephone companies. Instead, a Vidalia official said they will seek to improve broadband service options by offering independent service providers the opportunity to provide Internet, telephone, and video services over the network to the town’s approximately 4,000 residents. According to one legal expert who works with states that we contacted, as of May 2013, 20 states had in place restrictions on community broadband services or other public communications initiatives. Some of the project sponsors we interviewed said that they had been affected by such laws. For instance, some, but not all, existing public providers in North Carolina are partially exempt from such requirements and can offer broadband service. We spoke to officials from one such provider, the city of Wilson, who said that they built their fiber-optic network before the state law that limits municipalities providing broadband service and were granted an exemption to operate the network which serves 6,000 accounts. However, the officials said they are not permitted to expand the network or otherwise provide telecommunications services outside the county due to the state’s requirements, which limit their ability to bring broadband service to unserved and underserved areas in the region. While California public entities are generally allowed to provide communications services, Community Service Districts have the authority to provide communications services only as long as no private person or entity is willing to do so. However, if such a private-sector operator emerges, the Community Service District must sell or lease its communications system to that person at “fair market value,” which could be below cost. An official from Lit San Leandro, a private California alternative provider, said two companies were formed as protection against incumbent provider lawsuits, which he said have been directed at some California municipalities for allegedly gaining unfair advantage by using city-owned conduit to compete against a private entity. A cable broadband provider told us that cable companies generally will not invest in broadband deployment in municipal areas that are already receiving public deployment funds because the public funds amount to subsidized broadband service, against which it is difficult for private companies to compete. According to the National Broadband Plan, Congress should make clear that state, regional, and local governments have the right to build broadband networks in the absence of private investment. Stakeholders we contacted, including project sponsors and industry participants, noted that there are several policy issues that affect broadband deployments in unserved and underserved areas. First, stakeholders expressed concern that an area’s inaccurate designation on the National Broadband Map can have financial consequences when the map deems an area as served even if not all premises in the area have access to broadband service. For example, an official from an industry group told us accurate mapping is important because without it, areas that are served only by dial-up service can be ruled ineligible for federal broadband deployment funds. In one case, the official said the National Broadband Map shows the top half of an Indiana county as covered by broadband service and the bottom half as not covered, but in reality the entire county only has access to dial-up service (which is not considered broadband). Stakeholders stated that it could be difficult to obtain funding for broadband projects if the entire area is deemed served, so the accuracy of the National Broadband Map is very important. The data on the National Broadband Map is displayed at the census block level and if one house or building has broadband access, the entire census block is deemed served. Stakeholders told us that this is an issue particularly for remote areas that are part of large census blocks and have premises located long distances from one another and from existing broadband networks. Second, project sponsors told us that while they are required to meet the federal benchmark of 4 Mbps download/1 Mbps upload when applying for some types of federal funding, this benchmark generally does not allow for the use of advanced Internet applications such as video conferencing for online education and telemedicine, which project sponsors said their communities would like to have. Stakeholders told us that often universities and hospitals are located far from rural communities and therefore the ability to use online education and telemedicine could reduce the need to drive long distances to get a higher education or see a medical specialist. However, stakeholders stated it was difficult to garner political support and funding for broadband technology projects that provide the higher speeds needed for these advanced applications when the areas have been designated as served by the National Broadband Map. Moreover, stakeholders told us that federal universal service funds were provided to projects that met the federal benchmark although communities wanted projects that provided higher speeds. Stakeholders told us that federal funds could be more effectively used by granting funds to projects that provided the highest broadband speeds rather than to projects providing the federal benchmark. On the other hand, officials from a cable association told us municipal projects in particular result in a mismatch between demand for service and the costs of providing that service, because they tend to deploy the most advanced technology— fiber-optic—to the most remote areas with the least demand. Third, stakeholders representing cable and telecommunications companies stated that they have policy concerns related to public funds— both federal and local—being used in areas in which there was an existing broadband provider. A trade association representing cable companies noted that federal funds such as Recovery Act grants have been used in areas already served by private broadband providers, such as cable companies, which built their networks with no public funds. The stakeholders representing cable and telecommunications companies stated that municipalities have used local public funds such as tax revenues to back municipal bonds in areas already served by private broadband providers. A trade association representing cable companies and an industry group representing small-community telephone companies told us that they believe that using public financing to “overbuild” in already served areas is unfair competition in that the private broadband provider has built its network with private capital and does not have the same financial advantages as the municipality. For example, an official from an industry group representing small community telephone companies told us that rather than overbuilding, municipalities should work with telephone companies to upgrade existing broadband infrastructure. The official said municipalities should not be in the business of providing broadband services themselves and, as evidence, cited bankruptcies and judicial opinions involving municipal networks in cities such as Provo, Utah, and Philadelphia, Pennsylvania. In addition, we heard from incumbent service providers that project sponsors that are public entities, such as municipalities, can use their existing infrastructure, property, and facilities to install broadband technologies which can reduce their deployment costs—an advantage that private companies do not have. These incumbent service providers noted that broadband networks proposed by alternate project sponsors generally have not targeted unserved areas without including already served areas, as it is more financially attractive to deploy networks in more densely populated areas that are often already served. As one of its primary goals, FCC has several efforts under way to increase broadband deployment, efforts that help to address the economic and policy issues raised by stakeholders. In particular, FCC established the Connect America Fund in the November 2011 USF Transformation Order to provide funds for voice and broadband capable networks in areas where there is no private business case to provide broadband—one of the key challenges to deploying broadband. As of March 2014, FCC had authorized the Universal Service Administrative Company (USAC) to distribute almost $438 million from the Connect America Fund for projects that, according to FCC, would reach an estimated 637,000 households and businesses by 2016. As a condition of receiving funds, FCC requires an eligible telecommunications carrier (ETC) to offer voice and broadband services in its supported service area, meet certain broadband performance requirements, and report regularly on associated broadband performance measures. Many project sponsors we contacted said they would like the opportunity to receive support from the Connect America Fund to deploy broadband in unserved and underserved areas, but since they do not have the ETC designation, they are not eligible to receive funding. FCC told us that any entity, including cooperatives and municipalities that meet the requirements for becoming an ETC under Section 214 of the Communications Act, can However, project sponsors told us they petition for ETC designation.believe they are ineligible to become an ETC because they do not provide the type of phone service that would make them eligible. Although project sponsors we contacted said they provide, or could provide, Voice over Internet Protocol (phone service that is provided over the Internet), they told us they believe such service does not satisfy the ETC phone service requirement. FCC officials told us that FCC has guidance on becoming an ETC and that Voice over Internet Protocol can be acceptable to satisfy ETC requirements. In addition, FCC has taken other actions related to broadband deployment in unserved areas and to address some of the policy issues noted above. For example, FCC acknowledged that some have claimed that the National Broadband Map is not completely accurate and adopted a process by which parties can challenge whether a location was in fact Furthermore, as part of FCC’s January served by an existing provider. 30, 2014 Technology Transition Order, FCC adopted an experiment in which it intends to solicit proposals from non-traditional providers, including utilities and municipalities, to deploy wireline or wireless technologies in rural, high-cost areas.receive Connect America Funds for projects in high-cost areas and must meet requirements similar to those of ETCs including providing service to all those in a designated service area, reduced rates for voice service plans for low-income populations, and the ability to operate during emergency situations. Providers are not required to be ETCs to apply but, if selected for the program, must be designated an ETC before receiving funding. FCC has stated that it will use the experiment to gain experience and generate data that could help inform its future policy decisions, Providers will be eligible to including those related to streamlining the ETC designation process and whether and how to make support from the Connect America Fund more widely available. In addition, FCC has stated that it will collect information on viable business models that could support the deployment of fiber- optic or other next-generation wired technology in rural areas, despite the challenges in doing so. FCC plans to also gather information on the conditions under which consumers would prefer next-generation wireless services instead of wireline services. Most recently, in April 2014, FCC told us that the FCC Chairman indicated that he had circulated to his fellow Commissioners a draft notice of proposed rulemaking to review the broadband speed benchmark, as well as other issues relating to implementation of the Connect America Fund. FCC also provides assistance to help unserved areas deploy broadband by participating in a federal working group that looks at streamlining policies and permitting on federal properties. Many rural areas have federal highways and lands and stakeholders told us that attaining rights- of-way is costly, so streamlining federal policies and permitting could expedite broadband deployments and lower costs. The Broadband Deployment on Federal Property Working Group consists of seven federal agencies that plan to develop recommendations to create a more coordinated and consistent approach in implementing agency procedures, requirements, and policies related to access to federal assisted highways, lands, buildings, and rights-of-way and the leasing of federal assets for broadband deployment. FCC also provides policy assistance by looking at ways in which broadband capacity and infrastructure could be shared, a step that could lower deployment costs and leverage private participation in broadband projects. For example, in response to a request from FCC’s chairman, FCC’s Intergovernmental Advisory Committee identified potential ways to use excess fiber capacity to accelerate broadband deployment through public-private partnerships in January 2013.broadband capacity with public and private partners, where such an arrangement advances public purposes. We provided a draft of this report to FCC for its review and comment. FCC provided technical comments, which we incorporated into the report as appropriate. We are sending copies of this report to the Chairman of FCC and appropriate congressional committees. 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 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. Contact information and major contributors to this report are listed in appendix III. This report provides information on (1) what is known about the alternative approaches unserved and underserved areas have used, or attempted to use, and some factors considered in broadband deployment decisions; (2) stakeholders’ views on broadband deployment issues in unserved and underserved areas; and (3) efforts FCC has undertaken to foster broadband deployment in unserved areas. To gather information on the alternatives unserved and underserved areas used, or attempted to use, to deploy broadband, and on stakeholders’ views on deployment, we conducted a review of relevant published literature that included government reports, industry articles, and publications from associations, non-profits, and public policy research organizations. We also interviewed telecommunications stakeholders involved in broadband deployment to unserved and underserved areas to obtain their views on the deployment alternatives that unserved and underserved areas used, or attempted to use, their views on broadband deployment issues, and the extent of FCC’s role in broadband deployment in these areas. We reviewed and analyzed reports provided by these stakeholders as appropriate. Those we interviewed included associations representing consumers and industry, broadband consultants and providers, and officials from local agencies in selected areas where broadband projects were deployed or attempted. To identify stakeholders, we referred to prior published literature, and we considered the recommendations stakeholders made during our interviews. Table 1 contains a detailed list of the stakeholders included in our study. To gather in-depth information on the deployment alternatives that unserved and underserved areas used, or attempted to use, stakeholders’ views on deployment, and the extent of FCC’s role in deployment to these areas, we interviewed officials from 21 broadband network project cases studies and analyzed documents they provided to us. To select the 21 case studies, we analyzed the results of our literature search and stakeholder interviews to assemble a list of potential broadband network projects in unserved and underserved areas and assigned each to one of four categories of networks established by: municipalities, private companies, regional consortiums, and cooperatives. The potential projects included some networks that were planned but did not come to fruition for various reasons. From these, we selected 21 case studies that represented all four project types and that included public, private, or a mixture of both types of funding. We sought geographic variety by assigning the cases to six U.S. regions: Midwest, Northeast, Northwest, South, West, and Mid-Atlantic, and as we selected cases, we included ones from each region. While there may be valuable lessons in the examples profiled in our case studies, their limited number does not allow us to generalize findings to the broader universe of all entities seeking to deploy broadband networks. The information we present on the deployment alternatives that have been used in our 21 case studies represents information provided by project sponsors. It was beyond the scope of our work to assess the reliability of this information. It was also beyond the scope of our work to determine whether all, or any, of the examples deployed, or not deployed, are the most effective models for broadband network deployment to unserved and underserved areas. To assess what existing broadband speeds and technologies were available in the case study areas and to compare them to those offered by our case study projects, we took a sample of 6 of our 21 case studies and collected data from those areas from the National Broadband Map, which measures national access to broadband as of December 2012, and depicts available broadband technologies and maximum advertised speeds that are available in the United States. Our sample included projects from three municipalities and one each from the private company, regional consortiums, and cooperative categories. Because the National Broadband Map was designed to provide data for one address or one town, and 14 of our 21 networks operated regionally, covering multiple towns, we did not try to determine broadband speeds for all 21 of our case study locations. Instead, we took a sample of the case study networks. To choose the sample, we considered the 7 networks (4 municipals out of 6, and 3 private companies out of 4) that operated in discrete locations, and chose 4 of those: 3 municipals and one private company. We chose a higher number of municipal networks because there were 6 in our case study sample, versus 4 private companies. Because we wanted to include examples of all 4 network types, we also chose one regional consortium network and one cooperative network. Even though all the networks from these two categories were regional in nature, and served large areas with multiple towns, we searched for and found one from each category that served a smaller population for a discrete area that was appropriate to enter into the National Broadband Map. For that reason, we included New Hampshire FastRoads, a regional network that directly serves customers with broadband in two New Hampshire towns, and Co-Mo Comm, a cooperative that serves customers in two Missouri towns as part of a broadband pilot project. To gather information on stakeholders’ views on economic, legal, and other issues they believe affected their ability to deploy a network, we interviewed project sponsors where projects were deployed or attempted and associations representing consumers and industry. The economic, legal, and other issues identified by project sponsors should not be viewed as identifying all issues that could affect broadband deployment in unserved and underserved areas; however, the issues presented were consistently raised by the project sponsors. Also, the economic, legal, and other issues that we report on should not be viewed as being representative of all entities deploying broadband in unserved or underserved areas. To gather information on actions, if any, FCC has taken to foster broadband deployment in unserved areas, we interviewed FCC officials and analyzed documents they provided us. We also interviewed industry experts, incumbent providers, project sponsors, and stakeholders. In addition, we analyzed the 2010 National Broadband Plan and its recommendation that FCC create the Connect America Fund to provide universal service funds in geographic areas where there is no private sector business case to provide broadband. We analyzed the 2011 USF Transformation Order and the January 2014 Technology Transition Order,made enhancements to Connect America Fund eligibility. and we interviewed FCC officials about how, if at all, FCC has We conducted this performance audit from May 2013 to April 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. We gathered data on broadband projects in our 21 case study areas from interviews we conducted with project sponsors and, in some cases, from documents they gave us. As described in appendix I, we assigned each project to one of four categories. We collected information on scope, status, construction costs, and funding from officials we interviewed. Table 2 summarizes the information we collected from the project sponsors. We compared existing broadband network speeds to those offered by alternative fiber-optic networks for a sample of our case study locations, as shown in table 3. We found that speeds for wired services in some of our case study project areas varied depending on the extent of fiber-optic technology deployed, and that alternative network speeds were generally faster than speeds offered by existing networks. Our results showed that some alternative networks offered speeds substantially higher than existing networks, while for others the differences were slight. Alternative network speeds differed less from incumbent cable company network speeds than they did from telephone company DSL networks. As shown, wireless service was available in all the six areas, though speeds were much slower than wired technologies. Because each of the six areas featured multiple wireless providers, for our illustrative purposes, we chose the one provider that served all areas, Verizon, for inclusion in the table. Mark Goldstein, 202-512-2834, or [email protected]. In addition to the contact mentioned above, Sally Moino, Assistant Director; Amy Abramowitz; Gary Guggolz; Bert Japikse; Maureen Luna- Long; SaraAnn Moessbauer; Joshua Ormond; and Hai Tran made key contributions to this report.

Broadband service provides users with many opportunities to improve communications and broadband deployment is particularly critical in rural areas to provide advanced communications to remote users and communities. In 2010, FCC estimated that 7 million U.S. housing units—about 5 percent of the nation's housing units—did not have access to wireline broadband service, mostly in rural areas. Some municipalities, cooperatives, and non-traditional private providers are exploring ways to sponsor and fund broadband projects in unserved and underserved areas. GAO was asked to provide information on options for broadband deployment in unserved and underserved areas. This report examines (1) what is known about the alternative approaches unserved and underserved areas have used to deploy broadband and some factors considered in deployment decisions; (2) stakeholders' views on broadband deployment in unserved and underserved areas; and (3) efforts FCC has undertaken to foster broadband deployment in unserved areas. GAO reviewed relevant documents and interviewed FCC officials, representatives from industry, and incumbent providers. GAO also conducted an in-depth review of 21 geographically dispersed broadband projects selected to include various sponsor types, such as municipalities, non-traditional private providers, and cooperatives, and various ownership and financing approaches. GAO provided FCC with a draft of this report for comment. In response, FCC provided technical comments, which have been incorporated as appropriate. The unserved and underserved areas that GAO reviewed used alternative approaches and considered various factors to deploy broadband. Broadband project sponsors in those areas included municipalities, non-traditional private providers, consortiums of sponsors in a region, and cooperatives. In making broadband deployment decisions, project sponsors said they considered diverse factors related to their ability to fund successful projects, such as the (1) likelihood of near-term service upgrades by incumbent providers, (2) potential demand for new services, (3) potential broadband technologies, and (4) existing infrastructure and potential local assistance available to providers. For financing approaches, some project sponsors used local private and public funds while others leveraged federal funds. In addition, project sponsors used a variety of ownership structures that ranged from public ownership to local private investors. Stakeholders and project sponsors GAO contacted cited economic, legal, and policy concerns in deploying broadband in unserved and underserved areas. For example, regarding funding, stakeholders said that remote areas generally face high broadband deployment costs due to the expense of deploying technologies over long distances or difficult terrain and that often the return on investment is low since there are relatively few potential subscribers in those areas. Project sponsors and industry experts noted legal concerns, including concerns with laws in some states that limit or ban companies that are not telecommunications companies from deploying broadband due to concerns about unfair competition. For example, in Louisiana, a city official GAO contacted said state laws bar any municipality from deploying broadband directly to consumers, so the city is planning to build and own a fiber-optic network, but to comply with the state law, will not offer retail service. Stakeholders also noted several policy concerns, including concerns over the accuracy of federal broadband-mapping efforts and whether the Federal Communications Commission's (FCC) broadband-speed benchmark is set high enough. While there may be valuable lessons in the examples profiled in our case studies, their limited number does not allow us to generalize findings to the broader universe of all entities seeking to deploy broadband networks. FCC has several efforts under way to increase broadband deployment in unserved areas, efforts that help address the economic and policy concerns raised by stakeholders. FCC established the Connect America Fund in November 2011 to support voice and broadband access in areas where no private business case exists to provide broadband—one of the key challenges these areas face in deploying broadband. Additionally, in January 2014, FCC adopted an order in which it stated that it will solicit proposals from non-traditional providers, including utilities and municipalities, to deploy broadband technologies in rural, high-cost areas. Through this effort, FCC plans to explore broadband policy issues and gather information on viable business models for deploying fiber-optic or next-generation wired technology in rural areas. FCC plans to also gather information on the conditions under which rural consumers would prefer next-generation wireless services over wireline.

You are an expert at summarizing long articles. Proceed to summarize the following text: TSA is the primary federal agency responsible for overseeing the security of surface transportation systems, including developing a national strategy and implementing security programs. However, several other agencies, including DHS’s Federal Emergency Management Agency (FEMA) and the Department of Transportation’s (DOT) Federal Transit Administration (FTA) and Federal Railroad Administration (FRA), also play a role in helping to fund and secure these systems. Since it is not practical or feasible to protect all assets and systems against every possible terrorist threat, DHS has called for using risk-informed approaches to prioritize its security-related investments and for developing plans and allocating resources in a way that balances security and commerce. In June 2006, DHS issued the National Infrastructure Protection Plan (NIPP), which established a six-step risk management framework to establish national priorities, goals, and requirements for Critical Infrastructure and Key Resources protection so that federal funding and resources are applied in the most effective manner to deter threats, reduce vulnerabilities, and minimize the consequences of attacks and other incidents. The NIPP, updated in 2009, defines risk as a function of three elements: threat, vulnerability, and consequence. Threat is an indication of the likelihood that a specific type of attack will be initiated against a specific target or class of targets. Vulnerability is the probability that a particular attempted attack will succeed against a particular target or class of targets. Consequence is the effect of a successful attack. In May 2007, TSA issued the Transportation Systems Sector-Specific Plan (TS-SSP), which documents the risk management process to be used in carrying out the strategic priorities outlined in the NIPP. As required by Executive Order 13416, the TS-SSP also includes modal implementation plans or modal annexes that detail how TSA intends to achieve the sector’s goals and objectives for each of the six transportation modes using the systems- based risk management approach. To address the objectives and goals laid out in the TS-SSP, TSA uses various programs to secure transportation systems throughout the country, including Visible Intermodal Prevention and Response (VIPR) teams and Surface Transportation Security Inspectors (STSI). VIPR teams employ a variety of tactics to deter terrorism, including random high- visibility patrols at mass transit and passenger rail stations using, among other things, behavior-detection officers, canine detection teams, and explosive-detection technologies. STSIs, among other things, conduct on- site inspections of U.S. rail systems—including mass transit, passenger rail, and freight rail systems—to identify best security practices, evaluate security system performance, and discover and correct deficiencies and vulnerabilities in the rail industry’s security systems. In August 2007, the Implementing Recommendations of the 9/11 Commission Act (9/11 Commission Act) was signed into law, which included provisions that task DHS and other public and private stakeholders with security actions related to surface transportation security. Among other things, these provisions include mandates for developing and issuing reports on TSA’s strategy for securing public transportation, conducting and updating comprehensive security assessments for public transportation agencies, and ensuring that transportation modal security plans include threats, vulnerabilities, and consequences for transportation infrastructure assets including mass transit, railroads, highways, and pipelines. In March 2009, we reported that TSA has taken some actions called for by the NIPP’s risk management process, but has not conducted comprehensive risk assessments across aviation and four major surface transportation modes. In 2007, TSA initiated but later discontinued an effort to conduct a comprehensive risk assessment for the entire transportation sector, known as the National Transportation Sector Risk Analysis. Consequently, we recommended that TSA conduct comprehensive risk assessments for the transportation sector to produce a comparative analysis of risk across the entire transportation sector, which the agency could use to guide current and future investment decisions. DHS and TSA concurred with our recommendation, and in April 2010 TSA identified planned actions, including integrating the results of risk assessments into a comparative risk analysis across the transportation sector. TSA officials stated in April 2010 that the agency has revised its risk management framework, TS-SSP, and modal annexes. They added that these documents are undergoing final agency review. In addition, we have previously reported that while TSA has collected information related to threat, vulnerability, and consequence within the surface transportation modes, it has not conducted risk assessments that integrate these three components for individual modes. For example, we reported in June 2009 that TSA had not conducted its own risk assessment of mass transit and passenger rail systems that combined all three risk elements, as called for by the NIPP. Thus, we recommended that TSA conduct a comprehensive risk assessment that combines threat, vulnerability, and consequence. DHS concurred with this recommendation, and in February 2010, DHS officials said that TSA had undertaken a Transportation Systems Sector Risk Assessment that would incorporate all three elements of risk. In April 2010, TSA stated that this risk assessment is under review. Similarly, the Administration’s Transborder Security Interagency Policy Committee (IPC) Surface Transportation Subcommittee’s recently issued Surface Transportation Security Priority Assessment recognized that assessing transportation assets and infrastructure and ranking their criticality would help target the use of limited resources. Consequently, this subcommittee recommended that TSA identify appropriate methodologies to evaluate and rank surface transportation systems and critical infrastructure. We have also identified other opportunities to improve TSA’s risk management efforts for surface transportation. For example, in April 2009, we reported that TSA’s efforts to assess security threats to freight rail could be strengthened. Specifically, we noted that while TSA had developed a freight rail security strategy, the agency had focused almost exclusively on rail shipments of toxic inhalation hazards (TIH), such as chlorine and anhydrous ammonia, which can be fatal if inhaled, despite other federal and industry assessments having identified additional potential security threats, such as risks to bridges, tunnels, and control centers. We reported that although TSA’s focus on TIH has been a reasonable initial approach given the serious public harm these materials potentially pose to the public, there are other security threats for TSA to consider and evaluate as its freight rail strategy matures, including potential sabotage to critical infrastructure. We recommended that TSA expand its efforts to include all security threats in its freight rail security strategy. DHS concurred with this recommendation and has since reported that TSA has developed a Critical Infrastructure Risk Tool to measure the criticality and vulnerability of freight railroad bridges. As of April 2010, the agency has used this tool to assess 39 bridges, some of which transverse either the Mississippi or Missouri Rivers, and intends to assess 22 additional bridges by the end of fiscal year 2010. Further, we reported in June 2009 that the Transit Security Grant Program (TSGP) risk model includes all three elements of risk, but can be strengthened by measuring variations in vulnerability. DHS has held vulnerability constant, which limits the model’s overall ability to assess risk and more precisely allocate funds to transit agencies. We also found that although TSA allocated about 90 percent of funding to the highest-risk agencies, lower-risk agency awards were based on other factors in addition to risk, such as project quality. For example, a lower-risk agency with a high-quality project was more likely to receive funding than a higher-risk agency with a low-quality project. We recommended that DHS strengthen its methodology for determining risk by developing a cost- effective method for incorporating vulnerability information in its TSGP risk model. DHS concurred with the recommendation, and in April 2010 TSA stated that it is reevaluating the risk model for the fiscal year 2011 grant cycle. Further, TSA is evaluating the feasibility of incorporating an analysis of the current state of an asset, including its vulnerability, in determining fiscal year 2011 grant funding. Additionally, we are currently conducting an assessment of TSA’s efforts to help ensure pipeline security; the resulting report will include an evaluation of the extent to which TSA uses a risk management approach to help strengthen pipeline security. Our preliminary observations found that TSA has identified the 100 most-critical pipeline systems in the United States and produced a pipeline risk assessment model, consistent with the NIPP. Furthermore, the 9/11 Commission Act requires that risk assessment methodologies be used to prioritize actions to the highest-risk pipeline assets, and we found that TSA’s stated policy is to consider risk when scheduling Corporate Security Reviews—assessments of pipeline operators’ security plans. However, we found a weak statistical correlation between a pipeline system’s risk rank and the time elapsed between a first and subsequent review. In addition, we found that among the 15 highest risk-ranked pipeline systems, the time between a first and second Corporate Security Review ranged from 1 to 6 years for those systems that had undergone a second review. Further, as of April 2010, 2 systems among the top 15 had not undergone a second review despite more than 6 years passing since their first review. TSA officials told us that although a pipeline system’s relative risk ranking is the primary factor driving the agency’s decision of when to schedule a subsequent Corporate Security Review, it is not the only factor influencing this decision. They explained they also consider the geographical proximity of Corporate Security Review locations to each other in order to reduce travel time and costs, as well as the extent to which they have worked with pipeline operators through other efforts, such as their Critical Facility Inspection Program. Better prioritizing its reviews based on risk could help TSA ensure its resources are more efficiently allocated toward the highest-risk pipeline systems. We expect to issue this report by the end of this year. TSA has developed several initiatives to improve coordination with its federal, state, and private sector stakeholders. However, we have previously reported that TSA’s coordination efforts could be improved. For example, we reported in April 2009 that federal and industry stakeholders have taken a number of steps to coordinate their freight rail security efforts, such as implementing agreements to clarify roles and responsibilities and participating in various information-sharing mechanisms. However, federal coordination could be enhanced by more fully leveraging the resources of all relevant federal agencies, such as TSA and FRA. For example, we reported that TSA was not requesting data on deficiencies in security plans and training activities collected by FRA, which could be useful to TSA in developing regulations requiring high-risk rail carriers to develop and implement security plans. To improve coordination, we recommended that DHS work with federal partners such as FRA to ensure that all relevant information, including threat assessments, is shared. DHS concurred with this recommendation and stated that it planned to better define stakeholder roles and responsibilities to facilitate information sharing. Since we issued our report, DHS reported that TSA continues to share information with security partners, including meeting with FRA and the DHS Office of Infrastructure Protection to discuss coordination and develop strategies for sharing relevant assessment information and avoiding duplication. In addition, we reported in January 2009 that although several federal entities, including TSA and the U.S. Coast Guard, have efforts underway to assess the risk to highway infrastructure, these assessments have not been systematically coordinated among key federal partners. We further reported that enhanced coordination with federal partners could better enable TSA to determine the extent to which specific critical assets had been assessed and whether potential adjustments in its methodology were necessary to target remaining critical infrastructure assets. We recommended that to enhance collaboration among entities involved in securing highway infrastructure and to better leverage federal resources, DHS establish a mechanism to systematically coordinate risk assessment activities and share the results of these activities among the federal partners. DHS concurred with the recommendation. In February 2010, TSA officials indicated that the agency had met with other federal agencies that conduct security reviews of highway structures to identify existing data resources, establish a data-sharing system among key agencies, and discuss standards for future assessments. The Administration’s Surface Transportation Security Priority Assessment also highlighted the need for federal entities to coordinate their assessment efforts. That report included a recommendation to establish an integrated federal approach that consolidates capabilities in a unified effort for security assessments, audits, and inspections to produce more thorough evaluations and effective follow-up actions for reducing risk, enhancing security, and minimizing burdens on assessed surface transportation entities. We also reported in February 2009 that TSA, which has the primary federal responsibility for ensuring the security of the commercial vehicle sector, had taken actions to improve coordination with federal, state, and industry stakeholders with respect to commercial vehicle security. These actions included signing joint agreements with DOT and supporting the establishment of intergovernmental and industry councils. However, we also reported that additional opportunities exist to enhance security by more clearly defining stakeholder roles and responsibilities. For example, some state transportation officials stated that DHS and TSA had not clarified states’ roles and responsibilities in securing the transportation sector or communicated to them TSA’s strategy to secure commercial vehicles, which in some cases has caused delays in implementing state transportation security initiatives. Industry stakeholders also expressed concerns with respect to TSA communicating its strategy, roles, and responsibilities; leveraging industry expertise; and collaborating with industry representatives. As a result, we recommended that TSA establish a process to strengthen coordination with the commercia vehicle industry, including ensuring that the roles and responsibilities of industry and government are fully defined and clearly communicated, and assess its coordination efforts. DHS concurred with this recommendatio n and in April 2010 reported that its TS-SSP Highway Modal Annex is under s review and is expected to delineate methods to enhance communication and coordination with stakeholde rs. In accordance with Executive Order 13416 and requirements of the 9/11 Commission Act, DHS, through TSA, has developed national strategies for each surface transportation mode. However, we have previously reported the need for TSA to strengthen its evaluation of the results of its efforts through the use of targeted, measurable, and outcome-based performance measures. Our prior work has shown that long-term, action-oriented goals and a timeline with milestones can help track an organization’s progress toward its goals. The NIPP also provides that DHS should work with its security partners, including other federal agencies, state and local government representatives, and the private sector, to develop sector- specific metrics. Using performance measures and an evaluation of the effectiveness of surface transportation security initiatives can help provide TSA with more meaningful information from which to determine whether its strategies are achieving their intended results, and to target any needed improvements. For example, in January 2009, we reported that TSA’s completion of a Highway Security Modal Annex was an important first step in guiding national efforts to protect highway infrastructure, but it did not include performance goals and measures with which to assess the program’s overall progress toward securing highway infrastructure. As a result, we recommended that TSA establish a time-frame for developing performance goals and measures for monitoring the implementation of the annex’s goals, objectives, and activities. Similarly, in June 2009, we reported that TSA’s Mass Transit Modal Annex identified sectorwide goals that apply to all modes of transportation as well as subordinate objectives specific to mass transit and passenger rail systems, but did not contain measures or targets on the effectiveness of operations of the security programs identified in the annex. As a result, we recommended that TSA should, to the extent feasible, incorporate performance measures in future annex updates. DHS concurred with both of these recommendations. In February 2010, TSA indicated that the updated annex would incorporate performance measures among other characteristics we recommended, and as of April 2010, the annex is under review. We will continue to monitor TSA’s progress in addressing these recommendations. We also reported in April 2009 that three of the four performance measures in TSA’s Freight Rail Modal Annex to the TS-SSP did not identify specific targets to gauge the effectiveness of federal and industry programs in achieving the measures or the transportation-sector security goals outlined in the annex. We also reported that TSA was limited in its ability to measure the effect of federal and industry efforts on achieving the agency’s key performance measure for the freight rail program, which is to reduce the risk associated with the transportation of TIH in major cities identified as high-threat urban areas. This was because the agency was unable to obtain critical data necessary to consistently calculate cumulative results for this measure over the time period for which it calculated them—from 2005 to 2008. In particular, some baseline data needed to cumulatively calculate results for this measure were historical and could not be collected. As a result, the agency used a method for estimating risk for its baseline year that was different than what it used for calculating results for subsequent years. Consequently, to help ensure the strategic goals of the modal annex are met and that TSA is consistently and accurately measuring agency and industry performance in reducing the risk associated with TIH rail shipments in major cities, we recommended that TSA ensure that future updates (1) contain performance measures with defined targets that are linked to fulfilling goals and objectives; and (2) more systematically address specific milestones for completing activities and measuring progress toward meeting identified goals. We further recommended that TSA take steps to revise the baseline year associated with its TIH risk reduction performance measure to enable the agency to more accurately report results for this measure. DHS concurred with these recommendations and has indicated that it will incorporate them into future updates of its Freight Rail Modal Annex, which will be designed to more specifically address goal-oriented milestones and performance measures. In April 2010, TSA stated that the agency has revised its modal annexes and that these documents are undergoing final agency review. In addition to developing performance measures to assess the success of its security strategies, we have also identified the need for TSA to develop or enhance its performance measures for specific programs such as the TSGP, VIPR program, and pipeline security programs. Specifically, in June 2009, we reported that the TSGP lacked a plan and milestones for developing measures to track progress of achieving program goals. While FEMA—which administers the grants—reported that it was beginning to develop measures to better manage its portfolio of grants, TSA and FEMA had not collaborated to produce performance measures for assessing the effectiveness of TSGP-funded projects, such as how funding is used to help protect critical infrastructure and the traveling public from possible acts of terrorism. We recommended that TSA and FEMA collaborate in developing a plan and milestones for measuring the effectiveness of the TSGP and its administration. DHS concurred with our recommendation, and in November 2009, FEMA stated that it will take steps to develop a plan with milestones in coordination with TSA. Likewise, the Administration’s Surface Transportation Security Priority Assessment discussed the importance of establishing a measurable evaluation system to determine the effectiveness of surface transportation security grants and recommended that TSA coordinate with other federal agencies, including FEMA, to do so. In June 2009, we reported that TSA had measured the progress of its VIPR program in terms of the number of VIPR operations conducted, but had not yet developed measures or targets to report on the effectiveness of the operations themselves. TSA program officials reported, however, that they were planning to introduce additional performance measures no later than the first quarter of fiscal year 2010. They added that these measures would gather information on, among other things, (1) interagency collaboration by collecting performance feedback from federal, state, and local security, law enforcement, and transportation officials prior to and during VIPR deployments; and (2) stakeholder views on the effectiveness and value of VIPR deployment. In April 2010, TSA reported that the VIPR program introduced four performance measures for fiscal year 2010; these measures will be reported quarterly. TSA has also stated that it has identified performance targets for these measures, which it will revisit when baseline program data is available. As part of our ongoing review of TSA’s efforts to help ensure pipeline security, we are assessing the extent to which TSA has measured efforts to strengthen pipeline security. While our work has not been completed, our preliminary observations have identified that TSA has taken actions to measure progress as called for by the NIPP, but could better measure pipeline security improvements. More specifically, our preliminary observations have identified that effective performance measurement data could better inform decision makers of the extent to which pipeline security programs and activities have been able to reduce risk and better enable them to determine funding priorities within and across agencies. Also, developing additional performance measures—particularly outcome- based measures—that assess the effects of TSA’s efforts in strengthening pipeline security and are aligned with transportation-sector goals and pipeline security objectives could better enable TSA to evaluate security improvements in the pipeline industry. Our upcoming report that will be issued later this year will provide additional details. Over the past two years, TSA has reported having more than doubled the size of its Surface Transportation Security Inspection Program, expanding the program from 93 inspectors in June 2008 to 201 inspectors in April 2010. Inspectors have conducted baseline security reviews that assess, among other things, the overall security posture of mass transit and passenger rail agencies and the implementation of security plans, programs, and measures, and best practices. However, TSA has not completed a workforce plan to direct current and future inspection program needs as the program assumes new responsibilities associated with the implementation of certain provisions of the 9/11 Commission Act by passenger and freight rail systems. Since establishing the inspection program in 2005 to identify and reduce vulnerabilities to passenger rail and ensure compliance with passenger rail security directives, TSA has expanded the roles and responsibilities of surface inspectors to include additional surface transportation modes— including mass transit bus and freight rail—and participation in VIPR operations. For example, TSA reported that as of April 2010 its surface inspectors had, among other things, conducted security assessments of 142 mass transit and passenger rail agencies, including Amtrak, and over 1,350 site visits to mass transit and passenger rail stations to complete station profiles, which gather detailed information on a station’s physical security elements, geography, and emergency points of contact. However, we also reported that TSA faced challenges in the following areas: Balancing aviation and surface transportation priorities: We reported in June 2009 that TSA has reorganized its field unit and reporting structure since establishing the inspection program, and surface inspectors raised concerns about its effect. These reorganizations placed TSA’s surface inspectors under the command of Federal Security Directors and Assistant Federal Security Directors for Inspections—aviation-focused positions that historically have not had an active role in conducting surface transportation inspection duties. According to TSA, these changes were designed to support its pursuit of a multimodal workforce and ensure a more cohesive and streamlined approach to inspections. However, we noted that surface inspectors raised concerns that these changes had resulted in the surface transportation mission being diluted by TSA’s aviation mission. Among these concerns is that the surface inspectors were being assigned airport-related duties, while aviation inspectors had been assigned surface responsibilities that had affected performance in conducting follow-up inspections to determine progress mass transit and passenger rail systems had made in addressing previously- identified weaknesses. TSA officials reported that they had selected their current command structure because Federal Security Directors were best equipped to make full use of the security network in their geographical location because they frequently interacted with state and local law enforcement and mass transit operators, and were aware of vulnerabilities in these systems. Workforce Planning: At the time of our June 2009 report, TSA did not have a human capital or other workforce plan for its Surface Transportation Security Inspection Program, but the agency had plans to conduct a staffing study to identify the optimal workforce size to address its current and future program needs. TSA reported that it had initiated a study in January 2009, which, if completed, could provide TSA with a more reasonable basis for determining the surface inspector workforce needed to achieve its current and future workload needs. However, in March 2010, TSA officials told us that while they were continuing to work on the staffing study, TSA did not have a firm date for completion. Mr. Chairman this concludes my statement. I look forward to answering any questions that you or other members of the committee may have at this time. For further information on this testimony, please contact Steve Lord at (202) 512- 4379 or at [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 testimony include Jessica Lucas-Judy, Assistant Director; Jason Berman; Martene Bryan; Chris Currie; Vanessa Dillard; Chris Ferencik; Edward George; Dawn Hoff; Jeff Jensen; Valerie Kasindi; Lara Kaskie; Daniel Klabunde; Nancy Meyer; Jaclyn Nelson; Octavia Parks; Meg Ullengren; and Lori Weiss. 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.

Terrorist attacks on surface transportation facilities in Moscow, Mumbai, London, and Madrid caused casualties and highlighted the vulnerability of such systems. The Transportation Security Administration (TSA), within the Department of Homeland Security (DHS), is the primary federal agency responsible for security of transportation systems. This testimony focuses on the extent to which (1) DHS has used risk management in strengthening surface transportation security, (2) TSA has coordinated its strategy and efforts for securing surface transportation with stakeholders, (3) TSA has measured the effectiveness of its surface transportation security-improvement actions, and (4) TSA has made progress in deploying surface transportation security inspectors and related challenges it faces in doing so. GAO's statement is based on public GAO products issued from January to June 2009, selected updates from September 2009 to April 2010, and ongoing work on pipeline security. For the updates and ongoing work, GAO analyzed TSA's pipeline risk assessment model, reviewed relevant laws and program management documents, and interviewed TSA officials. DHS has taken actions to implement a risk management approach but could do more to inform resource allocation based on risk across the surface transportation sector--including the mass transit and passenger rail, freight rail, highway, and pipeline modes. For example, in March 2009, GAO reported that TSA had not conducted comprehensive risk assessments to compare risk across the entire transportation sector, which the agency could use to guide investment decisions, and recommended that TSA do so. TSA concurred, and in April 2010 noted planned actions. GAO has also made recommendations to strengthen risk assessments within individual modes, such as expanding TSA's efforts to include all security threats in its freight rail security strategy, including potential sabotage to bridges, tunnels, and other critical infrastructure. DHS concurred and is addressing the recommendations. TSA has generally improved coordination with key surface transportation stakeholders, but additional actions could enhance its efforts. For example, GAO reported in April 2009 that although federal and industry stakeholders have taken steps to coordinate their freight rail security efforts, TSA was not requesting another federal agency's data that could be useful in developing regulations for high-risk rail carriers. GAO recommended that DHS work with its federal partners to ensure that all relevant information, such as threat assessments, is shared. DHS concurred with this recommendation and recently stated that TSA has met with key federal stakeholders regarding sharing relevant assessment information and avoiding duplication. TSA has developed national strategies for each surface transportation mode, but using targeted, outcome-oriented performance measures could enable TSA to better monitor the effectiveness of these strategies and programs that support them. For example, GAO reported in June 2009 that TSA's mass transit strategy identified sectorwide goals, but did not contain measures or targets for program effectiveness. Such measures could help TSA track progress in securing transit and passenger rail systems. GAO also reported in April 2009 that TSA's freight rail security strategy could be strengthened by including targets for three of its four performance measures and revising its approach for the other measure, such as including more reliable baseline data to improve consistency in quantifying results. GAO recommended in both instances that TSA strengthen its performance measures. DHS concurred and noted planned actions. Preliminary findings from GAO's ongoing review of pipeline security show that TSA has taken some actions to monitor progress, but could better measure pipeline security improvements. GAO expects to issue a report by the end of 2010. GAO reported in June 2009 that TSA had more than doubled its surface transportation inspector workforce and expanded the roles and responsibilities of surface inspectors, but faced challenges balancing aviation and surface transportation priorities and had not completed a workforce plan to direct current and future program needs. TSA has initiated but not yet finished a staffing study to identify the optimal size of its inspector workforce.

You are an expert at summarizing long articles. Proceed to summarize the following text: Mr. Chairman and Members of the Subcommittee: I am pleased to be here today to discuss our observations on the General Services Administration’s (GSA) strategic plan. This plan was prepared for submission to the Office of Management and Budget (OMB) and Congress on September 30, 1997, as required by the Government Performance and Results Act of 1993 (the Results Act). Building on our July 1997 report on GSA’s April draft plan, I will discuss the improvements GSA has made and areas where GSA’s strategic plan can be improved as it evolves over time. GSA’s April 28 draft strategic plan contained all the six components required by the Results Act. However, the draft plan generally lacked clarity, context, descriptive information, and linkages among the components. GSA has since made a number of improvements, and the six components better achieve the purposes of the Act. However, additional improvements would strengthen the September 30 plan as it evolves over time. The September 30 plan continues to have general goals and objectives that seem to be expressed in terms that may be challenging to translate into quantitative analysis. The strategies component is an improvement over the prior version but would benefit from a more detailed discussion of how each goal will actually be accomplished. Although the key external factors component in the September 30 plan is clearer and provides more context, the factors are not clearly linked to the general goals and objectives. The program evaluations component provides a listing of the various program evaluations that GSA used, but it does not include the required schedule of future evaluations. Although the plan does a much better job of setting forth GSA’s statutory authorities, this addition could be further improved by linking the different authorities to either the general goals and objectives or the performance goals. The plan also refers to three related areas—crosscutting issues, major management problems, and data reliability—but the discussion is limited and not as useful as it could be in trying to assess the impact of these factors on meeting and measuring the goals. This is especially true for major management and data reliability problems, which can have a negative impact on measuring progress and achieving the goals. In the 1990s, Congress put in place a statutory framework to address long-standing weaknesses in federal government operations, improve federal management practices, and provide greater accountability for achieving results. This framework included as its essential elements financial management reform legislation, information technology reform legislation, and the Results Act. In enacting this framework, Congress sought to create a more focused, results-oriented management and decisionmaking process within both Congress and the executive branch. These laws seek to improve federal management by responding to a need for accurate, reliable information for congressional and executive branch decisionmaking. This information has been badly lacking in the past, as much of our work has demonstrated. Implemented together, these laws provided a powerful framework for developing fully integrated information about agencies’ missions and strategic priorities, data to show whether or not the goals are achieved, the relationship of information technology investment to the achievement of those goals, and accurate and audited financial information about the costs of achieving mission results. The Results Act focuses on clarifying missions, setting goals, and measuring performance toward achieving those goals. It emphasizes managing for results and pinpointing opportunities for improved performance and increased accountability. Congress intended for the Act to improve the effectiveness of federal programs by fundamentally shifting the focus of management and decisionmaking away from a preoccupation with tasks and services to a broader focus on results of federal programs. strategies) to achieve the goals and objectives and the various resources needed; (4) a description of the relationship between the long-term goals/objectives and the annual performance plans required by the Act; (5) an identification of key factors, external to the agency and beyond its control, that could significantly affect achievement of the strategic goals; and (6) a description of how program evaluations were used to establish and revise strategic goals and a schedule for future program evaluations. We reported in July that the April 28 draft plan included the six components required by the Results Act and the general goals and objectives in the plan reflected GSA’s major statutory responsibilities. However, our analysis showed that the plan could have better met the purposes of the Act and related OMB guidance. Two of the required components—how goals and objectives were to be achieved and program evaluations—needed more descriptive information on how goals and objectives were to be achieved, how program evaluations were used in setting goals, and what the schedule would be for future evaluations to better achieve the purposes of the Act. The four other required components—mission statement, general goals and objectives, key external factors, and relating performance goals to general goals and objectives—were more responsive to the Act but needed greater clarity and context. We also noted that the general goals and objectives and the mission statement in the draft plan did not emphasize economy and efficiency, as a reflection of taxpayers’ interests. Also, the general goals and objectives seem to have been expressed in terms that may be challenging to translate into quantitative or measurable analysis, and there could have been better linkages between the various components of the plan. We also reported that the plan could have been made more useful to GSA, Congress, and other stakeholders by providing a fuller description of statutory authorities and an explicit discussion of crosscutting functions, major management problems, and the adequacy of data and systems. Although the plan reflected the major pieces of legislation that establish GSA’s mission and explained how GSA’s mission is linked to key statutes, we reported that GSA could provide other useful information, such as listing laws that broaden its responsibilities as a central management agency and which are reflected in the goals and objectives. accomplishment of goals and objectives. It also made no mention of whether GSA coordinated the plan with its stakeholders. The plan was also silent on the formidable management problems we have identified over the years—issues that are important because they could have a serious impact on whether GSA can achieve its strategic goals. Finally, the plan made no mention of how data limitations would affect its ability to measure performance and ultimately manage its programs. We reported that consideration of these areas would give GSA a better framework for developing and achieving its goals and help stakeholders better understand GSA’s operating constraints and environment. The September 30 plan reflects a number of the improvements that we suggested in our July 1997 report. The clarity of the September 30 plan is improved and it provides more context, descriptive information, and linkages within and among the six components that are required by the Act. Compared to the April 28 draft, the September 30 plan generally should provide stakeholders with a better understanding of GSA’s overall mission and strategic outlook. Our analysis of the final plan also showed that, in line with our suggestion, GSA placed more emphasis on economy and efficiency in the comprehensive mission statement and general goals and objectives components. The September 30 plan also generally described the operational processes, staff skills, and technology required, as well as the human, information, and other resources needed, to meet the goals and objectives. The strategic plan now contains a listing of program evaluations that GSA used to prepare the plan and a more comprehensive discussion of the major pieces of legislation that serve as a basis for its mission, reflecting additional suggestions we made in our July 1997 report. Furthermore, the September 30 plan’s overall improvement in clarity and context should help decisionmakers and other stakeholders better understand the crosscutting, governmentwide nature of GSA’s operations as a central management agency. The September 30 plan makes some reference to major management problems in the program evaluations component and also addresses the importance of data reliability in the general goals and objectives component. The improvements that GSA has made are a step in the right direction, and the six components better achieve the purposes of the Act. However, we believe that additional improvements, which are described in the following section, would strengthen the strategic plan as it evolves over time. As we discussed in our July 7, 1997, report on the draft plan, the September 30 plan continues to have general goals and objectives that seem to be expressed in terms that may be challenging to translate into quantitative or measurable analysis. This could make it difficult to determine whether they are actually being achieved. For example, the goal to “compete effectively for the federal market” has such objectives as “provide quality products and services at competitive prices and achieve significant savings” and “open GSA to marketplace competition where appropriate to reduce costs to the government and improve customer service.” However, this goal, its related objectives, and the related narrative do not state specifically how progress will be measured, such as the amount of savings GSA intends to achieve or the timetable for opening the GSA marketplace for competition. OMB Circular A-11 specifies that general goals and objectives should be stated in a manner that allows a future assessment to be made of whether the goals are being met. The OMB guidance states that general goals that are quantitative facilitate this determination, but it also recognizes that the goals need not be quantitative and that related performance goals can be used as a basis for future assessments. However, we observed that many of the performance goals that GSA included in the plan also were not expressed in terms that could easily enable quantitative analysis, which could make gauging progress difficult in future assessments. The strategies component—how the goals and objectives will be achieved—described the operational processes, human resources and skills, and information and technology needed to meet the general goals and objectives. This component is an improvement over the prior version we reviewed, and applicable performance goals are listed with each of these factors. Although GSA chose to discuss generally the factors that will affect its ability to achieve its performance goals, we believe that a more detailed discussion of how each goal will actually be accomplished would be more useful to decisionmakers. To illustrate with a specific example, the plan could discuss the approaches that GSA will use to meet the performance goals related to its general goal of promoting responsible asset management using operational processes, human resources and skills, information and technology, and capital/other resources. is achieving its goals and objectives. We also noted that the strategies component does not discuss priorities among the goals and objectives. Such a discussion would be helpful to decisionmakers in determining where to focus priorities in the event of a sudden change in funding or staffing. Finally, GSA deferred to the President’s budget its discussion about capital and other resources. We believe it seems reasonable to include in this component at least some general discussion of how capital and other resources will be used to meet each general goal. Although the external factors component in the September 30 plan is much clearer and provides more context than the draft version we reviewed, the factors are not clearly linked to the general goals and objectives. OMB Circular A-11 states that the plan should include this link, as well as describe how achieving the goals could be affected by the factors. This improvement would allow decisionmakers to better understand how the factors potentially will affect achievement of each general goal and objective. The program evaluations component in the September 30 plan provides a listing of the various program evaluations that GSA indicates were used in developing the plan. However, it still does not include a schedule of future evaluations. Instead, the plan states that the schedule for future program evaluations is under development and that GSA intends to use the remainder of the consultation process to obtain input from Congress and stakeholders concerning the issues that should be studied on a priority basis. However, OMB Circular A-11 indicates that the schedule should have been completed and included in the September 30 plan, together with an outline of the general methodology to be used and a discussion of the particular issues to be addressed. Although the plan does a much better job of setting forth GSA’s statutory authorities in the attachment, this description could be further improved if the different statutory authorities discussed therein were linked with either the general goals and objectives or the performance goals included in the plan. Further, the plan only makes limited reference to the other important areas we identified in our July 1997 report—crosscutting issues, major management problems, and data reliability. The plan’s improved clarity and context should help decisionmakers understand the crosscutting issues that affect GSA as a central management agency. However, explicit discussion of these issues is limited, and the September 30 plan makes no reference to the extent to which GSA coordinated with stakeholders. The September 30 plan references major management problems in the program evaluations component, but it does not explicitly discuss these problems or identify which problems could have an adverse impact on meeting the general goals and objectives. Our work has shown over the years that these types of problems have significantly hampered GSA’s and its stakeholder agencies’ abilities to accomplish their missions. For example, the plan could address how GSA will attempt to ensure that its information systems meet computer security requirements or how GSA plans to address the year 2000 problem in its computer hardware and software systems. The plan does reference data reliability in the general goals and objectives component. However, the discussion of data reliability, which is so critical for measuring progress and results, is limited and not as useful as it could be in attempting to assess the impact that data problems could have on meeting the general goals and objectives. We continue to believe that greater emphasis on how GSA plans to resolve management problems and on the importance of data reliability could improve the plan. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions. The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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GAO discussed its observations on the General Services Administration's (GSA) September 30, 1997, strategic plan. GAO noted that: (1) GSA's April 1997 draft strategic plan contained all six components required by the Government Performance and Results Act; (2) however, the draft plan generally lacked clarity, context, descriptive information, and linkages among the components; (3) GSA has since made a number of improvements, and the six components now better achieve the purposes of the act; (4) however, additional improvements would strengthen the September 30 plan as it evolves over time; (5) the September 30 plan continues to have general goals and objectives that seem to be expressed in terms that may be challenging to translate into quantitative analysis; (6) the strategies component is an improvement over the prior version but would benefit from a more detailed discussion of how each goal will actually be accomplished; (7) although the external factors in the September 30 plan are clearer and provide more context, the factors are not clearly linked to the general goals and objectives; (8) the program evaluations component provides a listing of the various program evaluations that GSA used, but it does not include a required schedule of future evaluations; (9) although the plan does a much better job of setting forth GSA's statutory authorities, this addition could be further improved by linking the different authorities to either the general goals and objectives or the performance goals; (10) the plan also refers to three related areas--crosscutting issues, major management problems, and data reliability--but the discussion is limited and not as useful as it could be in articulating how these issues might affect successful accomplishment of goals and objectives; and (11) this is especially true for major management and data reliability problems, which can have a negative impact on measuring progress and achieving the goals.

You are an expert at summarizing long articles. Proceed to summarize the following text: Without meaningful reform, the long-term financial outlook for Medicare is bleak. Together, Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) expenditures are expected to increase dramatically, rising from about 12 percent in 1999 to about a quarter of all federal revenues by mid-century, even without adding to the benefit package. Over the same time frame, Medicare’s expenditures are expected to double as a share of the economy, from 2.5 to 5.3 percent, as shown in figure 1. The progressive absorption of a greater share of the nation’s resources for health care, like Social Security, is in part a reflection of the rising share of the elderly population, but Medicare growth rates also reflect the escalation of health care costs at rates well exceeding general rates of inflation. Increases in the number and quality of health care services have been fueled by the explosive growth of medical technology. Moreover, the actual costs of health care consumption are not transparent. Third-party payers generally insulate consumers from the cost of health care decisions. In traditional Medicare, for example, the impact of the cost- sharing provisions designed to curb the use of services is muted because about 80 percent of beneficiaries have some form of supplemental health care coverage (such as Medigap insurance) that pays these costs. For these reasons, among others, Medicare represents a much greater and more complex fiscal challenge than even Social Security over the longer term. When viewed from the perspective of the entire budget and the economy, the growth in Medicare spending will become progressively unsustainable over the longer term. Our updated budget simulations show that to move into the future without making changes in the Social Security, Medicare, and Medicaid programs is to envision a very different role for the federal government. Assuming, for example, that the Congress and the President adhere to the often-stated goal of saving the Social Security surpluses, our long-term model shows a world by 2030 in which Social Security, Medicare, and Medicaid increasingly absorb available revenues within the federal budget. Under this scenario, these programs would require more than three-quarters of total federal revenue. (See fig. 2.) Budgetary flexibility would be drastically constrained and little room would be left for programs for national defense, the young, infrastructure, and law enforcement. *The “Eliminate non-Social Security surpluses” simulation can only be run through 2066 due to the elimination of the capital stock. Revenue as a share of GDP during the simulation period is lower than the 1999 level due to unspecified permanent policy actions that reduce revenue and increase spending to eliminate the non-Social Security surpluses. Medicare expenditure projections follow the Trustees’ 1999 intermediate assumptions. The projections reflect the current benefit and financing structure. When viewed together with Social Security, the financial burden of Medicare on future taxpayers becomes unsustainable, absent reform. As figure 3 shows, the cost of these two programs combined would nearly double as a share of the payroll tax base over the long term. Assuming no other changes, these programs would constitute an unimaginable drain on the earnings of our future workers. While the problems facing the Social Security program are significant, Medicare’s challenges are even more daunting. To close Social Security’s deficit today would require a 17 percent increase in the payroll tax, whereas the HI payroll tax would have to be raised 50 percent to restore actuarial balance to the HI trust fund. This analysis, moreover, does not incorporate the financing challenges associated with the SMI and Medicaid programs. The elements of restructuring of Medicare as proposed by the President and Breaux-Frist are best understood in light of Medicare’s current structure. From the perspective of the program’s benefit package, most beneficiaries have two broad choices: they can receive health care coverage through Medicare’s traditional fee-for-service program or through its managed care component, called Medicare+Choice. The latter consists of an array of private health plans whose availability to Medicare beneficiaries varies by county across the nation. The choice between traditional Medicare and a Medicare+Choice plan typically involves certain trade-offs related to selection of providers, services covered, and out-of-pocket costs. Another key difference pertains to program payment methods. Providerchoice. Under traditional Medicare, beneficiaries may obtain covered services from any physician, hospital, or other health care provider that receives Medicare payments. Because most providers accept Medicare payments, beneficiaries have virtually unlimited choice. In contrast, beneficiaries in managed care face a more restricted list of providers. Private plan enrollees can generally use only their plan’s network of doctors, hospitals, or other providers for nonemergency care. Servicesoffered. Although offering less provider choice, Medicare+Choice plans typically cover more services. For example, Medicare+Choice plans often cover routine physicals, outpatient prescription drugs, and dental care—services that traditional Medicare does not cover. Out-of-pocketcosts.Out-of-pocket costs are generally higher for beneficiaries in traditional Medicare than for those in Medicare+Choice. Traditional Medicare, which has a two-part benefit package, does not pay the full costs of most covered services. Part A has no premium and helps pay for hospitalization, skilled nursing facility care, some home health care, and hospice care. Part B, which is optional in traditional Medicare, requires a monthly premium ($45.50) and helps pay for physician services, clinical laboratory services, hospital outpatient care, and certain other medical services. In addition to the monthly premium, beneficiaries are responsible for an annual $100-deductible and for 20 percent of the Medicare-approved amount for most part B services. To cover these out- of-pocket expenses, many beneficiaries purchase private supplemental insurance, known as Medigap, or may have similar insurance through a former employer. In contrast, beneficiaries covered through a Medicare+Choice plan are required to pay part B premiums but often do not pay the plan a monthly premium or pay a monthly fee that is less than the cost of an equivalent Medigap policy. Plan enrollees may also pay a copayment for each visit or service. Programpayments.Another key difference between traditional Medicare and Medicare+Choice involves the program’s payment methods. In traditional Medicare, hospitals, physicians, and other providers receive a separate payment for each covered medical service or course of treatment provided. In contrast, Medicare+Choice plans receive a fixed monthly amount for each beneficiary they enroll, commonly known as a capitation payment. This amount covers the expected costs of all Medicare part A and part B services. If Medicare’s payment is projected to result in a plan’s earning above normal profits—that is, above the rate of return earned on its commercial contracts—the plan generally must use the excess to fund additional benefits. If the extra benefits—such as prescription drugs and lower cost-sharing— provided by Medicare+Choice plans resulted exclusively from efficiencies achieved by the plans, there would be no cause for taxpayers to be concerned. However, evidence shows that, because of flaws in Medicare’s methodology for computing payments, payments to plans are too high and plans turn these excess payments into extra benefits to attract beneficiaries. Instead of producing program savings as originally envisioned, Medicare’s managed care option has added substantially to program spending. Nevertheless, as we reported last year, program savings and extra benefits for Medicare beneficiaries are not mutually exclusive goals.According to their own data, many plans could make a normal profit and provide enhanced benefit packages, even if Medicare payments were reduced. However, to lower program spending would require a better method of adjusting plan payments for differences in the health status of beneficiaries, a process commonly known as risk adjustment. Medicare’s current risk adjustment methodology cannot adequately account for the fact that, on average, beneficiaries in Medicare+Choice are healthier than those in traditional Medicare. Extensive research and development over the past 10 years have led to new prescription drug therapies and improvements over existing therapies. In some instances, new medications have expanded the array of conditions and diseases that can be treated effectively. In other cases, they have replaced alternative health care interventions. For example, new medications for the treatment of ulcers have virtually eliminated the need for some surgical treatments. As a result of these innovations, the importance of prescription drugs as part of health care has grown. However, new drug therapies have also contributed to a significant increase in drug spending as a component of health care costs. The Medicare benefit package, largely designed in 1965, provides virtually no coverage. This does not mean, however, that all Medicare beneficiaries lack coverage for prescription drug costs. In 1996, almost one third of beneficiaries had employer-sponsored health coverage, as retirees, that included drug benefits. More than 10 percent of beneficiaries received coverage through Medicaid or other public programs. To protect against drug costs, the remainder of Medicare beneficiaries can choose to enroll in a Medicare+Choice plan with drug coverage if one is available in their area or purchase a Medigap policy. The burden of prescription drug costs falls most heavily on the Medicare beneficiaries who lack drug coverage or who have substantial health care needs. Drug coverage is less prevalent among beneficiaries with lower incomes. In 1995, 38 percent of beneficiaries with income below $20,000 were without drug coverage, compared to 30 percent of beneficiaries with higher incomes. Additionally, the 1995 data show that drug coverage is slightly higher among those with poorer self-reported health status. At the same time, however, beneficiaries without drug coverage and in poor health had drug expenditures that were $400 lower than the expenditures of beneficiaries with drug coverage and in poor health. This might indicate access problems for this segment of the population. Even for beneficiaries who have drug coverage, the extent of the protection it affords varies, and there are signs that this coverage could be eroding. The value of a beneficiary’s drug benefit is affected by the benefit design, including cost-sharing requirements and benefit limitations. Although reasonable cost sharing serves to make the consumer a more prudent purchaser, copayments, deductibles, and annual coverage limits can reduce the value of drug coverage to the beneficiary. Recent trends of declining employer coverage and more stringent Medicare+Choice benefit limits suggest that the proportion of beneficiaries without effective protection may grow. Expanding access to more affordable prescription drugs could involve either subsidizing prescription drug coverage or allowing beneficiaries access to discounted pharmaceutical prices. The design of a drug coverage option, that is, the scope of the benefit, the targeted population, and the mechanisms used to contain costs, as well as its implementation, will determine the option’s effect on beneficiaries, Medicare or federal spending, and the pharmaceutical market. Any option would need to consider how to balance competing concerns about the sustainability of Medicare, federal obligations, and the hardship faced by some beneficiaries. the President’s Plan And The Breaux-Frist Proposal Are Similar In Three Key Areas But Contain Two Major Differences. To Varying Degrees, Both Proposals introduce a competitive premium model, similar in concept to the Federal Employees Health Benefit Program (FEHBP), to achieve cost efficiencies; preserve the traditional fee-for-service Medicare program with enhanced opportunities to adopt prudent purchasing strategies; and modernize Medicare’s benefit package by making coverage available for prescription drug and catastrophic Medicare costs. The proposals differ, however, in the extent to which traditional Medicare could face competitive pressure from private plans. In addition, under the President’s plan, the Health Care Financing Administration (HCFA) would administer the program, whereas under the Breaux-Frist proposal, an independent Medicare board would perform that function. An elaboration of these points helps explain where the two proposals share common ground and where they diverge. Currently, Medicare follows a complex formula to set payment rates for Medicare+Choice plans, and plans compete primarily on the richness of their benefit packages. Efficient plans that reduce costs below the fixed payment amount can use the “savings” to enhance their benefit packages, thus attracting additional members and gaining market share. Although competition among Medicare plans may produce advantages for beneficiaries, the government reaps no savings. In contrast, the competitive premium approach included in the Breaux- Frist and President’s proposals offers certain advantages. Under either version, beneficiaries can better see what they and the government are paying for. In addition, plans that can reduce costs can lower premiums and attract more enrollees. As the more efficient plans gain market share, the government’s spending on Medicare will decrease. Fundamentally, this approach is intended to spur price competition. Instead of administratively setting a payment amount and letting plans decide—subject to some minimum requirements—the benefits they will offer, plans would set their own premiums and offer a common Medicare benefit package. Under both proposals, beneficiaries would generally pay a small portion of the premium and the government would pay the rest. Plans that operate at lower cost could reduce premiums, attract beneficiaries, and increase market share. Beneficiaries who joined these plans would enjoy lower out-of-pocket expenses. Taxpayers, however, would also benefit from the competitive forces. As beneficiaries migrated to lower cost plans, the average government payment would fall. (See table 1.) One major difference between the two proposals concerns how the beneficiary premium would be set for those who remained in the traditional fee-for-service program. Under Breaux-Frist, there would be no separate part B premium. All plans—including traditional Medicare— would calculate a total premium expected to cover the cost of providing Medicare-covered services to the average beneficiary. The maximum government contribution would be based on a formula. Beneficiaries would pay no premiums if they chose plans costing 85 percent or less than the national enrollment-weighted average premium. For plans with higher premiums, beneficiaries would pay an increasing portion of the premium. The traditional fee-for-service Medicare program would be regarded as one more plan. The monthly amount beneficiaries would pay to enroll in it, therefore, would depend on how expensive it was relative to the private plans. In contrast, under the President’s proposal, the beneficiary premium for traditional Medicare—the part B premium—would continue to be set administratively. As under Breaux-Frist, all other plans would submit competitive premiums. The maximum government contribution to private plans would be set at 96 percent of the average spending per-beneficiary in traditional Medicare. Beneficiaries who joined plans that cost less than that amount would pay reduced, or no, part B premiums. Beneficiaries who joined more expensive plans would pay higher part B premiums. Some believe the design of the President’s proposal would tend to insulate the traditional fee-for-service program, and those beneficiaries that remain in it, from market forces. At least in the short run, however, the practical differences between the President’s proposal and the Breaux-Frist proposal may be small. Because the vast majority of beneficiaries are enrolled in the traditional fee-for-service program, the national average premium under Breaux-Frist would, in all likelihood, largely reflect the cost of traditional Medicare. Table 2 presents a hypothetical example to illustrate how similar beneficiary and government contributions would be under Breaux-Frist and the President’s proposal. It assumes private plans could provide Medicare-covered benefits for 90 percent of the cost incurred in the traditional fee-for-service program and that they enroll 17 percent of all beneficiaries (the percentage of beneficiaries currently enrolled in private plans).In this example, beneficiaries in private plans would pay slightly less under the Breaux-Frist proposal compared to their contribution under the President’s proposal. Beneficiaries in the traditional program would pay slightly more under Breaux-Frist. Over the longer term, larger differences will emerge only if private plans decide to compete aggressively on the basis of price for market share or traditional fee-for-service Medicare becomes significantly less able to control the growth of costs relative to private plans. Although the premium support proposals are intended to slow health care spending through competition, it is not certain that this will occur. Private plans may very well find that their most profitable strategy is to “shadow price” (set prices only slightly under) traditional Medicare and be satisfied with smaller market share. (Paradoxically, serving larger numbers of beneficiaries could lead to higher costs and less profit.) The greater ability of private plans to control cost growth and thereby offer significantly lower premiums is not a foregone conclusion. Medicare’s fee-for-service cost containment record over the longer term has not differed substantially from that of the private sector. In some periods, Medicare’s cost growth has been lower; in others, higher. Today, actually, we are witnessing a resurgence of cost growth in private plans, while Medicare spending projections have flattened. More than 80 percent of Medicare beneficiaries currently receive their health care coverage through the traditional fee-for-service program. Both leading reform proposals recognize the importance of this program to beneficiaries and would ensure its continued availability nationwide. They also recognize that controlling the growth of overall Medicare spending requires a more efficient traditional program. Consequently, both proposals seek to make Medicare a more prudent purchaser of health care by introducing modern cost control strategies. The President’s proposal outlines several new approaches to controlling costs. It would, for example, allow the Secretary of Health and Human Services to contract with preferred provider organizations (PPO), negotiate discounted payment rates for specific services, and develop systems to manage the care (in a fee-for-service setting) of certain diseases or beneficiaries. The proposal would also adjust payments to providers and change beneficiary cost sharing requirements. Adopting these changes will entail considerable challenges given the sheer size of the Medicare program, its complexity, and the need for transparent policies in a public program. Moreover, how much the changes would save is uncertain and likely depends on how, and to what extent, these measures are implemented. For example, without supplemental insurance reform, a PPO option may not attract many beneficiaries because a majority have first-dollar coverage through supplemental policies and thus are insensitive to provider charges. Furthermore, cuts in provider payments are certain to meet with fierce opposition. The Breaux-Frist proposal provides a vehicle to reform traditional Medicare, but does not suggest specific cost control devices. The proposal calls for HCFA to prepare an annual business plan, which would outline intended payment and management strategies, describe partnership arrangements with entities to provide prescription drug benefits, and recommend benefit improvements. It would also include any legislative specifications necessary to enact the plan. Until 2008, HCFA would need explicit congressional approval to implement its business plan. After that, the plan would take effect without Congress’ explicit approval. Clearly, the Breaux-Frist proposal could increase HCFA’s options for managing the traditional program and controlling spending. Like the President’s proposal, however, the extent of its success will depend on the specific details and other reform elements that HCFA designs and the Congress allows to be adopted. The leading proposals include provisions for two commonly discussed benefit expansions: an outpatient prescription drug benefit and coverage for extraordinary out-of-pocket expenses, known as catastrophic or stop- loss coverage. In this regard, Breaux-Frist and the President’s proposal share many similarities. (See table 3.) Under both proposals the coverage is voluntary, although income-targeted subsidies are provided to encourage the purchase of prescription drug coverage. By making the drug benefit financially attractive, the proposals seek to maximize participation and avoid “adverse selection” problems—that is, having only high- cost beneficiaries purchase coverage and driving up premium costs. Low- income beneficiaries would pay nothing for the drug benefit, while those earning more would pay up to 75 percent of the cost. To further minimize adverse selection problems, the President’s proposal includes, and Breaux-Frist considers, a provision limiting opportunities to select drug coverage. Under Breaux-Frist, all participating health care organizations—including HCFA—would be required to offer a high option plan that provided prescription drug and stop-loss coverage, in addition to coverage for Medicare core benefits. The President’s proposal calls for a new voluntary prescription drug benefit, known as part D, and a new Medigap policy that would feature increased cost-sharing and stop-loss coverage. Under both proposals HCFA would contract with private entities to provide drug coverage for beneficiaries enrolled in its high option plan (Breaux-Frist) or in Medicare part D (President). Entities that managed the drug benefit for HCFA or private plans would be permitted to use cost containment mechanisms, such as formularies. The President’s proposal includes incentives for private employers to retain drug coverage for their retirees. The challenge of implementing Medicare reforms must be respected. As we have noted before, to determine the likely impact of a particular policy, details matter. Design choices and implementation policies can affect the success of proposed reforms. In addition, because difficult choices tend to meet with opposition from affected parties, the will to stay the course is equally important for successful reform. Following are just a few of the issues germane to Medicare reform that remind us of the proverb, “The devil is in the details.” For proposals that include elements of premium support, the task of determining the government’s contribution toward each plan’s premium raises several technical issues that have profound policy implications. In general, the government’s share is greater or smaller, depending on whether the plan’s premium is below or above the average of all plan premiums. However, some plans can incur higher-than-average expenses because of local market conditions outside of their control. Unless the government contribution is adjusted for these circumstances, beneficiaries could face higher out-of-pocket costs and plans could be at a competitive disadvantage. The Breaux-Frist proposal allows adjustments for medical price variation only. The President’s proposal allows adjustments for medical price variation and regional differences in medical service use. An adjustment for differences in local medical prices is clearly desirable under a premium support system. Without it, beneficiary premiums in high-price areas will tend to be above the national average. Adjusting the government contribution for input price differences can help ensure fair price competition between local and national plans and avoid having beneficiaries pay a higher premium, or higher share of a premium, simply because they live in a high-price area. In addition, the use of medical services varies dramatically among communities because of differences in local medical practices. Under premium support approaches, plan premiums in high-use areas will likely exceed the national average. Whether, or to what extent, to adjust the government contribution for this outcome is a matter of policy choice. On the one hand, without an adjustment, beneficiaries living in high-use areas who join local private plans could face substantial out-of-pocket costs for circumstances outside of their control. Consequently, private plans in these areas might have difficulty competing with a traditional Medicare plan that charged a fixed national premium based on an overall average of medical service use. On the other hand, there have been longstanding concerns about unwarranted variations in medical practice. By not adjusting the government contribution for utilization differences, financial pressures could encourage providers to reduce inappropriate levels of use. Under either leading proposal, Medicare’s administrative functions will include the oversight of plans’ contracts. In today’s Medicare+Choice program, this function is performed by HCFA. Under the President’s plan, HCFA would retain this function; under Breaux-Frist, a quasi-independent board would administer Medicare. Whatever the administrative entity is under Medicare reform, the following are questions that policymakers will want to consider. First, how will this entity’s mission be defined? Will the emphasis be on controlling costs, protecting beneficiaries, maximizing choice, or some combination of these goals? Policy choices would flow from the stated mission. Second, how much independence would be permitted to the administrative entity to carry out its mission? Would it be appropriately shielded from the pressure exerted by special interest groups? Third, how would the administrative entity hold plans accountable for meeting Medicare standards? Would it rely chiefly on public accountability, in which the process and procedures for compliance are clearly defined and actively monitored, or on market accountability, by providing comparative information on competing plans and letting beneficiary enrollment choices weed out poor performers? Answers to these questions will determine, to a large extent, whether a restructured Medicare program will be administered effectively. Experiences in the Medicare+Choice program suggest lessons for implementing reforms effectively and provide a blueprint for actions that can be taken right away. In response to challenges faced in administering Medicare+Choice, HCFA has several initiatives underway that have faltered for various reasons—including resistance by special provider interests and insufficient agency capacity and expertise. However, the need to further these initiatives will grow in importance under comprehensive reform. Specifically, (1) improved risk adjustment is needed to ensure that Medicare’s payments are fair both to the taxpayer and to individual plans, (2) better consumer information is needed to help beneficiaries make comparisons across plans, and (3) improved information systems and analysis capability are needed to promptly assess the impact of new payment and coverage policies. Adjusting for differences in beneficiary health status—commonly known as risk adjustment—enables plans to be fairly compensated when they enroll either healthier or sicker-than-average beneficiaries. Our work and that of others show that, partially because of an inadequate risk adjustment methodology, taxpayers have not benefited from the potential for capitated managed care plans to save money.Under the competitive premium approach, the ability to moderate Medicare spending rests in part on how accurately analysts determine the government’s share of a health plan’s premium. Today’s Medicare+Choice program is phasing in an interim risk-adjustment methodology based on the limited health status data currently available. The challenge, for Medicare+Choice or any premium-based reform proposal, is to implement an improved method that more accurately adjusts payments, does not impose an undue administrative burden on plans, and cannot be manipulated by plans seeking to inappropriately increase revenues. In an ideal market, informed consumers prod competitors to offer the best value. Our recent review of Medicare+Choice, however, showed that a lack of comparative consumer information dampened the program’s potential to capitalize on market forces to achieve cost and quality improvements.Despite HCFA’s review and approval of health plans’ marketing literature, many health plans distributed materials containing inaccurate or incomplete benefit information. Some plans did not furnish complete information on plan benefits and restrictions until after a beneficiary had enrolled. Others never provided full descriptions of benefits and restrictions. In addition, making comparisons across plans was difficult because, in the absence of common standards, plans chose their own format and terms to describe a plan’s benefit package. If Medicare is restructured to incorporate a competitive premium support approach, the need for beneficiaries to be well informed about their health care options becomes more critical. To guide its efforts to improve consumer information, HCFA should look to FEHBP—the choice-based health insurance program for federal employees. In FEHBP, for example, health plans are required to follow standard formats and use standard terms in their marketing literature. Informing Medicare beneficiaries, however, is likely to involve challenges not encountered in informing current and former federal employees. For one thing, the size of the Medicare program makes any education campaign a daunting task. Moreover, many beneficiaries have a poor understanding of the current program and may not understand how the proposed changes would affect their situations. The ability to provide prompt and credible policy analyses of newly introduced changes is key during a period of significant transformation. Recent experience with the bold payment reforms established in the Balanced Budget Act of 1997 (BBA) illustrates this point. BBA was enacted in response to continuing rapid growth in Medicare spending that was neither sustainable nor readily linked to demonstrated changes in beneficiary needs. In essence, BBA changed the financial incentives inherent in payment methods that, prior to BBA, did not reward providers for delivering care efficiently. Not surprisingly, affected provider groups conducted a swift, intense campaign to roll back the BBA changes. In the absence of solid, data-driven analyses, anecdotes were used to support contentions that Medicare payment changes were extreme and threatened providers’ financial viability. In testifying before the Congress in the fall of 1999, we remarked on the need for obtaining information that could identify and distinguish between desirable and undesirable consequences.More recently, we recommended that HCFA establish a process to assess the potential effects of implementing legislated Medicare changes.This process would entail developing baseline information from available claims data. The information from such assessments would be all the more critical during a period of implementing fundamental reforms. Given the aging of our society and the increasing cost of modern medical technology, it is inevitable that the demands on the Medicare program will grow. The President’s proposal reflects the belief that additional revenue will be necessary to meet those demands and ensure that health care coverage is provided to future generations of seniors and disabled Americans. Specifically, the President would earmark a portion of the projected non-Social Security surpluses for Medicare. According to the Administration, this action is designed to make Medicare financing a priority. This aspect of the proposal would entail a major change in program financing. While Medicare will inevitably grow, it must not grow out of control. The risk is that federal resources may not be available for other national priorities, such as education for young people and national defense. In response, both Breaux-Frist and the President’s proposals include elements designed to moderate future Medicare spending. Their approaches are untested, however, and it would be imprudent to adopt these—or any other reforms—without a means to monitor their effects. What is needed along with reform is a mechanism that will gauge spending and revenues and will sound an early warning if policy course corrections are warranted. Although both proposals include a warning mechanism, the Breaux-Frist approach would be a more comprehensive measure of program financing imbalances. Under the current Medicare structure, the program consists of two parts. Medicare’s HI Trust Fund, also known as part A, is financed primarily by payroll taxes paid by workers and employers. Supplementary Medical Insurance (SMI), also known as part B, is financed largely through general revenues. Currently, the financial health of Medicare is gauged by the solvency of the HI trust fund and not the imbalance between total revenues and total spending. The 1999 Trustees’ annual report showed that Medicare’s HI component has been, on a cash basis, in the red since 1992, and in fiscal year 1998, earmarked payroll taxes covered only 89 percent of HI spending. Although the Office of Management and Budget has recently reported a $12 billion cash surplus for the HI program in fiscal year 1999 due to lower than expected program outlays, the Trustees’ report issued in March 1999 projected continued cash deficits for the HI trust fund. (See fig. 4.) When the program has a cash deficit, as it did from 1992 through 1998, Medicare is a net claimant on the Treasury—a threshold that Social Security is not currently expected to reach until 2014. To finance these cash deficits, Medicare drew on its special issue Treasury securities acquired during the years when the program generated a cash surplus. In essence, for Medicare to “redeem” its securities, the government must raise taxes, cut spending for other programs, or reduce the projected surplus. When outlays outstrip revenues in the HI fund, it is tempting to shift some expenditures to SMI. Such cost-shifting extends the solvency of the HI Trust Fund, but does nothing to address the fundamental financial health of the program. Worse, it masks the problem and may cause fiscal imbalances to go unnoticed. For example, in 1997 BBA reallocated a portion of home health spending from the HI Trust Fund to SMI. This reallocation extended HI Trust Fund solvency but at the same time increased the draw on general revenues in SMI while generating little net savings. The President’s plan preserves the program’s divided financing structure and continues to rely on projections of HI Trust Fund solvency to warn of fiscal imbalances. By devoting a portion of the non-Social-Security surpluses to Medicare, the President’s plan would extend the HI Trust Fund’s solvency. This proposed infusion of general revenues represents a major departure in the financing of the HI program. Established as a payroll tax funded program, HI would now receive an explicit grant of funds from general revenues not supported by underlying payroll tax receipts. In effect, this grant would constitute a new claim on the general fund that would limit the ability to set budgetary priorities in the future. It would also further weaken the incomplete signaling mechanism of Medicare’s future fiscal imbalances provided by the HI Trust Fund solvency measure. Under an approach that would combine the two trust funds, a continued need would exist for measures of program sustainability that would signal potential future fiscal imbalance. Such measures might include the percentage of program funding provided by general revenues, the percentage of total federal revenues or gross domestic product devoted to Medicare, or program spending per enrollee. As such measures were developed, questions would need to be asked about the appropriate level of general revenue funding as well as the actions to be taken if projections showed that program expenditures would exceed the chosen level. The Breaux-Frist proposal would unify the currently separate HI and SMI trust funds, and, in so doing, would eliminate the ability to shift costs between two funding sources. The Breaux-Frist early warning mechanism consists of defining program insolvency as a year in which general revenue contributions exceed 40 percent of total Medicare expenditures. At that time, the Congress would have several choices. It could raise the limit on general revenue contributions, raise payroll taxes, raise beneficiary premiums, reduce benefits, cut provider payments, or introduce efficiencies to moderate spending. Supporters of the Breaux-Frist proposal have suggested that a more comprehensive measure of program financing would be more useful to policymakers. Current spending projections show that absent reform that addresses total program cost, this limit would be reached in less than 10 years. (See fig. 5.) These data underscore the need for reform to include appropriate measures of fiscal sustainability as well as a credible process to give policymakers timely warning when fiscal targets are in danger of being overshot. In determining how to reform the Medicare program, much is at stake— not only the future of Medicare itself but also assuring the nation’s future fiscal flexibility to pursue other important national goals and programs. Mr. Chairman, I feel that the greatest risk lies in doing nothing to improve the program’s long-term sustainability or, worse, in adopting changes that may aggravate the long-term financial outlook for the program and the budget. It is my hope that we will think about the unprecedented challenge facing future generations in our aging society. Relieving them of some of the burden of today’s financing commitments would help fulfill this generation’s fiduciary responsibility. It would also preserve some capacity to make their own choices by strengthening both the budget and the economy they inherit. While not ignoring today’s needs and demands, we should remember that surpluses can be used as an occasion to promote the transition to a more sustainable future for our children and grandchildren. I am under no illusions about how difficult Medicare reform will be. The President’s and Breaux-Frist proposals address the principal elements of reform, but many of the details need to be worked out. Those details will determine whether reforms will be both effective and acceptable—that is, seen as helping guarantee the sustainability and preservation of the Medicare entitlement, a key goal on which there appears to be consensus. Experience shows that forecasts can be far off the mark. Benefit expansions are often permanent, while the more belt-tightening payment reforms—vulnerable to erosion—could be discarded altogether. The bottom line is that surpluses represent both an opportunity and an obligation. We have an opportunity to use our unprecedented economic wealth and fiscal good fortune to address today’s needs but an obligation to do so in a way that improves the prospects for future generations. This generation has a stewardship responsibility to future generations to reduce the debt burden they will inherit, to provide a strong foundation for future economic growth, and to ensure that future commitments are both adequate and affordable. Prudence requires making the tough choices today while the economy is healthy and the workforce is relatively large. National saving pays future dividends over the long term but only if meaningful reform begins soon. Entitlement reform is best done with considerable lead time to phase in changes and before the changes that are needed become dramatic and disruptive. The prudent use of the nation’s current and projected budget surpluses combined with meaningful Medicare and Social Security program reforms can help achieve both of these goals. Mr. Chairman and Members of the Committee, this concludes my prepared statement. I will be happy to answer any questions you may have.

Pursuant to a congressional request, GAO discussed two leading proposals on Medicare reform: (1) the President's Plan to Modernize and Strengthen Medicare for the 21st Century; and (2) S. 1895, entitled the Medicare Preservation and Improvement Act of 1999, which is commonly referred to as the Breax-Frist proposal. GAO noted that: (1) the elements of restructuring of Medicare as proposed by the President and Breaux-Frist are best understood in light of Medicare's current structure; (2) from the perspective of the program's benefit package, most beneficiaries have two broad choices: they can receive health care coverage through Medicare's traditional fee-for-service program or through its managed care component, called Medicare Choice; (3) the choice between traditional Medicare and a Medicare Choice plan typically involves certain trade-offs related to selection of providers, services covered, and out-of-pocket costs; (4) the President's plan and the Breaux-Frist proposal are similar in three key areas but contain two major differences; (5) to varying degrees, both proposals: (a) introduce a competitive premium model, similar in concept to the Federal Employees Health Benefit Program, to achieve cost efficiencies; (b) preserve the traditional fee-for-service Medicare program with enhanced opportunities to adopt prudent purchasing strategies; and (c) modernize Medicare's benefit package by making coverage available for prescription drug and catastrophic Medicare costs; (6) the proposals differ, however, in the extent to which traditional Medicare could face competitive pressure from private plans; and (7) under the President's plan, the Health Care Financing Administration would administer the program, whereas under the Breaux-Frist proposal, an independent Medicare board would perform that function.

You are an expert at summarizing long articles. Proceed to summarize the following text: The concept of animal ID is not new, in the United States or abroad. For decades, American producers have kept records on, and used ID methods for, livestock animals for both commercial and regulatory purposes. Specifically, several USDA and state animal disease eradication programs—such as programs for tuberculosis (TB) in cattle, pseudorabies in swine, and scrapie in sheep and goats—include animal ID requirements. Certain species and classes of animals require officially recognized ID devices for interstate commerce, and all live animals imported into, or exported from, the United States require official ID. Thus, many livestock animals are already identified in the United States by ear tags, branding, tattoos, or other devices. However, the use of ID devices varies by breed, species, and state, and, until NAIS, no attempt had been made to create a uniform animal ID system of national scope and across multiple species using a universal numbering system and central data repository. Due to serious concerns about the United States’ ability to safeguard its livestock from the harmful effects of disease, in 2002, the National Institute of Animal Agriculture—an organization of producers, veterinarians, scientists, government representatives, and allied industries—initiated a state-USDA-industry task force of approximately 70 representatives to create a national animal ID system. In 2003, USDA expanded upon this work and established a development team consisting of more than 70 industry associations, organizations, and government agencies. That team ultimately produced the United States Animal Identification Plan in December 2003, which provided the foundation for NAIS. Although early versions of the plan focused on food animals only, other livestock species were later incorporated. The plan was being finalized when the nation’s first case of BSE was confirmed on December 25, 2003. Five days later, the Secretary of Agriculture announced measures to guard against BSE and indicated that USDA would expedite the implementation of a national animal ID system. Since 2004, USDA has solicited public comments on draft NAIS policy documents, held public listening sessions, and met with industry groups and others in its efforts to design and implement NAIS. In addition, USDA has received input from 10 working groups comprising producers, academics, and others representing the various livestock species and industry sectors currently included in NAIS. These working groups make recommendations to the NAIS Subcommittee, a group of state and industry stakeholders established by USDA in September 2004 to provide regular, formal input to the USDA Secretary’s Advisory Committee on Foreign Animal and Poultry Diseases (full committee) about how NAIS should progress. The NAIS Subcommittee is also responsible for receiving input from the National Institute of Animal Agriculture; the United States Animal Health Association, an organization representing state veterinarians and allied industry groups; and other organizations and individuals. The full committee is a federal advisory group of state, academic, and industry experts selected by the Secretary, which meets once a year or as deemed necessary by the Secretary. While the NAIS Subcommittee meets periodically, the full committee has met only twice— in September 2004 and September 2006—since the creation of NAIS. USDA is not obligated to take action on the NAIS Subcommittee’s, full committee’s, or others’ recommendations. For the premises registration component of NAIS, states and tribes are responsible for submitting premises information—given to them by producers and others—to a central, Web-based USDA premises database. In turn, USDA allocates a unique, 7-digit, alphanumeric, premises ID number (e.g., A123B45). The premises then receives confirmation online or by mail from the relevant state or tribe with its unique premises ID number. For the animal ID component, USDA published an interim rule, effective in November 2004, recognizing the Animal Identification Number as a new, official numbering system for individual animals in interstate commerce. Producers and other NAIS participants can order ID devices from USDA- approved managers that are imprinted with a unique, 15-digit Animal Identification Number for use on animals that move through the production process as individuals, as is typical in the cattle, sheep, and goat industries. Figure 1 shows a calf that is identified with tags in both ears, with the calf’s left ear bearing an electronic tag and its right ear bearing a visual tag. Both tags have the Animal Identification Number for official ID purposes, and the visual tag also has a number used for the producer’s herd management purposes. For animals of the same species that typically move through the production chain as a group, such as commercial poultry and swine, producers can instead identify the animals with a group/lot ID number. Group/Lot ID numbers are self-generated by the premises (not assigned by USDA) and are maintained at the premises in management records. Lastly, for the animal tracking component, USDA has developed the Animal Trace Processing System to allow state and federal animal health officials to request information, in the event of an animal health investigation, from multiple private and state animal tracking databases containing animal location and movement records. Producers and others are responsible for reporting certain animal movements, such as when a change of ownership occurs or when animals commingle with other herds or flocks. Events that would enable state and federal animal health officials to request information from this network of databases include an indication or a confirmed positive test of a foreign animal disease, an animal disease emergency as determined by the Secretary of Agriculture or state departments of agriculture, or a need to conduct a trace to determine the origin of infection for a domestic disease of concern. (See app. II for a list of domestic and foreign animal diseases of concern identified by USDA.) USDA has steadily increased the number of livestock premises registered in the nation and has taken some steps to address stakeholder concerns in implementing NAIS. However, the agency has not effectively addressed a number of key issues identified by livestock industry groups, market operators, state animal health officials, and others that, if not ultimately resolved, could undermine the program’s goal of rapid and effective traceback, thus hindering its success. USDA’s decision to implement NAIS as a voluntary program without benchmarks to measure progress may affect the agency’s ability to attract the necessary levels of participation to quickly and efficiently locate all animals potentially exposed to a disease. In addition, USDA has not prioritized the implementation of NAIS by species or other criteria. Furthermore, USDA has not developed a plan for integrating NAIS with other USDA and state animal ID requirements, nor has it established a robust process for selecting, standardizing, and testing ID and tracking technologies. The agency also does not clearly define the time frame for rapid traceback. Finally, USDA does not require potentially critical information for efficient traceback to be recorded in NAIS databases. During the first 2 years of the program’s implementation, USDA stated several times that participation in NAIS would initially be voluntary but would eventually become mandatory to achieve full participation and, thus, the goal of rapid and effective traceback. One of USDA’s first major NAIS policy documents, the Draft Strategic Plan 2005-2009, released in April 2005, stated that during initial implementation, participation would be voluntary so that stakeholders could have the opportunity to obtain experience with the program and provide feedback as successful and practical solutions evolved. The plan also provided a timeline for implementation, with premises registration and animal ID to be required by January 2008 and the reporting of defined animal movements to be required by January 2009, under what would become an entirely mandatory program. The plan stated that this phased-in approach was “to support the transition from voluntary to mandatory as full implementation is achieved.” In addition, the plan also stated that, “While market forces may eventually create more inclusiveness, the clear stakeholder support for transitioning to a mandatory program and the urgency of achieving the goal, suggest that setting a date for that transition would benefit the program.” Later, the April 2006 Strategies for the Implementation of NAIS set benchmarks that were intended to gauge progress in attaining full participation. These benchmarks called for gradually increasing the percentages of premises registered, animals identified, and animals tracked from January 2007 through January 2009. Specifically, for premises registration, USDA aimed for 25 percent participation by January 2007, 70 percent by January 2008, and 100 percent by January 2009. In addition, the implementation plan called for 40 percent of animals being identified by January 2008, 100 percent of “new” animals less than 1 year of age being identified by January 2009, and 60 percent of new animals having complete tracking data by January 2009. USDA stated that it would evaluate whether participation levels were increasing at rates that would achieve full participation by 2009, and that, if this were not the case, USDA would develop federal regulations to require industry to identify their premises and animals. In May 2006, in an announcement for NAIS cooperative agreements, USDA stated that it anticipated promulgating regulations by early 2008 to require participation in all three components of the program. Furthermore, in a document supporting its fiscal year 2007 budget submission to OMB, USDA stated that the intrinsic value of its investment in NAIS was based on the assumption that there would be sufficient animal ID and movement data available to support the program’s traceback goal. USDA also said that if participation fell below expectations, traceback would periodically fail because of the lack of animal tracking information from nonparticipants. However, in August 2006, reporting that 20 percent of the nation’s premises had been registered, USDA decided that NAIS would permanently remain a voluntary program. USDA officials told us that due to opposition from some industry groups, it is imperative that industry advance the program, rather than government regulations, to encourage participation. Some industry groups believe that NAIS could succeed as a voluntary program or that USDA first needs to resolve several key implementation issues before making participation mandatory. For example, officials from the National Cattlemen’s Beef Association told us they believe that NAIS could be successful as a voluntary program, such as the beef industry’s 20-year-old Beef Quality Assurance program, which covers about 95 percent of cattle in feedlots and aims to reduce drug residues and pathogen contamination. The association officials also told us that if NAIS became mandatory, producers who have voluntarily participated would lose the market advantage they currently enjoy through higher prices paid at market or slaughter for animals they identify for marketing or management purposes. Another industry group, the American Farm Bureau Federation, which in 2006 supported NAIS being a mandatory program, expressed its support in January 2007 for NAIS to be voluntary, while cautioning that USDA should not make the program mandatory until the agency has published a full cost analysis for the program. The Livestock Marketing Association—a national trade association representing over 700 livestock auction markets, dealers, and other livestock marketing businesses—also wrote in comments to USDA in 2005 that NAIS should remain voluntary until USDA addresses several implementation issues, including the effectiveness and availability of animal ID technology. In November 2006, USDA also dropped its participation benchmarks from the most recent policy document for the program, the draft NAIS User Guide. Despite a steady increase in the number of premises registered since USDA began reporting premises registration information in January 2005 and reaching the 25 percent target (nearly 360,000 premises) in early February 2007 (see fig. 2), USDA officials told us they dropped the participation benchmarks because meeting future benchmarks for all components of NAIS was no longer realistic. Instead, the officials said the agency is analyzing what participation levels for all components of NAIS would achieve the “critical mass” necessary to have an efficient and effective program. The officials added that the agency does not expect that equal levels of involvement across all species will be necessary, and that new, risk-based participation benchmarks for premises registration, animal ID, and animal tracking may be developed accordingly, which could vary by species. However, USDA has not determined what action it may take if participation levels do not meet those new benchmarks. Although it may be too soon to determine whether USDA’s current approach will be successful, many industry groups, state animal health officials, and the experts we surveyed say the program will likely need to become mandatory to achieve the levels of participation that are necessary to rapidly and effectively locate all potentially exposed animals in a disease traceback. In the Draft Strategic Plan, for instance, USDA reported that most individuals who spoke about this subject at the agency’s 2004 listening sessions preferred, by a ratio of 3:1, a mandatory program to a purely voluntary program. USDA also reported at that time that a survey of National Institute of Animal Agriculture members showed even stronger support, by a ratio of 8:1, for a program that is or will become mandatory. In addition, state and industry officials we interviewed said that as a voluntary program without benchmarks, NAIS has lost momentum, deterred participation, and faces an uncertain future. For example, officials from one major agricultural state told us that USDA’s changed direction on whether the program would become mandatory has challenged the state’s premises registration efforts, because many producers are motivated by compliance with federal requirements, not necessarily by NAIS’s traceback goal alone. These officials also said that the lack of participation benchmarks had compromised the state’s credibility with producers and its ability to make progress in implementation. As of early June 2007, this state had less than 16 percent of its premises registered, and the officials believed there is little incentive for producers to participate in NAIS. Moreover, three states where premises registration is mandatory by state law—Indiana, Michigan, and Wisconsin—accounted for about 26 percent of USDA’s total premises registered nationally as of that time. Furthermore, a majority of the 32 expert panel members said that 81 percent to 100 percent of producers, livestock markets, and slaughter facilities would need to register their premises to achieve the program’s goal of rapid and effective traceback (see apps. III and IV for more details about these experts and their responses to our questions). By contrast, under a voluntary program, only 1 expert believed that producers would achieve at least 81 percent participation in premises registration, while 11 experts believed that level would be achieved by livestock markets, and 20 experts believed that level would be achieved by slaughter facilities. For the animal ID and tracking components, experts had similar views. For example, a majority believed that 76 percent to 100 percent of producers, markets, and slaughter facilities would need to participate in animal tracking to make the program effective, while a minority believed that level would be achieved in any of those sections under a voluntary program. Overall, 27 of the 32 experts said participation in NAIS should definitely or probably be mandatory. Several other countries, including the United States’ major agricultural trading partners and competitors, have instituted mandatory animal ID programs for cattle and, in some cases, a few other species. For example, the EU has mandatory programs in which all cattle born or moved across EU state lines as of 2000 must be identified with two individual ear tags and an animal passport, and member states must maintain computerized databases that record births, movements, and deaths. Since several cases of BSE were discovered in 2001, Japan has made a series of changes to its food safety legislation, resulting in a mandatory system where all beef and dairy cattle must be identified using an ear tag. Information is maintained on an animal’s ID number, breed, gender, and production history from the farm of origin through distribution to consumers. Similarly, in 2001, Canada started a compulsory animal ID program that applies to all bovine and bison and now requires that animals receive a radio frequency identification (RFID) tag when leaving their herd of origin, which is collected at slaughter or export. Canada later expanded its program to sheep in 2004, requiring the use of visual ear tags. Brazil, the world’s largest beef exporter, gradually phased in its mandatory ID program for cattle and bison starting in January 2002; the entire herd is expected to be identified by the end of 2007. Australia, the world’s second-largest beef exporter, has developed a mandatory system that uses RFID to identify and trace cattle from farm of origin to slaughter. Australia has been moving toward a fully integrated program linking electronic ID devices, product bar coding, and a central electronic database. Appendix V provides more detailed information on select international animal ID and tracking programs. To increase participation in NAIS, several industry groups, state animal health officials, and the experts we surveyed have also suggested that USDA provide incentives, such as financial assistance, to industry to implement the animal ID and tracking components. For instance, the NAIS Cattle Working Group recommended in 2004 that USDA assume primary financial responsibility for funding the initial development of the basic infrastructure required for animal ID and tracking—including equipping concentration points, such as livestock markets and slaughter facilities, with RFID readers and software to capture the data electronically. Livestock market operators and others also say such financial support would be an attractive incentive because RFID technology, if effective, would allow animal movements to be recorded as quickly as the current “speed of commerce” and, therefore, would not slow down business operations. The NAIS Subcommittee also recommended, in 2005, a cost- sharing arrangement between USDA and industry to fund the program’s implementation. The Secretary’s Advisory Committee on Foreign Animal and Poultry Diseases adopted these recommendations as well as the other NAIS working group and Subcommittee recommendations presented at its September 2006 meeting. One state that has already created a cost-sharing incentive is Wisconsin, where the state contributes 50 percent, or up to $1, of the cost of an RFID ear tag on a first-come, first-served basis under its voluntary animal ID program. Wisconsin officials say the cost-sharing arrangement is designed to make the program more attractive to the state’s producers, and, as of early March 2007, the state had approved reimbursing producers for a total of 30,000 tags for cattle, which was up from 20,000 tags the previous month. However, USDA officials told us that the power of producers to protect themselves and their animals is a tremendous incentive for participation in NAIS, and, as the program continues to be implemented and developed, additional incentives will be realized by USDA, producers, and state and industry partners. Nonetheless, whether NAIS is mandatory or voluntary, the lack of participation benchmarks prevents USDA from measuring progress in attaining the necessary participation levels for an effective program. Industry groups, market operators, state animal health officials, and others have identified several other key problems that, if left unresolved, could undermine the program’s goal, further hindering USDA’s ability to implement the NAIS program effectively. USDA has not prioritized the implementation of NAIS by species or other criteria. Instead, the agency is currently implementing NAIS simultaneously for numerous species, regardless of their economic value, their risk of diseases of concern, the potential human health impact of these diseases, or other criteria. Consequently, federal, state, and industry resources for NAIS have been allocated widely, rather than being focused first on the species of greatest concern and allowing other species to be included later, on the basis of lessons learned. In contrast, international animal ID programs have generally started implementation with one species (cattle) and, in some cases, later expanded to include a few other species, such as sheep, bison, and goats, on the basis of disease risk, economic importance, or potential human health impact. In addition, 21 of the 32 expert panel members said USDA should definitely or probably implement NAIS incrementally by species, while 8 experts said USDA should definitely or probably continue with its current approach to implement the program for numerous species simultaneously. Many of the 32 experts suggested criteria that USDA could use to determine the priorities given to each species in implementing NAIS, including whether it is a food animal; its likelihood of capturing diseases of concern; the risk that the animal will spread a disease harmful to human health; the relative ease of implementation for a particular industry; and the industry’s impact on the U.S. economy, including export value. Prioritizing implementation for certain species before trying to apply the program to numerous species would likely result in more efficient and cost-effective implementation, on the basis of lessons learned and best practices being identified. In addition, the industries currently covered by NAIS appear to be at various stages of readiness to implement NAIS. For example, the Bison, Camelid, Cattle, Equine, Swine, Sheep, and Goat Working Groups have submitted reports to USDA with implementation recommendations for their industries, but the Cervid and Poultry Working Groups have not. Furthermore, according to industry representatives, some industries, such as commercial swine and poultry operations, already have widespread ID and tracking systems in place that would allow traceback to occur within 48 hours, while other industries may not. USDA officials pointed out that an animal ID program to support the animal health needs of all livestock species would be unique in the world and would place the United States in a position to set a new standard for animal ID. Some industry groups have expressed their support for NAIS being implemented for all species, since many transmissible diseases are not species-specific. For example, the National Livestock Producers Association, which represents about 200,000 producers across the country, wrote USDA in 2005 that the true value of NAIS rests in its potential ability to track all livestock animals, regardless of species, due to the extent of their commingling and potential to spread disease. The association added that NAIS would not be very effective or equitable if all species were not included as soon as possible. Furthermore, 21 of the 32 experts we surveyed said USDA should definitely or probably continue with its current approach to include all species, rather than limit NAIS to one or a few species. USDA officials also told us that establishing NAIS across all species is critical, because many operations handle more than one species, and that focusing entirely on cattle, as some other countries have done, is a critical flaw since some animal diseases cross species lines. Nonetheless, USDA officials told us they recognize that prioritizing program implementation may be appropriate, such as by focusing on specific diseases of concern or large commercial operations, and that the states should determine their own priorities for implementation. These officials also said future NAIS plans will more clearly identify higher-risk areas or sectors within the species. In commenting on a draft of this report, USDA told us it plans to develop, in collaboration with the species working groups, a NAIS Short-Term and Long-Term Implementation Strategies document that will contain actions for the remainder of 2007 through 2011. Specifically, the agency stated that the short-term strategy, targeted for publication in August 2007, will target species or industry sectors that have the greatest need for advancing premises registration, animal ID, and tracking. The long-term strategy will be distributed in early 2008 and will call for an evaluation of participation through 2009 to determine what actions, such as incentives, may be needed to accelerate participation in the voluntary program. Although USDA aims to minimize the financial and practical impact on producers and others in implementing NAIS, the agency has not developed a plan to integrate NAIS with preexisting programs and systems. Many producers are already required to participate in preexisting USDA and state animal disease eradication programs that use specific ID devices with different numbering systems or that require branding. For example, the National Scrapie Eradication Program for sheep and goats requires visual ear tags, and other USDA-state programs require ear tags for brucellosis and TB in cattle and ear notches in swine. In addition, several western states recognize branding as an official ID for disease control purposes. As a result, producers have generally been discouraged from investing in new ID devices for NAIS, according to industry groups we interviewed, thereby inhibiting implementation of the program’s animal ID and tracking components. Importantly, while USDA published an interim rule effective in November 2004 recognizing the Animal Identification Number as a new, official numbering system for individual animals in interstate commerce, this new system does not replace other, USDA-recognized, official numbering systems. The rule established that the Animal Identification Number may be used for official ID in other disease eradication programs. Nonetheless, USDA officials told us that they are evaluating how NAIS and other official ID systems can be standardized and moved to a single numbering system, to the extent practical, and that eventually, the agency expects Animal Identification Numbers to become the standard national numbering system used for certain species, individual ID methods, or both. USDA told us that as of early March 2007, 1.3 million Animal Identification Number RFID ear tags had been distributed, including some that are being used for state disease eradication programs. For example, USDA reported that about 500,000 tags had been distributed to Michigan producers, where the state’s bovine TB eradication program requires all cattle to have RFID ear tags prior to movement from their premises. For NAIS not to impose undue costs on producers by requiring additional ID devices, stakeholders say the program must be integrated with preexisting programs and systems. However, USDA faces challenges in integrating NAIS with other animal ID requirements. For example, Sheep Working Group members told us that because the scrapie program already assigns a flock ID number to each premises—plus a unique, individual ID number to each animal—sheep producers do not see the need to participate in NAIS, which involves different premises and individual animal ID numbering systems. Another challenge is that brands identify all animals raised by a specific producer as a group, not as individuals, and the same brands are often used in different states or even in different counties within the same state. USDA’s NAIS User Guide states that registered brands are not considered to be an official, individual animal ID as called for by NAIS because cattle typically move through the production process as individuals. In addition, NAIS animal tracking requirements may differ operationally from state brand laws and practices. For example, New Mexico requires state authorities to inspect all livestock moving across brand district lines, which contrasts with NAIS, where the responsibility of reporting animal movement lies with the premises receiving animals. New Mexico officials told us that if they were to implement NAIS as envisioned, the time required for state inspections would at least double if inspectors were required to read and report ID tags. The Cattle Working Group recommended, in 2004, that USDA develop protocols for integrating existing brand laws with NAIS individual animal ID requirements and for the reporting of animals’ movements from brand law states to nonbrand law states. USDA officials told us that the need to have a single numbering system across all species is less important than getting animals individually identified and tracked using any official ID system recognized by USDA. Furthermore, these officials said that while standardizing to a single numbering system for animal ID may eventually be appropriate, USDA recognizes there are differences among species and that cost, technology capability, and practicality must be considered before phasing out existing ID devices that have proven to be workable for producers. For example, the 15-digit Animal Identification Number may not be the most practical numbering system when used on visual ear tags for smaller animals since the size of the tag does not lend itself to a 15-digit number. Nonetheless, USDA officials are starting to address some integration issues. For example, USDA officials told us in April 2007 that the agency has decided to allow the official ID devices and numbering systems used by other disease eradication programs for the purposes of NAIS as well, although the agency has not yet communicated this development to industry. In addition, in late 2006, a NAIS Brand State Working Group was formed, in part to identify what brand concepts could integrate with NAIS. In commenting on a draft of this report, USDA informed us that it will update the NAIS User Guide in October 2007 to more clearly reflect the use of other official ID numbers within NAIS. International programs have generally used specific animal ID devices for their national animal ID programs, and some NAIS working groups have recommended specific ID devices for their species, such as RFID ear tags for cattle and RFID microchip implants for horses. However, USDA has taken a “technology-neutral” position to allow market forces to determine what devices are most effective and practical and to accommodate future technologies. In a NAIS policy document on ID devices released in February 2006, USDA stated that individual, visual ID devices are a starting point to ensure greater participation among producers and asserted that a neutral approach allows RFID; biometrics, such as DNA and retinal imaging devices; and other potential technologies to be used as supplemental identification. Nonetheless, that document also stated that uniformity and compatibility of technology are critical to ensure that the collection of animal ID data is practical and cost-effective throughout production. Furthermore, USDA recognized the need to have ID technologies that are compatible with Canada and Mexico. USDA also stated that as NAIS is phased in, ongoing efforts to harmonize animal ID with other countries will facilitate safe trade. While not all species can use the same devices due to industry preferences or physical limitations, such as small ears, USDA’s technology-neutral approach means, for example in the cattle industry, that a producer can choose to use visual ear tags; low- or high-frequency RFID ear tags; or other advanced technologies, such as retinal imaging. There are costs and benefits associated with any device. For example, visual ID devices are less expensive but require manual recording, which may cause errors and slow down the “speed of commerce” at livestock markets and slaughter facilities. RFID systems, on the other hand, allow data to be captured automatically into databases, but these systems are also not consistently accurate and are more expensive—in terms of both the ID device and the associated infrastructure (reader, installation, and computer use). With such a wide range of options in animal ID and tracking devices, industry groups and expert panel members told us that producers and market operators fear that their choices may be inconsistent with others in the marketplace, or that USDA will adopt specific devices in the future, and they may find themselves having made the wrong investment decision. For instance, a producer may find that the closest livestock market uses electronic readers and cannot easily accommodate visual ear tags; alternatively, the market may not have installed RFID reader equipment, and the producer would not get the anticipated return on his or her investment. From another perspective, a multispecies livestock market, based on its customers, may face a dilemma of investing in equipment to read and record visual tags, RFID tags, RFID implants, and other devices— or risk being unable to capture all information quickly and efficiently and losing some customers. Consequently, producers, livestock markets, and slaughter facilities have generally been discouraged from investing in ID or tracking devices, thus inhibiting implementation of the animal ID and tracking phases. Asked whether USDA’s technology-neutral position encourages or discourages producers’ investment in animal ID technology, 23 of the 32 expert panel members said this position definitely or probably discourages investment, and 6 said it definitely or probably encourages investment. In their written responses elaborating on this question, several experts said USDA’s technology-neutral approach limits the interoperability (compatibility) of different systems in place, thus reducing the viability of a consistent, national traceback program. In addition, they wrote that it has caused confusion, uncertainty, and a “wait-and-see” attitude in the marketplace, and that it will take time to sort out efficient from inefficient technologies. Conversely, other experts replied that USDA’s technology- neutral approach allows marketplace competition to advance new or improved technologies and drive fair prices. Similarly, for animal tracking, more experts replied that USDA’s approach definitely or probably discourages investment by producers, livestock markets, and slaughter facilities more than it encourages investment. For example, 22 experts said USDA’s approach discourages investment by livestock markets, compared with 2 who said it encourages such investment; 17 experts said it discourages investment by slaughter facilities, whereas 4 said it encourages that industry sector to invest. While USDA has not selected specific animal ID devices, the agency has published minimum standards for the various ID devices recommended to date by the species working groups and the NAIS Subcommittee. Specifically, USDA has established printing and performance standards for visual and RFID ear tags that address characteristics such as durability (expected tag life); tag loss; visual readability of the 15-digit Animal Identification Number; and, in the case of RFID, electronic read rates and ranges. USDA has published similar performance standards for RFID implants, with additional characteristics addressing the migration or breakage of the device and its being harmless to an animal. However, USDA has not published standards for RFID readers and does not expect to do so unless the agency purchases readers for use by animal health officials, in which case it says it will define performance standards for those specific environments. In addition, USDA has not established a robust process to independently test and evaluate the performance of animal ID and tracking devices. Industry groups, expert panel members, and others told us that RFID devices do not always perform well in production environments, such as livestock markets, particularly with RFID readers being made by different companies. For example, one NAIS pilot project found that in loading cattle onto commercial trucks, RFID readers read only 70 percent of the RFID ear tags, with variations among tag manufacturers ranging from 47 percent to 96 percent. As a result, stakeholders are lacking reliable, independent information on the effectiveness of animal ID and tracking devices, and without such information, they are reluctant to invest in these devices. It is common U.S. practice to select one technology for systems that need to be widely implemented in different environments to ensure consistency and interoperability across multiple users. We have previously reported that a robust process for selecting technologies, setting and revising performance standards, and testing and evaluating technologies against those standards leads to the most effective and efficient use of technology. For example, we have reported on the necessity of the federal government’s selection and standardization of RFID cards and readers for federal employees so that the ID cards can be read at any federal agency across the nation. Several expert panel members suggested that USDA provide funding for independent, third-party evaluations of technologies and make results of such work readily available; appoint a standards committee to evaluate and make recommendations on the basis of sound science; or require independent evidence that devices meet standards before approving them. The NAIS Subcommittee also recommended, in 2006, that USDA establish an objective process to (1) test the performance of ID devices to ensure they meet NAIS standards in various production environments and over extended periods and (2) evaluate new technologies as they emerge. Typically, federal agencies rely on independent laboratories that are certified by a government agency, such as the National Institute of Standards and Technology, for such testing and evaluation. USDA officials told us they are working with industry to determine better ways to define performance criteria and establish a more thorough process to test and evaluate ID devices, but they did not specify a time frame for these developments. Toward this end, the agency held preliminary discussions in mid-April 2007 with the American Society for Testing and Materials’ Committee on Livestock, Meat and Poultry Evaluation Systems to form a task force to fine-tune ID performance standards for NAIS and help USDA put testing protocols in place. In the February 2006 NAIS policy document on ID devices, USDA stated that when NAIS becomes fully operational, the agency will develop an approval process for official ID devices and more complete testing and evaluation procedures. Manufacturers of Animal Identification Number devices, regardless of any prior permission from USDA, will have to submit new or appended applications to be considered for “USDA Approved” status. Evaluations may include laboratory or field studies to verify compliance with criteria and specification standards, either before or following issuance of “USDA Approval Pending” or “USDA Approved” status for ID devices. When USDA announced NAIS in 2004, the program’s traceability goal was to locate all potentially exposed animals within 48 hours of a disease’s discovery, and both USDA and states conveyed that message in their outreach to producers and others. However, USDA’s most recent NAIS policy document, the draft NAIS User Guide issued in November 2006, is silent on this time frame and instead says NAIS will allow producers and animal health officials to respond as “quickly, efficiently, and effectively as possible.” By definition, traceback goals need to be time-sensitive and cost-effective to efficiently target and evaluate the program’s success in eliminating a disease outbreak. If rapid traceback goals are not clearly defined, there could be a slower response to an animal disease outbreak and, therefore, greater economic losses. Of the 32 expert panel members, 25 defined rapid traceback in an animal disease event as occurring within 48 hours, with 10 of the experts defining it as 24 hours or less and 15 defining it as 25 to 48 hours. State animal health and industry officials told us it is important that USDA communicate a specific time frame to encourage participation, reinforce the necessity of rapid traceback, and have a measure by which to evaluate results. However, a senior USDA official told us that the definition of “rapid traceback” may vary by disease, because some diseases spread more quickly than others and some diseases are limited in how they can be transmitted. For example, traceback for FMD might ideally occur within 12 hours because the disease spreads so rapidly. By contrast, because BSE is transmitted only through animal feed containing certain contaminated animal products, and scrapie is transmitted during the breeding season, a longer traceback would be appropriate. In addition, the senior official told us that until USDA collects baseline information on tracebacks for specific diseases, the agency cannot determine time-sensitive, cost-effective traceback goals for NAIS. When producers and other participants register their premises, they are required by USDA to record only their name and contact information, with species information being optional. In addition, when USDA-approved managers distribute ID devices to a producer, they must record the devices’ unique animal ID numbers, the premises ID number where the devices were sent, and the date of distribution. However, USDA does not require additional information, such as the species, date of birth, or approximate age of the animals, to be recorded in NAIS animal ID or tracking databases. Information that may be critical for narrowing the scope of a traceback— thus saving time and resources and potentially minimizing the economic impact—includes the species, date of birth, or approximate age of an animal. Many diseases, such as bovine TB, affect only specific species or generally affect animals of a certain age, such as in the case of Johne’s disease, which is usually contracted at a young age. Consequently, if a new case of these diseases arose in the United States, tracing other species or animals of a different age may unnecessarily use federal, state, and industry resources in locating animals and premises that may not be affected—thus impeding the goal of rapid and effective traceback. Similarly, most equine diseases of concern affect only equine species, and exotic Newcastle disease affects only poultry, so tracing other species would be an inefficient use of time and resources. Other state and federal animal disease eradication programs require the recording or reporting of this type of information. For example, the Bovine Tuberculosis Eradication Program requires, for all TB-tested bison and cattle, the reporting of the animal’s unique, official ID device; approximate age; gender; and breed. In addition, the National Scrapie Eradication Program requires goat flock owners to maintain a management and monitoring plan that must record an animal’s gender, year of birth, and breed following the discovery of scrapie within the flock. The Cattle Working Group recommends that producers identify calves at birth or at the earliest date possible to support animal disease issues when the age of an animal is needed, noting that when the precise date of birth is not known, the approximate birth date within 2 to 3 months should be recorded. USDA officials acknowledged that although animal-specific data can be valuable, the agency is collecting the minimum amount of information needed for traceback to (1) respond to some producers’ concerns about protection of their proprietary information in NAIS databases and (2) encourage participation. In addition, participants have the option to record such information in ID and tracking databases, and USDA encourages them to do so. Nonetheless, without this information being consistently recorded in NAIS databases, USDA and state officials may not be able to efficiently trace only those animals potentially affected by a disease. USDA has awarded $35.0 million in NAIS cooperative agreements to states, tribes, and territories to help register premises and identify and track animals. However, USDA has not consistently monitored or formally evaluated the results of these cooperative agreements. In addition, USDA has not consistently shared cooperative agreement results with NAIS stakeholders. USDA plans to increase its oversight and give states with greater participation in NAIS some flexibility in using their cooperative agreement funds. To help identify effective approaches to register premises and identify and track animals between fiscal years 2004 and 2006, USDA awarded 169 cooperative agreements, totaling $35.0 million, to 49 states, 29 tribes, and 2 territories. NAIS cooperative agreement awards ranged in size from $7,381 to $1.2 million, and the average award was about $207,000. In fiscal years 2004 and 2005, USDA did not require recipients to contribute to, or share, costs (cost-share); however, in fiscal years 2006 and 2007, USDA required certain recipients to demonstrate 20 percent in matching funds, through cash or in-kind (noncash) contributions. For more information about NAIS cooperative agreements’ funding by fiscal year, see appendix VI, table 2. Cooperative agreements are typically funded for a 12-month funding period, with recipients required to submit both quarterly accomplishment and financial status reports. USDA required all NAIS cooperative agreement recipients to submit information to USDA in an initial work plan containing proposed project objectives, species and industry sector focus, as well as milestones for measuring progress. Although some premises registration cooperative agreements proposed activities that would span across most species and industry sectors covered by NAIS, other projects proposed focusing premises registration activities on one, or a few, species and sectors of the livestock industry. Of field trial cooperative agreement funding to test animal ID and tracking solutions, all but two field trials intended to focus on beef or dairy cattle; several proposed work on sheep; a few included swine, cervids, goats, bison, and equine; and only one project intended to focus some work on camelids. While no NAIS field trials proposed work on the poultry industry, USDA has previously funded work, through funds other than NAIS cooperative agreements, that examined the tagging and record-keeping requirements that would facilitate tracking of birds in the live bird marketing system. For information on species covered under NAIS field trials, see appendix VI, table 3. Field trial funding recipients also varied in the number of industry sectors they intended to involve in cooperative agreement activities. Overall, more than one-half of recipients intended to work with producers, livestock markets, slaughter facilities, and feedlots. USDA did not require field trials covering multiple species or industry sectors to include in initial work plans information regarding how funding was to be spent on each species or sector. USDA officials told us that they have not requested such details because of the interconnectivity of the activities associated with cooperative agreements. Most of the cooperative agreement awards were focused on premises registration. Specifically, of the $35.0 million awarded in fiscal years 2004 through 2006, USDA awarded 146 cooperative agreements totaling $23.4 million for premises registration efforts to 49 states, 29 tribes, and 2 territories. These premises registration awards provided funding for activities such as hiring personnel to register premises, developing educational materials, and providing outreach to producers and nonproducer participants on the goals of NAIS. For example, 1 cooperative agreement awarded to the Navajo Nation was for the development of communications in the Navajo language for outreach on premises registration and animal ID. In addition, some of these cooperative agreements funded limited animal ID and tracking activities, along with premises registration. In fiscal years 2004 and 2005, USDA also awarded field trial cooperative agreements. Specifically, in fiscal year 2004, USDA awarded 16 cooperative agreements totaling $9.7 million to 15 states and 1 tribe. USDA estimates that $1.8 million of the $9.7 million awarded was used to support premises registration activities. The remainder was used for field trials to develop, test, and offer solutions for applying animal ID devices and collecting animal tracking information. For example, 1 cooperative agreement with the Wyoming Livestock Board tested whether existing brand inspection personnel and infrastructure could be used to track livestock changing ownership and livestock entering into interstate commerce through Wyoming livestock markets. In fiscal year 2005, USDA awarded 7 cooperative agreements totaling $1.9 million to 6 states and 1 tribe for field trials to support research, including the assessment of existing and novel ID technologies. USDA anticipates awarding an additional $20.5 million in cooperative agreements in fiscal year 2007. Of this, USDA anticipates awarding $14.5 million for continued support of premises registration, education, and outreach activities under approximately 80 cooperative agreements to 50 states, 28 tribes, and 2 territories. As of March 2007, USDA had awarded 31 of the anticipated 80 cooperative agreements, totaling $6.7 million. The remaining $6.0 million in fiscal year 2007 funding for cooperative agreements will be provided for the first time to nonprofit organizations for premises registration activities. In January 2007, USDA entered into a cooperative agreement with the National Pork Board to begin work with pork producers to encourage premises registration. Subsequently, in February 2007, USDA announced that other nonprofit industry organizations, historically black colleges, tribal land-grant colleges, and tribal organizations were also eligible for these awards, which are intended to support the continued registration of premises. To date, USDA has not consistently monitored or formally evaluated NAIS cooperative agreements and has not consistently shared their results with state, industry, and other stakeholders. USDA officials told us that NAIS program staff provided some oversight for field trial cooperative agreements as well as for tribal premises registration cooperative agreements. However, NAIS program staff do not directly monitor most NAIS cooperative agreements; instead, USDA delegates administrative oversight activities for each cooperative agreement to designated representatives, mostly Area Veterinarians in Charge whose overall responsibility is to supervise and perform the official animal health activities of APHIS in the state concerned. These individuals are responsible for direct administration of the individual state premises registration and field trial cooperative agreements, including the monitoring and assessment of agreements. According to USDA, it is appropriate for these designated representatives to monitor cooperative agreements because they are familiar with the circumstances associated with implementing projects in a particular state. We have previously reported with other government audit organizations that monitoring the performance of federal awards helps to ensure that goals are reached and required deliverables are completed. According to USDA officials, the designated representatives responsible for monitoring cooperative agreements have a multitude of competing responsibilities and thus may not have sufficient time or resources to oversee cooperative agreements. In addition, NAIS program staff did not conduct any formal evaluation of NAIS cooperative agreements. Evaluating results against cooperative agreement goals can help to identify ways to improve program performance. USDA officials said that the quality of quarterly and final accomplishment reports provided to designated representatives by cooperative agreement recipients varied. They said that many times, these reports identified what was being done, rather than what was being accomplished. For example, one state premises registration project set milestones for educating 60 percent of livestock producers and registering 40 percent of premises; however, the reported results included the purchase of computers, number of presentations given to producer organizations, and number of premises registration forms that were printed for distribution. Furthermore, our analysis of available reports indicated that results were not reported or were of limited value because initial project goals and milestones presented in recipients’ work plans were vague or unclear. In addition, several states indicated to us that they had difficulty completing the work outlined in their cooperative agreements within given time frames. For instance, one state told us that it was difficult for it to hire an ID coordinator in its first year of cooperative agreement funding, which meant the state was unable to use all of the funds it was allocated. Thus, while USDA has awarded the majority of cooperative agreement funds to support premises registration, the agency has not been able to determine effective or ineffective approaches for increasing premises registration, animal ID, or tracking. USDA has formally shared few results of cooperative agreements with NAIS stakeholders, hindering them from identifying approaches that have worked to achieve NAIS program objectives, such as increasing outreach, as well as ineffective approaches, such as the interoperability of RFID devices and readers. To date, USDA has provided information regarding NAIS field trial cooperative agreements on three occasions. In April 2005, USDA released a document containing summary information on the goals of the initial 16 field trials, including the types of technology tested and industry focus. In June 2006, USDA released a preliminary progress report for these first 16 field trials but stated in the report that due to the timing of work plan submissions and the subsequent need for approved time extensions to complete proposed projects, 10 of these 16 projects awarded in fiscal year 2004 had not yet submitted final reports. In addition, USDA stated in this report that to fully understand the projects’ results, interested parties should contact cooperative agreement project administrators to learn more about the projects’ specific activities. However, the report did not include contact information. In May 2007, USDA released a third and final report on the results of the fiscal year 2004 field trials and descriptions of the fiscal year 2005 field trials for distribution to state, industry, and other stakeholders. USDA started sharing the results of premises registration and outreach cooperative agreements by publishing weekly premises registration statistics, by state, beginning in December 2006 (for state premises registration statistics, see app. VI, table 4). However, USDA has not formally shared any information about the strategies used by the individual state projects, nor has the agency communicated to stakeholders successful or unsuccessful approaches to registering premises. While USDA states that some results of cooperative agreements have been shared publicly at numerous stakeholder meetings, animal health officials and industry representatives told us that not enough information exists about the results of NAIS cooperative agreements, and that more sharing of results, best practices, and lessons learned is needed. For example, a researcher applying for fiscal year 2005 field trial funding told us it was difficult to determine whether previous NAIS cooperative agreements had included work similar to what the applicant was proposing. In addition, industry groups, state animal health officials, and experts told us that livestock markets would benefit from more information concerning the retrofitting of animal tracking equipment. As we have previously reported, increasing oversight, linking funding to performance milestones, and altering flexibility are accountability mechanisms that can be used by agencies to encourage improved performance during an award period. In fiscal year 2007, USDA plans to increase oversight activities for some state cooperative agreements, on the basis of state premises registration levels at the time of the November 2006 announcement. For example, the 27 states that had 25 percent or less of their premises registered at the time of the cooperative agreement announcement and were eligible for more than $82,000 in awards would receive only 90 percent of reserved funding until a midyear review period. According to USDA, designated representatives will determine the success of cooperative agreements during this midyear review, largely on the basis of the goals stated in the cooperative agreements’ approved work plans. The 23 states with greater than 25 percent of premises registered, or eligible for awards of less than $82,000, are eligible to receive 100 percent of cooperative agreement funding without a midyear review (see app. VI, table 5). In addition, all nonprofit industry organizations that receive cooperative agreement funding in fiscal year 2007 will be eligible for 50 percent of approved funds, with an additional 25 percent of funds released following each successful third- and fourth-quarter review of interim reports required by USDA. Moreover, USDA has linked funding to participation levels by providing for increased spending flexibility for some state recipients of fiscal year 2007 premises registration cooperative agreements. USDA believes that cooperative agreement funding may be more appropriately used by states with greater numbers of premises registered to support the animal ID and tracking components of NAIS. For example, the 14 states that have achieved greater than 25 percent of premises registered may spend up to 40 percent of funds on animal tracking infrastructure, such as to support NAIS’s integration with preexisting disease eradication programs or to share in the cost of data collection equipment for livestock markets and dealers. The 18 states that have registered between 11 percent and 25 percent of premises may spend up to 30 percent of their funding on animal tracking infrastructure, while the 8 states that have registered between 6 percent and 10 percent of premises may spend up to 20 percent of funding on animal tracking infrastructure. Finally, those states that have registered less than 6 percent of premises are required to spend 100 percent of funds on outreach and premises registration. USDA has not determined the program costs for NAIS but recently announced plans to hire a contractor to conduct a cost-benefit analysis for NAIS, in part to more precisely forecast the economic effects of the program. The Senate Appropriations Committee and the House of Representatives have raised concerns in recent years about how USDA has spent funds to develop and implement NAIS. Finally, the views of our expert panel members are mixed concerning NAIS’s potential impact on the livestock industry. Although implementation of NAIS began in 2004, USDA has not developed a comprehensive cost estimate or cost-benefit analysis for the program. In addition, to our knowledge, no industry group, academic institution, or state animal health agency has published a cost estimate for implementing and maintaining NAIS. Without a comprehensive cost-benefit analysis for NAIS, it is not known how much is required in federal, state, and industry resources to achieve rapid and effective traceback, or whether the potential benefits of the program outweigh the costs. In 2004, and again in 2006, the NAIS Subcommittee recommended that USDA prepare an in- depth, cost-benefit analysis for NAIS as part of the strategic planning process. In addition, 29 of the 32 expert panel members said that USDA should definitely or probably publish a cost-benefit analysis that contains detailed NAIS cost and benefit information for the different sectors of the livestock industry, states, and USDA. The NAIS working groups, other livestock industry representatives, and state animal health officials we interviewed said that the cost of implementing NAIS remained one of their biggest concerns. For example, in comments to USDA in 2005, the Livestock Marketing Association wrote that it is “highly critical of the fact that too little has been known” about the potential costs of establishing a national animal ID system and about who will bear those costs. Furthermore, the association wrote that a cost-benefit analysis is “long overdue” and that without better information, NAIS appears to be prohibitively expensive for the livestock industry to implement. As a result, without a reliable cost-benefit analysis that is consistent with federal guidance, stakeholders are unlikely to participate in NAIS due to their uncertainty that NAIS program benefits outweigh program costs. USDA announced plans in March 2007 to conduct a cost-benefit analysis for NAIS. USDA officials told us that the cost-benefit analysis will be used for program planning and resource allocation, producer and industry education, and public relations and outreach and to more precisely forecast the economic effects of NAIS. USDA officials anticipate that the cost-benefit analysis will be available in 2008. As we have previously reported, measuring the economic performance of federal programs, such as the extent to which program benefits exceed costs (net benefits) or are achieved at least cost (cost-effectiveness), could be a useful way to assess, in conjunction with other measures, the extent to which federal programs are meeting the nation’s priorities. In addition, OMB has established general guidance on conducting cost-benefit analyses of federal programs to promote efficient resource allocation through well-informed decision making. OMB suggests that agencies follow this guidance in conducting analyses used to support government decisions to initiate, renew, or expand programs or projects that would result in a series of measurable benefits or costs extending 3 or more years into the future. The USDA announcement suggests that the planned NAIS cost-benefit analysis follow this and other available federal guidance. In fiscal year 2004, the Secretary of Agriculture transferred $18.8 million from the Commodity Credit Corporation (CCC) to develop and implement NAIS, as shown in table 1. Although approximately $85.0 million had been made available for NAIS implementation by the end of fiscal year 2006, USDA had obligated only about $61.1 million as of late March 2007; thus, the agency has carried over about $23.9 million in unobligated NAIS funds into fiscal year 2007. Because NAIS funding has been designated by Congress to be available until expended, USDA can carry funds that it did not expend in prior years forward into the current year. In addition to these carryover funds, Congress appropriated an additional $33.0 million for the NAIS program for fiscal year 2007. The President’s Budget requested $33.1 million for NAIS in fiscal year 2008. The Senate Appropriations Committee and the House of Representatives have raised concerns in recent years about how USDA has spent funds to develop and implement NAIS. For example, in the 109th Congress, the House passed a fiscal year 2007 appropriations bill for agriculture (H.R. 5384) that included a provision prohibiting funds from being obligated on NAIS until the House Appropriations Committee received a detailed plan for NAIS “including, but not limited to, proposed legislative changes, cost estimates, and means of program evaluation,” and that the plan be published in the Federal Register for public comment. Although the bill, with the provision limiting obligations, passed in the House, it did not become law. USDA officials told us they have plans to obligate all carryover funds in fiscal year 2007. These plans include awarding additional cooperative agreements to states and industry organizations to register premises; additional investments in information technology development, maintenance, and operations; and communications and outreach. Questions have been raised about whether NAIS could lead to greater contracting, vertical integration, or horizontal consolidation in the livestock industry market structure, and whether NAIS could affect prices at both the retail and producer levels. Expert panel members provided the following views relating to changes in market structure as well as to changes in costs and prices for various market participants due to the implementation of NAIS. The 32 experts were evenly split on whether contracting or horizontal consolidation would increase as a result of NAIS—16 said those effects would definitely or probably be more likely to occur, and 16 said those effects would not occur or are probably less likely to occur. Twenty experts said vertical integration would not occur or is probably less likely to occur, while 12 said vertical integration is definitely or probably more likely to occur. Regarding price effects at the retail level of meat and/or animal products, 12 experts thought prices would be higher; 15 thought there would be no effect; and 5 believed they would be lower. When asked what would be the effect on prices paid to producers for livestock if NAIS led to increased costs in livestock markets and/or slaughter facilities, 21 experts believed that prices would probably or definitely decrease; 8 thought there would be no effect; and 2 thought that there would probably be an increase. Similarly, when asked what would be the effect on prices paid to producers for livestock if NAIS led to decreased costs in livestock markets and/or slaughter facilities, 16 experts replied that prices paid to producers would probably or definitely increase; 13 replied that there would be no effect; and 1 respondent thought there would be a decrease. NAIS provides USDA, states, and the livestock industry with a historic opportunity for the United States to develop a comprehensive, coherent program to identify the nation’s livestock animals and premises and achieve the goal of rapid and effective disease traceback. In addition, a successful program in sync with our international trading partners and competitors could boost consumer confidence in U.S. animal products and help maintain and expand market access. However, for NAIS to be fully effective and efficient in responding to an animal disease emergency, adequate levels of participation need to be achieved in all three NAIS components—premises registration, animal ID, and tracking. If insufficient numbers of animals are identified and tracked, the system will have gaps, despite millions of dollars being invested in the program’s development. Conversely, high levels of participation would better position the United States to handle future animal health emergencies and minimize economic, trade, and possibly human health consequences. USDA’s changes in direction over the past 3 years have caused considerable confusion and frustration among many NAIS stakeholders, and the program’s implementation may be in danger of losing momentum. Most critically, whether NAIS is voluntary or mandatory, the lack of participation benchmarks makes it more difficult to gauge progress in attaining the necessary levels of participation for an effective animal ID program and, if there is insufficient participation, to develop strategies to achieve it. Without meaningful progress, USDA’s expenditures on NAIS will continue to be questioned. In addition, if USDA does not resolve several key implementation issues, the program will continue to face opposition by some industry stakeholders, and participation in all three NAIS components could be limited. Collectively, these unresolved issues will likely lead to ineffective and inefficient implementation and prevent NAIS from achieving the goal of rapid and effective traceback. First, prioritizing how NAIS is implemented, such as by species, would allow USDA and stakeholders to better allocate their resources and improve the program over time. Second, the integration of NAIS with other USDA and state animal disease eradication programs and branding systems would remove another hurdle preventing participation in NAIS’s animal ID and tracking components. Third, creating a robust process for selecting, setting standards for, and independently testing and evaluating animal ID and tracking devices in meeting NAIS standards is important to ensure effectiveness and interoperability across the national program and, therefore, would encourage investment. Fourth, identifying time-sensitive and cost-effective goals for traceback, which may vary by disease, would allow stakeholders to have common goals in responding to an event, potentially speeding up response and, therefore, minimizing economic losses. Fifth, requiring the recording of information in NAIS databases that may be critical for efficient traceback, such as species, approximate age, or date of birth, would enable animal health authorities to more quickly locate only those premises and animals that are relevant in an investigation, thus minimizing time and resources and hastening response. Finally, we believe that if USDA were to provide industry, state, and other stakeholders with key information on the results of cooperative agreements, it would help identify the most effective and efficient means to implement the program and likely increase participation and enable producers, livestock markets, states, and other stakeholders to make informed decisions about where to allocate scarce resources. Moreover, for planning purposes in allocating federal, state, and industry resources, it is important for stakeholders, Congress, and the public to know how much it will cost to implement and maintain NAIS, compared with its benefits. Without a reliable cost-benefit analysis, stakeholders are unlikely to participate in NAIS due to their uncertainty about whether program benefits outweigh the costs. To achieve the program’s goal of rapid and effective animal disease traceback, we recommend that the Secretary of Agriculture direct the Administrator of APHIS to reestablish participation benchmarks to gauge progress in registering premises and identifying and tracking animals; monitor participation; and, if participation does not meet the benchmarks, take further action, such as making participation mandatory or creating incentives to achieve those levels of participation. In addition, we recommend that the Secretary direct the Administrator of APHIS to take the following seven actions to implement NAIS more effectively and efficiently and achieve the program’s goal of rapid and effective traceback: set priorities, in consultation with the NAIS species working groups, state animal health officials, and others, for implementing NAIS incrementally by species or other criteria; determine how NAIS will integrate with existing USDA and state animal disease eradication programs and branding systems; establish a robust process to select, standardize, and independently test and evaluate the performance of animal ID and tracking devices to ensure they meet minimum standards; identify—in consultation with the NAIS species working groups, state animal health officials, and others—current baselines for animal disease traceback, and develop time-sensitive, cost-effective goals for traceback under NAIS, which may include separate time frames for specific diseases; evaluate what information is critical for efficient traceback, such as species, approximate age or date of birth, and require that participants record that information in the NAIS animal ID and tracking databases; increase the monitoring of NAIS cooperative agreements, and evaluate and publish the results of cooperative agreements on a timely basis; and conduct the planned analysis of the costs and benefits of NAIS following criteria established in OMB guidance for conducting cost-benefit analyses for federal programs and publish the results for comment. We provided a draft of this report to USDA for review and comment. In written comments on our draft report, USDA stated that it appreciated our comprehensive evaluation of NAIS and generally agreed with our recommendations. However, regarding our recommendation that USDA establish a robust process to select, standardize, and independently test and evaluate the performance of animal ID and tracking devices to ensure they meet minimum standards, USDA agreed with the need to establish a more robust process for having ID devices tested to meet minimum performance standards, but believed that these standards must be defined through a consensus of affected stakeholders. USDA stated that as performance standards are established, the selection of such devices will then be warranted. USDA also stated that as part of the evaluation process, it will specify the testing standards and then review the manufacturer’s documentation of laboratory testing and field trials. In addition, USDA stated that testing of such devices should be at the expense of the device manufacturer. We recognize the need for USDA to work with stakeholders before determining which ID and tracking devices are most appropriate for NAIS. However, the sooner USDA selects specific technologies, the sooner producers, livestock markets, slaughter facilities, and others will likely participate in the animal ID and tracking components of NAIS. As a starting point, some NAIS working groups have recommended specific ID devices for their species. It is common U.S. practice to select one technology for systems that need to be widely implemented in different environments, and we have previously reported that a robust process for selecting, standardizing, and testing and evaluating technologies leads to the most effective and efficient systems. During the course of our work, we found that USDA’s technology-neutral position has caused producers, market operators, and slaughter facilities to be generally discouraged from investing in new animal ID or tracking devices for NAIS due to fear that their choices might be inconsistent with others in the marketplace, or that USDA might adopt specific devices in the future. The selection of specific ID and tracking devices, therefore, would ensure consistency and interoperability across the program’s many potential users, leading to more efficient implementation. Furthermore, as stated in this report, USDA has recognized the need for animal ID technologies that are compatible with Canada and Mexico, and it also has stated that harmonizing the United States’ program with other countries will facilitate safe trade. Selecting technologies for NAIS that are in sync with our trading partners and competitors could have positive trade implications for the United States. Lastly, the selection of specific devices would inform the cost-benefit analysis that USDA is currently conducting, which, in turn, could affect participation levels. These reasons underscore the need for USDA to select specific ID and tracking devices, on the basis of independent, reliable information regarding their performance in meeting minimum standards and of consultations with stakeholders. In its written comments, USDA also provided points of clarification and provided details about current and future actions that the agency plans to take to address our recommendations, which we incorporated throughout the report, as appropriate. USDA’s written comments and our specific responses appear in appendix VII. In addition, USDA provided technical comments that we incorporated throughout the report, as appropriate. 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 date of this report. At that time, we will send copies of this report to the interested congressional committees, the Secretary of Agriculture, and other interested parties. We will also make copies available to others upon request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If your 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 key contributions to this report are listed in appendix VIII. The objectives of our review were to determine (1) how effectively the U.S. Department of Agriculture (USDA) is implementing the National Animal Identification System (NAIS) and, specifically, the key implementation issues identified by livestock industry groups, market operators, state animal health officials, and others; (2) how USDA has distributed cooperative agreement funding to help states and industry prepare for NAIS and evaluated the agreements’ results; and (3) what USDA and others estimate are the costs for USDA, states, and the livestock industry to implement and maintain NAIS. To address these objectives, we interviewed USDA officials responsible for implementing NAIS and conducted site visits to selected livestock markets and cooperative agreement field trials. We conducted structured interviews in person or via telephone with animal health officials in seven states: California, Iowa, Michigan, New Mexico, Texas, Vermont, and Wisconsin. These states were selected on the basis of their geographic dispersion; the range in the number of premises located in each state; and, in some cases, their high levels of livestock production. We also conducted interviews in person or via telephone and reviewed documents from the NAIS Subcommittee and the 10 NAIS working groups that report to the NAIS Subcommittee: Beef and Dairy Cattle Working Group, Bison Working Group, Camelid Working Group, Cervid Working Group, Equine Working Group, Goat Working Group, Market/Processor Working Group, Poultry Working Group, Sheep Working Group, and Swine Working Group. We also conducted structured interviews in person or via telephone and reviewed documents from four industry organizations: American Farm Bureau Federation, Livestock Marketing Association, National Cattlemen’s Beef Association, and National Livestock Producers Association. In addition, we reviewed documents from the United States Animal Health Association Livestock ID Committee; the Ranchers-Cattlemen Action Legal Fund -- United Stockgrowers of America; three NAIS opposition groups— NoNAIS.org, Liberty Ark Coalition, and the Farm and Ranch Freedom Alliance; and other organizations that testified before Congress on NAIS in recent years or spoke at USDA’s listening sessions in 2004. We attended the NAIS Subcommittee meeting and a USDA meeting with state departments of agriculture on NAIS held in August 2006 in Kansas City, Missouri, and the Secretary’s Advisory Committee on Foreign Animal and Poultry Diseases meeting in September 2006 in Riverdale, Maryland. We identified and reviewed applicable laws, USDA policies, guidance, and technical standards regarding NAIS. We also reviewed relevant GAO reports and a Congressional Research Service report to Congress on animal identification (ID) and traceability. To determine how USDA has distributed cooperative agreement funding to help states and industry prepare for NAIS, we reviewed USDA documentation related to cooperative agreements signed between USDA and states, territories, tribes, and industry groups from fiscal years 2004 through 2007. To determine which livestock species were the focus of cooperative agreement field trials, we reviewed and systematically recorded this information from cooperative agreement recipients’ work plans; however, we did not independently assess whether the proposed work with these species and industry sectors took place. To determine how USDA has evaluated the results of cooperative agreements, we interviewed NAIS program staff, reviewed guidance provided to recipients, and reviewed quarterly and final reports submitted to USDA by cooperative agreement recipients. Because some cooperative agreements were ongoing and because other recipients did not report to USDA in a timely manner, we could not examine a complete set of quarterly and final reports for all recipients. We conducted a reliability assessment of the data that USDA provided to us on the NAIS cooperative agreements and found these data to be reliable for our reporting purposes. For the third objective, to determine estimates of the costs to implement and maintain NAIS, we asked representatives from USDA, industry groups, academic institutions, and state animal health agencies for any NAIS cost estimates they had developed. We identified and reviewed federal guidance for developing cost estimates and cost-benefit analyses and sound economic and cost accounting principles. We also reviewed NAIS budget data from USDA for fiscal years 2004 through 2007, and conducted a reliability assessment of these data and found them to be reliable for our reporting purposes. To help answer the first and third objectives, we convened a Web-based panel of 32 experts on several aspects of NAIS. The process we followed is based on GAO guidance for identifying experts for panels or other work requiring expertise in a specific area. We identified potential panel members by conducting a literature search to obtain the names of individuals who had published on animal ID in academic journals and in other relevant venues. We also asked for recommendations from individuals we interviewed for other aspects of the job. We then selected individuals who were actively involved in the development or implementation of NAIS and were knowledgeable of its details; who had conducted research, or were published in peer-reviewed journals on animal ID; or who were recognized by their peers as an expert on NAIS. Panel members were asked to fill out a Web-based questionnaire, which asked for their beliefs and opinions on future participation in NAIS, effective traceback, implementation of NAIS, the costs and benefits of NAIS, the impact of NAIS on the livestock industry and consumers, ID technology, and databases for tracking animals. Panel members had approximately 3 weeks to fill out their questionnaires in December 2006 and January 2007. All panel members completed their questionnaires, giving us a 100 percent response rate. The questions and aggregated responses are presented in appendix IV. While we display only the quantitative, closed-ended responses, we also relied on the responses to the qualitative, open-ended questions to inform our findings in this report. The views expressed by the panel members do not necessarily represent the views of GAO. We conducted our work from June 2006 to May 2007 in accordance with generally accepted government auditing standards. Can affect humans? Horses, donkeys, mules, and goats USDA identifies other domestic animal diseases of concern in federal regulations, including acute swine erysipelas (affects swine), anthrax (all domestic species), bluetongue (all domestic species), chlamydiosis (poultry), Eastern equine encephalomyelistis (horses), mycoplasma gallisepticum (poultry), mycoplasma meleagridis (poultry), mycoplasma synoviae (poultry), salmonella enteritidis (poultry), salmonella gallinarum (poultry), salmonella pullorum (poultry), scabies (cattle), infectious salmon anemia, and spring viremia of carp. Additional foreign animal diseases of concern identified by USDA include equine viral arteritis (horses, donkeys, mules, ponies, and zebra); hendra (horses); nipah (swine and horses); Rift Valley fever (cattle, sheep, and goats); rinderpest (cattle, sheep, and goats); Venezuelan equine encephalomyelitis (all equine species); and vesicular stomatitis (swine, cattle, sheep, and goats). This appendix provides the names and affiliations of 32 academic, government, and other experts who, as members of our expert panel on NAIS, completed a Web-based questionnaire from December 2006 to January 2007 regarding USDA’s implementation of NAIS. We also spoke with a select number of these experts regarding animal ID and tracking technology, among other issues. We conducted the following survey as part of our review of USDA’s implementation of NAIS. We received a 100 percent response rate from a panel of 32 experts who filled out a Web-based questionnaire in late December 2006 and early January 2007. For presentation purposes in this appendix, we have combined the category “No expertise on topic” with “No answer” and the category “50% or less” with “51 to 60%.” However, when the experts filled out the questionnaire, those categories were not combined. The views expressed by the panel members do not necessarily represent the views of GAO. Q1. What do you believe will be the percentage of premises registered for each sector of livestock production under the NAIS voluntary program? Q2. What do you believe will be the percentage of animals identified (as individuals or, where applicable, as a group) for each species of animal under the NAIS voluntary program? Q3. What do you believe will be the percentage of animals tracked for each sector of livestock production under the NAIS voluntary program? The next four questions ask for your opinion on the participation levels in NAIS that are necessary for producers and animal health officials to respond quickly and effectively to animal disease events by tracing livestock animals throughout the production process. Q4. USDA's draft NAIS User Guide does not define the time period for rapid trace back. In your opinion, what time period defines a "rapid" trace back in an animal disease event? Q5. What percentage of premises registered do you believe is necessary to achieve the NAIS program's goal of rapid and effective animal disease trace back? Q6. What percentage of animals identified is necessary to achieve the goal of rapid animal disease trace back? Q7. What percentage of animals tracked is necessary to achieve the goal of rapid animal disease trace back? Q8. What types of incentives do you believe could be used to achieve a high level of participation in the premises registration, animal identification, and/or animal tracking components of NAIS? Q9. In your opinion, should participation in NAIS be mandatory? Q10. How would you characterize USDA's effectiveness in communicating roles and responsibilities for NAIS? Q11. If you believe that USDA's communications are not as effective as they could be, please describe any actions that USDA could take to make communications better. Q12. In your opinion, should USDA limit NAIS to one or a few species or continue with its current approach to include all species? Definitely continue with current approach of including all Q13. In your opinion, should USDA implement NAIS incrementally by species, or continue with its current approach to implement NAIS for all species simultaneously? Definitely continue with current approach of implementing for all species Q14. In your opinion, what criteria should be used to determine the priority given to each species in implementing NAIS? Q15. In your opinion, what priority should be given to each species in implementing NAIS? Q16. Should USDA publish a cost-benefit analysis for NAIS that contains detailed cost and benefit information for the different sectors of the livestock industry, states, and USDA? Q17. Do you believe there are other actions that USDA should take to address the cost(s) of implementing and maintaining NAIS? Q18. If you answered "Definitely yes" or "Probably yes" to question 17, what other actions should USDA take to address the cost of implementing and maintaining NAIS? Q19. Do you believe there are other actions that USDA could take to make known the benefit(s) of implementing and maintaining NAIS? Q20. If you answered "Definitely yes" or "Probably yes" to Question 19, what other actions could USDA take to make known the benefit(s) of implementing and maintaining NAIS? Q21. In your opinion, what overall, net effect (considering all costs and benefits) will NAIS likely have on producers, livestock markets, and/or slaughter facilities? Q22. In your opinion, will NAIS make contracting, vertical integration, and/or horizontal consolidation in the livestock industry (all species) more or less likely to occur? Q23. In the textbox below, please provide a brief explanation for why you think NAIS will make contracting, vertical integration, and/or horizontal consolidation more or less likely to occur. Q24. In what ways, if any, should USDA address any of the effects NAIS could have on the industry due to contracting, vertical integration, and/or horizontal consolidation? Q25. In your opinion, will NAIS result in higher or lower prices for meat and/or other animal products? Q26. In your opinion, if NAIS causes costs of livestock markets and/or slaughter facilities to increase, what effect will that have on the prices paid to producers for livestock? Q27. In your opinion, if NAIS causes costs of livestock markets and/or slaughter facilities to decrease, what effect will that have on the prices paid to producers for livestock? Canada and Australia have adopted standards that limit the acceptable identification and tracking technologies to certain electronic devices for their national animal (cattle) ID programs. However, USDA has taken a "technology-neutral" position so that many different types of ID devices, both visual and electronic, are acceptable under NAIS. Some of USDA's NAIS Species Working Groups have recommended specific ID devices for their industries, such as cattle RFID ear tags and equine neck microchips, but USDA has not adopted these recommendations as NAIS standards. Q29. Please use the space below to elaborate on your answers to Question 28. Q30. Does USDA's "technology-neutral" position encourage or discourage investment in animal tracking technology (e.g., ID readers, databases, and retrofitting facilities) by producers, livestock markets, and slaughter facilities? Q31. Please use the space below to elaborate on your answers to Question 30. Q32. Do you know of any specific problems regarding the interoperability (compatibility) of animal ID and tracking devices made by different manufacturers? If yes, please describe below. Q33. What actions could USDA take to address problems affecting the interoperability of animal ID and tracking devices? Q34. Do you know of any specific problems affecting the accuracy of animal tracking devices? If yes, please describe below. Q35. What actions could USDA take to address problems affecting the accuracy of animal tracking devices? Q36. Do you know of any specific problems affecting the longevity of animal ID or tracking devices? If yes, please describe below. Q37. What actions could USDA take to address problems affecting the longevity of animal ID or tracking devices? Q38. Do you know of any specific problems affecting the ability of animal tracking devices to keep up with the “speed of commerce” when animals change ownership? If yes, please describe below. Q39. What actions could USDA take to address any problems affecting the ability of animal tracking devices to keep up with the speed of commerce? USDA’s original plan for animal tracking, the third component of NAIS, was for USDA to manage a centralized database that would contain all animal movements input by industry in the birth-to- slaughter production process. To address concerns about the protection of proprietary information, Secretary Johanns announced in August 2005 that USDA would allow data from approved state and private animal tracking databases (ATDs) to be transferred to a USDA information system. However, some industry groups and states have expressed concerns about the cost, quality, and timeliness of this new, decentralized approach. Q40. What actions could USDA take to address any concerns about the cost(s) of the decentralized approach? Q41. What actions could USDA take to address concerns about the quality and timeliness of the decentralized approach? Q42. Are you in favor of a national animal ID program? Q43. Are you in favor of NAIS as it is currently planned? Q44. If applicable, please explain any discrepancy in your answers to Questions 42 and 43. Q45. What changes, if any, would you make to NAIS as it is currently planned? (Please limit to the 3 most important issues.) Q46. If you have additional comments about NAIS that you would like to make, please do so here. Cattle: premises registration since 1960s; individual identification in 2005. Sheep and goats: initial implementation in 2006; full implementation in 2009. First phase (2002): mandatory participation only by those exporting beef to the European Union. Second phase (2006): mandatory participation for all foreign exports. Third phase (2006): mandatory requirement for all foot-and-mouth disease affected areas, regardless of whether the product is being sold overseas. Fourth phase (2007): all beef producers must participate, regardless of whether the product is being exported. Sheep and goats: double identification (two ear tags or one ear tag and a tattoo, mark on the pastern (for goats only), or electronic identifiers) The Fort Belknap Indian Community of the Fort Belknap Reservation of Montana fiscal year 2006 cooperative agreement for $35,000 included funding for the following tribes: Fort Belknap Indian Community of the Fort Belknap Reservation of Montana; Confederated Tribes of the Warm Springs Reservation of Oregon; and Ute Indian Tribe of the Uintah & Ouray Reservation, Utah. Swine Sheep Equine Poultry Cervids Goats Camelids Swine Sheep Equine Poultry Cervids Goats Camelids Fiscal year 2004 funding was provided for both field trials and premises registration activities. Fiscal year 2005 funding was provided exclusively for field trial activities. The following are GAO’s comments on the U.S. Department of Agriculture’s letter dated June 7, 2007. 1. We added a statement about USDA’s developing, in collaboration with the species working groups, a NAIS Short-Term and Long-Term Implementation Strategies document that will contain actions for the remainder of 2007 through 2011. 2. We added a statement about USDA’s plans to update the NAIS User Guide in October 2007 to more clearly reflect the use of other official ID numbers within NAIS. In addition to the individual named above, Josey Ballenger and Heather Hill made significant contributions to this report. Kevin Bray, Nancy Crothers, John de Ferrari, Mary Denigan-Macauley, Barbara El-Osta, J. Erin Lansburg, Allen Lomax, Lynn Musser, Shannin O’Neill, and Susan Ragland also provided key assistance.

Livestock production contributed nearly $123 billion to the U.S. economy in 2006. In response to concerns about animal disease outbreaks, the U.S. Department of Agriculture (USDA) announced in December 2003 that it would implement a nationwide program--later named the National Animal Identification System (NAIS)--to help producers and animal health officials respond quickly and effectively to animal disease events in the United States. In this context, GAO determined (1) how effectively USDA is implementing NAIS and, specifically, the key issues identified by livestock industry groups, market operators, state officials, and others; (2) how USDA has distributed cooperative agreement funds to help states and industry prepare for NAIS and evaluated the agreements' results; and (3) what USDA and others estimate are the costs for USDA, states, and industry to implement NAIS. In conducting its work, GAO reviewed USDA documents; interviewed agency, industry, and state officials; and consulted 32 animal identification (ID) experts. In implementing the NAIS program, USDA has taken some steps to address issues identified by livestock industry groups, market operators, state animal health officials, and others. Nonetheless, the agency has not effectively addressed several issues that, if left unresolved, could undermine the program's ability to achieve the goal of rapid and effective animal disease traceback. Specifically, USDA's decision to implement NAIS as a voluntary program may affect the agency's ability to attract the necessary levels of participation. However, some industry groups believe that NAIS could succeed as a voluntary program, or that USDA needs to first resolve several issues before making participation mandatory. Agency officials are analyzing what participation levels are necessary to meet the program's goal and may introduce benchmarks to measure progress. In addition, several key problems hinder USDA's ability to implement NAIS effectively. USDA has not prioritized the implementation of NAIS by species or other criteria. Instead, the agency is implementing NAIS for numerous species simultaneously, causing federal, state, and industry resources to be allocated widely, rather than being focused on the species of greatest concern. USDA has not developed a plan to integrate NAIS with preexisting USDA and state animal ID requirements. As a result, producers are generally discouraged from investing in new ID devices for NAIS. USDA has not established a robust process for selecting, standardizing, and testing animal ID and tracking technologies. USDA does not clearly define the time frame for rapid traceback, possibly slowing response and causing greater economic losses. USDA does not require potentially critical information to be recorded, such as species or age, in the NAIS databases. USDA has awarded $35 million in NAIS cooperative agreements from fiscal years 2004 through 2006 to 49 states, 29 tribes, and 2 territories to help identify effective approaches to register premises and identify and track animals. However, USDA has not consistently monitored or formally evaluated the results of cooperative agreements or consistently shared the results with states, industry groups, and other stakeholders. As a result, USDA cannot be assured that the agreements' intended outcomes have been achieved and, furthermore, that lessons learned and best practices are used to inform the program's progress. No comprehensive cost estimate or cost-benefit analysis for the implementation and maintenance of NAIS currently exists. As a result, it is not known how much is required in federal, state, and industry resources to achieve rapid and effective traceback, or whether the potential benefits of the program outweigh the costs. Industry groups and state officials say the cost of implementing NAIS is one of their biggest concerns. USDA plans to hire a contractor to conduct a cost-benefit analysis, in part to more precisely forecast the economic effects of NAIS.

You are an expert at summarizing long articles. Proceed to summarize the following text: Education’s changes to SIG requirements in 2010 have led to new responsibilities for the agency, states, and school districts. These entities all play key roles in the SIG award and implementation process, with Education supporting and overseeing state SIG efforts. Before awarding formula grants to states, Education reviews each state’s application and approves the state’s proposed process for competitively awarding SIG grants and monitoring implementation. As part of the state application process, states identify and prioritize eligible schools into three tiers: Tier I schools. Receive priority for SIG funding and are the state’s lowest-achieving 5 percent of Title I schools (or 5 lowest-achieving schools, whichever number is greater) in improvement status. Tier II schools. Secondary schools eligible for, but not receiving, Title I funds with equivalently poor performance as Tier I schools. Tier III schools. Title I schools in improvement status that are not Tier I or Tier II schools. After states receive SIG funding, school districts submit applications to states describing their SIG reform plans for eligible schools. Education has required that districts base their plans on an analysis of each school’s needs, called a needs assessment. After reviewing district applications, states distribute their SIG dollars using their approved competitive grant award process, giving priority to districts seeking funding for Tier I and Tier II schools. Education’s regulations and guidance require districts receiving SIG awards for Tier I or Tier II schools to implement one of four intervention models in each school. Select aspects of each model are as follows: Transformation. Transformation schools must replace the principal, implement a transparent and equitable teacher and principal evaluation system that incorporates student academic growth, identify and reward staff who are increasing student outcomes, and provide increased student learning time, among other requirements. Turnaround. In addition to implementing many requirements of the transformation model, turnaround schools must use locally adopted competencies to screen existing staff and rehire no more than 50 percent of the existing staff. Restart. The district must reopen the school under the management of a contractor, such as a charter school operator, charter management organization, or education management organization. Closure. The district must close the school and enroll its students in a higher achieving school within a reasonable proximity. Districts may choose to use contractors to implement aspects of their reform plans. Schools enacting a restart model are required to contract with an organization that will assume many of the decision-making and leadership functions in that school. Districts employing other models may also contract with external organizations for services that could include data analysis, teacher professional development, and efforts to create safe school environments. Our work notes the importance of screening potential contractors before awarding contracts, as well as regular evaluation in order to ensure contractors are providing timely and quality services with government funds. In addition to reviewing district applications, states are also responsible for monitoring grant implementation. States make decisions about whether to renew funding for each SIG school for an additional year, based on factors such as whether schools meet annual student achievement goals that districts set for the schools. Pursuant to Education’s guidance, if a school meets its annual goals, the state must renew the school’s SIG grant. If a school does not meet one or more annual goals, Education’s guidance gives states the flexibility to consider other factors such as the “fidelity with which the school is implementing” its chosen intervention model. Education provides states with technical assistance and oversight regarding SIG implementation. For example, Education funds 21 Comprehensive Centers that help build states’ capacity to assist school districts and schools. Sixteen of these organizations serve states in designated regions, and 5 provide technical assistance on specific issues, such as teacher quality. In addition, Education funds Regional Educational Laboratories, a network of 10 laboratories that serve designated regions by providing access to applied education research and development projects, studies, and other related technical assistance activities. Education also monitors states’ implementation of SIG. This monitoring process consists of visits to selected states and several SIG districts and schools within the monitored states, followed by reports documenting any findings. States have an opportunity to respond to any findings before the release of Education’s monitoring reports. States have awarded funding to two cohorts of schools since the program was modified and expanded in 2010. In the first cohort, 867 schools received SIG funding to implement one of the four intervention models in SY 2010-2011, and in the second cohort 488 schools received funding to implement one of the intervention models in SY 2011-2012. Seven have received waivers from Education to delay awarding funding statesto their second cohort of schools until SY 2012-2013 because of various issues, such as turnover of key staff in state educational agencies. The proportion of schools choosing each model was similar in both cohorts and, as shown in figure 1, most schools chose to implement the transformation model. Although most states have increased the amount of staff time devoted to SIG since the program was expanded, some states have struggled to develop the necessary staff capacity to successfully support and oversee SIG implementation because of budget constraints. In our survey, 29 states told us that they have increased the staff time devoted to SIG since they first applied for SIG funds in the expanded SIG program. However, officials from four of the eight states we visited—California, Nebraska, Rhode Island, and Texas—told us that because of budgetary constraints, the time staff could devote to administering the SIG program and monitoring district implementation was significantly limited. For example, officials in California said that as a result of the state budget crisis, the state legislature reduced the amount of SIG funds available for state administration from the allowable 5 percent to 0.5 percent, limiting the number of staff available to administer the program and monitor districts. Several state officials we spoke with also reported that their existing workloads made it difficult to focus on SIG. For example, in several states the program was administered by officials who also had responsibilities for other major education programs, such as Race to the Top. In addition, state officials sometimes did not have expertise in supporting school turnaround efforts. Officials from Education and several states and research groups told us that SIG 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. Even when states were able to develop expertise in school reform and hire necessary staff, officials from Education told us that personnel turnover in many states made it difficult to retain such knowledge. For example, Rhode Island officials said they encountered difficulties filling vacated positions because many nearby states were also recruiting from the same small pool of qualified applicants. Several states increased their capacity through actions such as contracting with nationally recognized experts to help them run their grant competitions, establishing school turnaround offices, or hiring turnaround specialists that regularly handled an individualized caseload of SIG schools. For example, 18 states created new turnaround offices to help districts implement SIG, according to our survey. In addition to these state level issues, many districts also struggled to develop the necessary staff capacity to implement successful school reforms. It was particularly difficult for schools to recruit and retain qualified staff members, according to many stakeholders, including officials from several states and districts we visited. They told us that SIG schools were sometimes in rural areas or needed staff to have expertise that was in short supply, such as experience with reform or specialized academic subjects. Among the 12 states that Education monitored during SY 2010-2011, they found that 4 states did not ensure that turnaround schools met requirements to remove at least half of the schools’ staff and hire new staff for those positions based on staff effectiveness. For example, Education found that one monitored district in Minnesota did not base hiring decisions on prospective teachers’ instructional effectiveness. In addition, Education found that three of the monitored states did not ensure appropriate replacement of the principal in turnaround or transformation schools. Moreover, some districts did not have staff with expertise in using performance and evaluation data—such as data on student performance—to inform plans for reforming schools and ongoing instructional improvements. Education officials said that, in many cases, school district staff were able to collect data, but did not have experience linking data to needed interventions. In addition, our review of the needs assessments districts were required to develop when planning SIG interventions showed that some were more extensive than others. Also, in one district we visited, the new teacher evaluation process did not include state assessment data on student achievement as one of the evaluation criteria, as required by Education. Several states, districts, and researchers identified promising practices for recruiting and retaining staff or improving data usage, such as developing “grow-your-own” leadership programs, conducting priority hiring for SIG schools, or hiring data coaches to help teachers collect and analyze student data. Districts also varied in their commitment to use SIG funds to enact major reforms. According to our survey, 35 of 51 states awarded grants to all or most Tier I applicants who applied for grants starting in SY 2010-2011, but several officials from states we visited and research organizations reported that some districts receiving SIG grants were not prepared to make significant reforms. For example, officials in one large school district we visited told us they followed turnaround model requirements to rehire no more than 50 percent of teachers at a SIG school. However, the district officials said they relocated the released teachers to other SIG schools in their district because those schools had almost all of the vacancies. Similarly, in two states we visited, district officials moved a school’s previous principal into another leadership position on site so that person could continue to work in the school even after a new principal was assigned. State and district officials also cited instances where districts chose their SIG model for reasons other than its likelihood of improving student success. For example, the superintendent in one district told us they chose the restart model because they considered it less restrictive than other models. Although many states responding to our survey told us that all or most of their transformation model schools were operating very differently after the first year of SIG, 33 states said that at least some of these schools choosing the transformation model were not. Figure 2 shows responses from these 33 states about whether inadequate action by SIG schools or districts was a reason the schools were not operating very differently. increased learning time requirements in about half of the states that it monitored during SY 2010-2011 and in both states for which it had completed SY 2011-2012 monitoring reports by February 2012..According to district officials, at least half the districts we spoke with will not have fully implemented new teacher evaluation systems by the end of their second year of SIG. In addition, during its SY 2011-2012 monitoring visit to Iowa, Education found that student growth was not always incorporated in new teacher evaluation systems, as required. Our analysis showed that increased learning time and teacher evaluation requirements were challenging because the planning needed to implement them was complex and time-consuming, and stakeholders, such as unions and parents, were sometimes reluctant to embrace the changes. Some districts struggled to develop increased learning time initiatives that would be sustainable after their 3-year SIG grant ended. More specifically: Interventions required extensive planning. Effectively implementing increased learning time and teacher evaluations required extensive planning. Several stakeholders stressed the importance of carefully designing increased learning time schedules because, for the intervention to be successful, it must provide quality instruction rather than simply increasing the amount of poor instruction. Officials from several districts said they were unable to fully implement their plans for increased learning time at the beginning of the first year of increased SIG funding because, for example, they first needed to fully analyze their existing schedules and curricula and adapt them to meet SIG requirements. Officials from states and districts we visited often stressed that developing a teacher evaluation system is time- consuming because it requires districts to accurately and comprehensively identify, collect, and analyze information about teachers’ performance and students’ academic growth. In response to the challenges involved in planning and implementing teacher evaluation systems, Education allowed states to apply for a waiver to extend the planning period for this requirement, and 27 states applied for and received the waiver as of February 2012. In its final SIG requirements, Education required schools implementing the transformation model to implement new teacher evaluation systems within the first year of the grant. Districts in states receiving these waivers must develop their evaluation systems during SY 2011-2012; pilot or fully implement them by SY 2012-2013; and use them to make decisions about retention, promotion, and compensation by SY 2013- 2014. The timeline is the same regardless of whether the SIG schools in the district are from the first or second SIG cohort. Stakeholders sometimes reluctant to embrace required changes. Implementation was also delayed or otherwise challenged by concerns from various stakeholder groups. Teachers and teachers’ unions were sometimes concerned about increasing student learning time or implementing new teacher evaluations in SIG schools, according to Education, state, and district officials. For example, these officials said unions were concerned about whether teacher evaluation systems that incorporated student academic growth could do so in a manner that would not penalize teachers working with the most challenging students. Such concerns sometimes led to delays in finalizing evaluation systems. In a few cases, officials told us that other stakeholder groups such as parents and school board members were also resistant to SIG requirements. For example, an official in Virginia said that some schools trying to increase learning time had met resistance from parents because students often had jobs or responsibilities at home once the traditional school day was over. Difficulty designing sustainable approaches for increasing learning time. State and district officials also questioned whether increased learning time initiatives would be sustainable after SIG funds were exhausted. For example, survey respondents from 26 states said the costs of increased learning time were unlikely or very unlikely to be sustainable after the SIG grant ends, compared with 10 states that reported it was likely or very likely to be sustainable. Rhode Island officials noted that increased learning time benefits students enrolled in SIG schools during the grant cycle, but state and local financial constraints will make it difficult to sustain the increased learning time for future students. Due in part to these concerns, one of the two districts in the state with SIG schools limited the amount of learning time it added in order to avoid significant cuts in this time after grant funding ends. While many officials stressed the complexity of effectively implementing these requirements, some states and districts that we visited found ways to address the challenges they posed. This was particularly true in districts that had started to plan for and implement similar school reforms prior to applying for SIG funds. Many officials from Education, state, and districts stressed the importance of stakeholder involvement while designing and implementing SIG reforms in order to enhance buy-in and strengthen reform initiatives. In order to increase students’ learning time without increasing teacher workloads and salaries, Education officials and researchers told us that a few districts were working with community partners to fund or staff additional learning time or were staggering teachers’ schedules so that students would be in class longer but teachers would not. In addition, a few states developed sample teacher evaluation system that met SIG requirements so that districts could use it as a framework for developing their own systems. States often had limited evidence for making decisions about whether to renew schools’ SIG funding. For example, in our survey, officials from 10 states told us that they did not use schools’ achievement of annual goals to make grant renewal decisions after SY 2010-2011. According to state officials, at least half the states we interviewed did not have the annual student achievement data available at the time they had to make renewal decisions because assessment results only became available at the end of the summer. Officials from two of these states told us that timely access to annual achievement data will continue to be a problem in future years. In addition, even when these data were available, states frequently chose not to base their decisions on schools’ achievement of annual goals. Twenty-three of 44 states responding to our survey question said that, among schools that had their funding renewed, all or most did not meet their annual goals. Several officials from our site visits questioned the usefulness of annual goal data in determining whether progress was made, particularly because districts set their own performance targets. For example, California officials said they did not find annual goals data useful because districts often included generic annual goals in their applications for SIG funding instead of proposing goals based on schools’ unique circumstances. Regardless of whether annual goals information was available, states almost always considered “fidelity of implementation”—the extent to which the school is implementing the requirements of its intervention model—when making grant renewal decisions. However, states did not always base decisions about this criterion on extensive information. In our survey, 48 of 51 states identified fidelity of implementation as an important factor in their decision-making process, more than any other factor. Several states we spoke with said that qualitative information about implementation was important for assessing grant progress because the first steps of school reform, such as efforts to change school culture, do not always result in measurable student achievement gains. However, making this assessment can involve a high degree of subjectivity and states’ determinations were not always developed based on extensive interaction with schools or systematic monitoring of their implementation efforts. For example, officials in California told us they used fidelity of implementation as their key criterion for making grant renewal decisions, and that the primary method for evaluating this criterion was one telephone conversation with each district at the end of the year. Prior to those conversations, the state had limited interaction with most districts for the purpose of assessing their implementation and was unable to conduct SIG monitoring visits for budgetary reasons. In addition, a Virginia official told us the state used fidelity of implementation for making renewal decisions but would benefit from guidance on how to define and measure it. States were in some cases reluctant to discontinue SIG funding even when information they collected showed that schools were not implementing key requirements with fidelity. Several officials from states we visited said they renewed all schools’ SIG funding even if the schools were struggling to fulfill key SIG requirements because tight implementation timeframes made the officials reluctant to eliminate funding after the first year of the grant. In our survey, 21 states reported that half or fewer of their Tier I and Tier II schools were able to implement major aspects of their plan by the beginning of SY 2010-2011, such as extending the school day or having new staff in place. In the 19 cases where these states had made renewal decisions, the state renewed all or most grants. Furthermore, officials in several states we visited identified instances where they chose to renew schools’ funding despite significant problems at the district or school level, such as having administrators who were not committed to enacting major reforms or were not ensuring that planned reforms were fully implemented. For example, officials from Nevada said they renewed such grants after the first year because they did not want to negatively impact students and teachers when significant district-level problems were outside their control. Although Education reviewed states’ proposed grant renewal procedures through the state SIG application process, the agency did not provide written guidance after grant renewal challenges arose. Education required states to submit their renewal processes for review as part of their SIG applications. Nonetheless, in several state applications we reviewed, descriptions of renewal processes and criteria did not align with the practices the state actually implemented. For example, states that told us they were unable to use annual goals data to make renewal decisions had originally identified these goals as a key renewal criterion in their applications to Education. In its work with states, Education officials told us they found some had difficulty using annual goals data or fidelity of implementation and that the agency provided technical assistance to several states that asked for help. However, agency officials were not aware of how states ultimately addressed these issues, and said the agency has not provided any additional technical assistance on grant renewal. States renewed almost all SIG grants at the end of SY 2010-2011, and in some cases imposed conditions on schools for renewal. According to Education, 39 states chose to renew funding to every SIG school in their state. Eleven states and the District of Columbia chose not to renew funding to one or more schools, for a total of 16 nonrenewed schools overall.problems with fidelity of implementation. Several states we spoke with chose to renew grants with conditions or required changes. For example, officials in Ohio told us that struggling schools were required to take corrective actions in the second year of the 3-year grant and that their level of success in taking such actions will be a key criterion in future renewal decisions. In addition, New York officials renewed all grants after SY 2010-2011 under the condition that transformation and restart schools would implement state and federal SIG teacher evaluation requirements by December 30, 2011. Once that deadline passed, state officials determined that no districts had met the requirements and suspended all SIG funding until they were met. In February 2012, the state commissioner reinstated funds to half of the SIG districts after determining that the districts had made the necessary changes. In our survey, 23 states reported that at least a few of their SIG schools were required to make major changes to their SIG plans as a condition of having funding renewed. Contractors provide a wide range of services with SIG funds, and school districts have often given contractors major roles in schools using the restart, turnaround, and transformation models. Education’s guidance identifies a clear role for contractors in schools using the restart model. Specifically, districts must hire a contractor to take over school operations. For example, in the Los Angeles Unified School District, the Partnership for Los Angeles Schools has been given full management authority over five restart schools. In contrast, Education allows districts with schools using the turnaround and transformation models—which include more than 90 percent of schools receiving SIG funds—to use contractors, but does not identify a specific role for them. Most turnaround and transformation schools we visited were working with contractors. Although in some cases turnaround and transformation schools used these contractors for minor tasks, in other cases the contractors played a major role in school operations. For example, in Virginia, the state required schools implementing the turnaround and transformation intervention models to use a contractor for a range of services that could include improving teacher performance, principal and management leadership, or changing school culture. Among the school districts we visited, several planned to spend significant amounts of their SIG grants on hiring contractors. These included districts using the restart, turnaround, and transformation models. For example, a district with one SIG school using the transformation model planned to spend about $450,000 for contractors in one school year. In addition, a district that we visited with three SIG schools planned to spend approximately $1.5 million on contractors over the 3-year period for services that included data analysis and curriculum planning. Our prior work and reports regarding services acquisition have shown the importance of building safeguards into acquisition processes to ensure accountability. These leading practices include screening potential contractors prior to award using a thorough selection process that evaluates their ability to achieve results and the contractors’ past performance. Once a contractor has been selected, officials should routinely review contractors’ work to help ensure they are providing timely and quality services and to help mitigate any contractor performance problems. Education required and states reported requiring that potential contractors be selected after a thorough screening process. Education required that either states or districts screen contractors prior to contract award to ensure their quality. Although Education’s guidance does not provide specific criteria for approval, Education requires each state to describe in its state application how it will ensure that school districts screen contractors. Each of the eight states we reviewed required districts to describe their plans to screen contractors in their applications for SIG funding. In addition, states varied in how they approached contractor screening at the state level, either taking an active role in the process or delegating screening responsibilities to districts. According to our survey, 17 of the 51 developed approved lists of contractors from which districts could choose. For example, Virginia officials told us they enacted statewide contracts with four organizations, and strongly encouraged districts to choose one of those four organizations. Ohio officials said they developed a list of approximately 100 state-screened organizations from which districts could choose, but districts were free to use other contractors, provided that they screened those organizations. States that we visited that did not develop a list of approved contractors reported requiring districts to screen contractors. For example, Texas officials told us they required all districts to use a formal competitive process in selecting contractors, which included a process to evaluate contractor proposals, in order to be approved by the state. Education’s monitoring protocols for the SIG program require the review of contractors in schools using the restart model, but they do not require review of contractors during contract performance for the other school improvement models. Education’s protocol for monitoring states’ SIG implementation asks whether districts have included accountability measures in the contract for restart schools and also asks for the district’s current assessment of the contractor. The protocol does not include a similar question for turnaround and transformation schools. States varied in their approaches to the review of contractors, and in some cases reported that they did not require that districts review contractors during contract performance. Among the eight states we spoke with, none assessed districts’ plans to review contractors in their SIG applications. In addition, several states reported not having any state-level review requirements. For example, Nebraska state officials said their districts conduct informal reviews of the contractors, but the state does not require reviews or provide districts with a formal process or metrics to assess performance. Similarly, in follow up calls for our state survey, state officials in several states said they do not require districts to review contractor performance and were unaware of whether districts conducted any reviews. In contrast, Nevada officials told us they require districts to add accountability steps for contractors in each phase of work. Inconsistent review of contractors during contract performance reduces states’ and districts’ ability to ensure that they are receiving the services they have paid for. In our work, one stakeholder told us that in the absence of stronger guidance or oversight, the extent to which contracts include accountability measures is largely dependent on the knowledge and experience of the individual contract manager. Although some district officials in our site visits described efforts to include accountability measures or regular review in the contracts, others indicated that contractors are reviewed informally, if at all. Education’s guidance and technical assistance on SIG implementation was well received by nearly all states. In our survey, nearly all states responded favorably about Education’s guidance and various technical assistance offerings for SY 2011-2012. Most states reported that Education’s guidance and technical assistance were helpful and many reported they were very helpful (see fig. 3). In our survey, we also inquired about the amount and timeliness of guidance provided by Education. Forty-one states reported that Education provided about the right amount of guidance for the second year of SIG. In addition, 33 states responded that in SY 2011-2012, Education’s guidance was timely, allowing the state to meet its needs, while 14 states commented that the guidance was not timely. Although most states told us that Education’s guidance was helpful, some identified additional technical assistance that would assist with SIG implementation. In an open-ended question on our survey that asked about the types of additional guidance that Education could provide, 15 states indicated they wanted additional information about other states’ SIG implementation efforts that are working well. Several states that we met with also mentioned wanting more information on successful and sustainable implementation strategies, proven contractors, increased learning time strategies, and teacher/principal evaluation systems. To provide additional support and enhance information sharing among the states, Education has recently begun three new assistance efforts. First, Education selected nine states to participate in the SIG “implementation support initiative” as an optional technical assistance resource. Under this initiative, each participating state receives a visit from an Education representative as well as officials from the eight other participating states. These site visits have two purposes—first, to provide technical assistance to the states, and second, to enable states to engage in peer-to-peer information sharing. Education reported that they have used information from these site visits to produce targeted technical assistance reports. Second, in December 2011, Education began conducting monthly check-in calls with state officials to better manage SIG implementation. Each state was assigned an Education program officer responsible for providing oversight and technical assistance support, including outreach and monthly check-in calls. Lastly, Education launched the School Turnaround Learning Community—an on-line forum to provide states and districts with access to resources and to facilitate networking. According to Education, this initiative offers research-based practices and practical examples from states, districts and schools for developing and implementing SIG. Education’s oversight strategy is to monitor all states during the 3-year period—starting with SY 2010-2011—in which the first cohort of schools will receive SIG funding. In selecting states for on-site monitoring for SY 2010-2011, Education did not use a SIG-specific risk-based approach and instead used the existing Title I monitoring schedule.to resource constraints, Education suspended its Title I monitoring and However, due instead focused exclusively on SIG monitoring. Education also delayed SY 2010-2011 monitoring to allow states and districts time to implement SIG before beginning monitoring in February 2011. For SY 2010-2011, Education conducted on-site monitoring in 12 states uncovering 28 deficiencies. At least one deficiency was identified in 11 of the 12 monitored states, with California and Pennsylvania having the most deficiencies with seven and five, respectively. Half of the monitored states had deficiencies in ensuring appropriate district implementation of the increased learning time requirement. In addition, two states did not ensure that all SIG funds were used consistent with the SIG requirements. In SY 2011-2012, Education selected states with a risk based approach tailored for SIG based on factors such as the size of a state’s SIG grant. For SY 2011-2012, Education officials initially selected 12 states to conduct on-site monitoring. As of February 2012, Education had issued SY 2011-2012 monitoring reports for Iowa and Florida, containing seven and two deficiencies respectively. For example, in Iowa, Education found that funds were not used consistently with SIG grant requirements nor was the state monitoring SIG as written in its approved SIG application. Education also set aside a portion of its oversight resources so that additional states could be selected for monitoring as more information became available. As of February 2012, Colorado and South Carolina were also selected to receive an on-site review. To maximize its oversight resources, Education plans to conduct some limited “desk monitoring” in five additional states in SY 2011-2012.monitoring protocol is similar to the on-site visit protocol, but—unlike the on-site monitoring—does not include interviews with school officials. Finally, Education officials told us that they plan to monitor the remaining states in SY 2012-2013, and that these states represent a small percentage of SIG funds. Dramatic funding increases in a short period of time—such as those made to SIG—can subject federal programs to considerable financial risk. While states and school districts carry a large share of the responsibility for planning and implementing successful SIG reforms, Education also plays a critical role in supporting these efforts and mitigating risk through strong oversight and accountability. For example, it is important that Education have rigorous processes for reviewing state SIG applications, conducting oversight, and providing technical assistance when needed. The ability to successfully carry out these functions is vital to ensuring the long-term success of the SIG program and protecting taxpayer funds from waste and abuse. Although SIG has been challenging to implement, in part due to the short implementation timeframes we highlighted in our July 2011 report, Education has reviewed state SIG applications, distributed funds to states, begun its monitoring activities, and provided technical assistance. However, the agency’s guidance in some cases has not been sufficient to ensure that schools and contractors are fully accountable. For example, given the implementation issues we and Education’s monitoring have found, it is critical that states have rigorous SIG grant renewal procedures in place to identify schools that are not making progress. Education has provided limited guidance to states about how to make renewal decisions. Some states are using highly subjective review processes to renew nearly all grants, often without key information on SIG schools’ performance. Until Education provides additional support about how states should make evidence-based renewal decisions when, for example, state assessment results are received too late to be factored into these decisions, schools that are not making progress may continue receiving SIG funds. In addition, although contractors are receiving large amounts of many schools’ SIG funds, Education has not ensured that states or districts review contractor performance during the terms of their contracts. Unless Education takes action to ensure that states or districts review contractor performance, districts may not receive an appropriate level of contractor services for their SIG funds and funds may not be well spent. To ensure that SIG grant renewal decisions serve to hold districts and schools accountable, we recommend that the Secretary of Education provide additional support to states about how to make evidence-based grant renewal decisions, particularly when states do not have annual student achievement goal information available at the time renewal decisions are made. To ensure that contractors hired with SIG funding are accountable for their performance, we recommend that the Secretary of Education take steps to ensure that the performance of SIG funded contractors, including those in turnaround and transformation schools, is reviewed during contract performance. In developing such requirements and to ensure that those reviews are targeted to contractors receiving large amounts of SIG funding, Education could consider setting a dollar threshold amount for contracts, above which contractor performance should be reviewed. We provided a draft copy of this report to the Department of Education for review and comment. Education’s comments are reproduced in appendix II. Education generally supported our recommendation about SIG grant renewal and outlined how the agency is planning to address this recommendation. Education did not agree with our draft recommendation that it should require states to ensure that the performance of all SIG-funded contractors be reviewed, including contractors in turnaround and transformation schools. In its comments, Education said that it believed that existing provisions and requirements address this issue appropriately. For example, Education cited a federal regulation that requires districts to follow their existing procurement procedures, and noted that districts and states have their own requirements for evaluating contractors to ensure accountability. Education also said that the type of evaluation process needed for a contractor should depend on the contractor’s role, and that contractors used by schools implementing the turnaround or transformation models may be working on small, discrete projects and may require less provider-specific reviews than contractors in schools implementing the restart model. We agree with Education that the need for performance reviews should be dependent on the specific role of the contractor, and we modified our recommendation to address some of Education’s concerns. Specifically, Education may wish to create a dollar threshold above which performance reviews are required. We continue to believe, however, that the current monitoring framework is inadequate. As noted in our report, schools implementing the turnaround and transformation models account for the overwhelming majority of SIG schools, and contractors operating in these schools are performing a range of functions, including some that are large or complex. In our view, there is a need for additional steps to ensure adequate review of contractor performance. Furthermore, our work shows that as a practical matter, states varied in their approaches to contractor review, with some imposing no requirements on districts. Education says that it will clarify in existing guidance the requirement for SIG recipients to follow state and local procurement procedures. Education could use this opportunity to implement our recommendation through additional guidance on contractor performance reviews. In addition, Education implied that our report was based only on the first year of SIG implementation. This is inaccurate. We also conducted interviews with all eight states, reviewed SIG documents, received finalized survey responses, and interviewed Education officials several times during the second year of implementation, thereby enabling us to reflect activities beyond the first year. Based on the number and significance of deficiencies identified in Education’s SIG monitoring reports—including some completed during the SY 2011-2012—as well as our own findings, we continue to believe that Education should take additional steps to increase program accountability. Education also provided technical comments that we have incorporated into the report as appropriate. We are sending copies of this report to relevant congressional committees, the Secretary of Education, and other interested parties. In addition, this report will be available at no charge on GAO’s 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. This study’s objectives were to answer the following questions: (1) What, if any, aspects of the School Improvement Grant (SIG) program pose challenges to successful implementation? (2) How do U.S. Department of Education (Education) and state guidance and procedures for screening potential contractors and reviewing contractor performance compare with leading practices? (3) To what extent are Education’s oversight and technical assistance activities effectively supporting SIG implementation? To meet these objectives, we used a variety of methods, including document reviews of Education and state documents; a web-based survey of the 50 states and the District of Columbia; interviews with Education officials and stakeholders; site visits to and teleconferences with 8 states; and a review of the relevant federal laws, regulations, and guidance. The survey we used was reviewed by Education and several external reviewers, and we incorporated their comments as appropriate. We conducted this performance audit from January 2011 through April 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. To identify aspects of the SIG program that pose challenges for successful SIG implementation, we analyzed responses to our survey of state educational agency officials with responsibility for SIG in the 50 states and the District of Columbia. The wed-based survey was in the field from August to October 2011. In the survey, we asked states to provide information on challenges they faced in implementing the SIG program and on other aspects of the program, such as SIG grant renewal. We received responses from all 50 states and the District of Columbia, for a 100 percent response rate. We reviewed state responses and followed up by telephone and e-mail with select states for additional clarification and context. Nonsampling error could affect data quality. Nonsampling error includes variations in how respondents interpret questions, respondents’ willingness to offer accurate responses, and data collection and processing errors. We included steps in developing the survey, and collecting and analyzing survey data to minimize such nonsampling error. In developing the web survey, we pretested draft versions of the instrument with state officials in various states to check the clarity of the questions and the flow and layout of the survey. Education officials also reviewed the draft survey and provided comments. On the basis of the pretests and reviews, we made minor revisions of the survey. Using a web-based survey also helped remove error in our data collection effort. By allowing state SIG directors to enter their responses directly into an electronic instrument, this method automatically created a record for each SIG director in a data file and eliminated the errors (and costs) associated with a manual data entry process. In addition, the program used to analyze the survey data was independently verified to ensure the accuracy of this work. Detailed survey results are available at GAO-12-370SP. We also conducted site visits to and teleconferences with eight states— California, Delaware, Nebraska, Nevada, Ohio, Rhode Island, Texas, and Virginia—that reflect a range of population size, number of SIG schools, and use of the four SIG intervention models. In each state, we interviewed state officials, as well as district or school officials from one to three districts that had Tier I or Tier II SIG schools. Districts were selected in consultation with state officials to cover heavily and sparsely populated areas, and a variety of SIG intervention models. We also reviewed documents, such as state and district applications for SIG funds, and the relevant federal laws, regulations and guidance. We interviewed Education officials and stakeholders, such as teachers’ union officials from the national and local levels. To gather information about state policies and procedures for selecting and overseeing contractors, we analyzed state survey results. Our survey questions included whether states had developed a list of approved contractors, the SIG turnaround models for which they required that districts work with contractors, and whether states reviewed contractor performance. We reviewed Education documents, including SIG guidance, the state application template, and monitoring protocols, and interviewed Education officials responsible for reviewing state applications and providing oversight of states. Further, we reviewed state and district SIG applications from the eight states to identify their selection and review processes for contractors, and proposed contract expenditures. We also spoke with state and local officials about their procedures for selecting and overseeing contractors, as well as with several contractors working with districts we visited. We compared Education and state requirements for selecting and overseeing SIG contractors to leading contracting practices that were identified through collaboration with our contracting experts and review of GAO-09-374GAO-05-274 . To address the extent of Education’s support and oversight of SIG implementation, we reviewed Education guidance, summaries of Education assistance, monitoring time frames, monitoring protocols, and monitoring reports from SY 2010-2011. In addition, we analyzed survey results. We asked states to provide information on the federal role in SIG, including their perspectives on technical assistance offered by Education and Education’s monitoring process. We also talked with officials from Comprehensive Centers and Regional Educational Laboratories serving several of the eight states we worked with. The technical assistance providers were selected to include those working with large, medium, and small rural states. In addition, we interviewed Education officials in charge of the Comprehensive Centers Program and in charge of SIG monitoring efforts. In addition to the contact named above, the following staff members made important contributions to this report: Elizabeth Sirois, Assistant Director; Scott Spicer, Analyst-in-Charge; Jacques Arsenault; Melissa King; Salvatore Sorbello; and Barbara Steel-Lowney. In addition, Jean McSween, James Rebbe, Tom James, William Woods, and Kathleen Van Gelder provided guidance on the study.

The School Improvement Grant (SIG) program funds reforms in low performing schools. Congress provided $3.5 billion for SIG in fiscal year 2009, and a total of about $1.6 billion was appropriated in fiscal years 2010-2012. SIG requirements changed significantly in 2010. Many schools receiving SIG funds must now use the funding for specific interventions, such as turning over certain school operations to an outside organization (contractor). GAO examined (1) what, if any, aspects of SIG pose challenges for successful implementation; (2) how Education and state guidance and procedures for screening potential contractors and reviewing contractor performance compare with leading practices; and (3) to what extent Education’s technical assistance and oversight activities are effectively supporting SIG implementation. GAO surveyed SIG directors in all 50 states and the District of Columbia; analyzed Education and state documents; and interviewed officials from 8 states and school districts in those states, SIG contractors, and education experts. Successful SIG implementation posed a number of challenges. Specifically, state and district officials were challenged to build staff capacity and commitment for reform, facing difficulties such as recruiting and retaining strong staff members. In addition, the SIG requirements to develop teacher evaluations and increase student learning time were difficult to implement quickly and effectively because they required extensive planning and coordination. Furthermore, states sometimes had limited evidence about the performance of SIG schools when making grant renewal decisions. For example, although Education’s guidance identifies meeting annual student achievement goals as a key criterion for making renewal decisions, some states did not receive student achievement data by the time decisions had to be made. States also made decisions through qualitative assessments of schools’ implementation efforts, but such determinations were not always based on extensive interaction with schools or systematic monitoring. Education did not provide written guidance to states about making evidence-based grant renewal decisions after they encountered these challenges. Districts used a significant portion of their SIG funds to hire contractors for a range of services, such as managing school operations and conducting teacher professional development. Leading practices show that screening potential contractors and then reviewing their performance are important for ensuring accountability and quality of results. Education required screening of contractors before contract awards were made. However, Education did not require review of contractors during contract performance, and states varied in whether they ensured that contractors were reviewed during the course of contract performance. Education’s assistance and oversight activities are generally supporting SIG implementation. In our survey, nearly all states reported they were satisfied with Education’s technical assistance, particularly the agency’s SIG guidance and conferences. In addition, many states reported that Education’s guidance was timely. With respect to oversight, Education monitored 12 states in school year (SY) 2010-2011 and found deficiencies in 11 of the 12 states. Education is working with states to correct these deficiencies. For SY 2011-2012, the agency plans to use a risk-based approach to conduct on-site monitoring in 14 additional states. To maximize its oversight resources, Education also plans to conduct some limited monitoring in five additional states in SY 2011-2012. Education officials told us that they plan to monitor the remaining states in SY 2012-2013 and that these states represent a small percentage of SIG funds. GAO recommends that Education (1) provide additional support to states about making evidence-based grant renewal decisions and (2) ensure that contractor performance is reviewed. Education generally supported our first recommendation but disagreed with the second. We modified our recommendation to address some of Education’s concerns.

You are an expert at summarizing long articles. Proceed to summarize the following text: DOD spends about $19 billion annually on depot maintenance, which includes repairing, rebuilding, and overhauling weapon systems such as ships, tanks, and aircraft. DOD estimates that approximately 53 percent of its fiscal year 2002 depot-level workload will be performed in DOD-owned facilities, and that the remainder will be performed by the private sector, mostly in private-sector facilities. DOD has 20 major depots: 9 in the Navy (3 aviation depots, 4 shipyards, and 2 warfare centers), 5 in the Army, 4 in the Air Force (3 air logistics centers and 1 aircraft storage center), and 2 in the Marine Corps. The private sector operates numerous facilities where depot-level maintenance is performed on military and private (or nonmilitary) equipment and systems. Some of these facilities are manufacturing facilities where maintenance work is also performed, while others are used only for maintenance. For many years, debate has occurred between the Congress and various administrations over who should perform depot work and where it should be performed. Central to this debate has been the interplay between DOD’s efforts to rely more on the private sector for depot maintenance and title 10 provisions that (1) limit private-sector workloads to 50 percent of available funding in a fiscal year, (2) require the government to maintain certain core capabilities in military depots, and (3) require public-private competitions for certain workloads. The public-private partnership concept for improving government operations provides a cooperative approach for resolving this debate. This principle recognizes that historically it has primarily been when a government entity goes through a public-private competition that the government creates a “most efficient organization” (MEO). Since such efforts can lead to significant savings and improved performance, they should not be limited to public-private competitions. Instead, the federal government needs to provide incentives for its employees, its managers, and its contractors to constantly seek to improve the economy, efficiency, and effectiveness of the delivery of government services through a variety of means, including competition, public-private partnerships, and enhanced worker-management cooperation. In early 1998, we reviewed DOD’s use of public-private depot maintenance partnering arrangements and concluded that contractors had become more interested in sharing repair and maintenance workloads with depots and depots were willing to enter into partnering arrangements with the private sector in an effort to reduce overhead costs and retain core capabilities. We also reported that the Army had 13 partnerships ongoing at four of its depots, the oldest of which was initiated in fiscal year 1994. While we did not report any partnerships for the Air Force, Navy, or Marine Corps at the time of our review, by the end of 1998, the Air Force had three partnerships ongoing, the Navy had two, and the Marine Corps had one. Historically, DOD has used public-private partnering arrangements for depot maintenance, such as work-share agreements and facility-use partnerships, under various legal authorities—although these arrangements generally were not referred to as “partnerships.” Partnering with the private sector to (1) help sustain core depot maintenance capabilities, (2) use underutilized public facilities, and (3) leverage private- sector investment in these military facilities is a relatively new concept that the department is pursuing on the basis of congressional direction under 10 USC 2474. The objectives of public-private partnerships under section 2474 are to maximize capacity use at depots, reduce or eliminate the depots’ ownership costs in areas such as operations and maintenance and environmental remediation, reduce the cost of products made or maintained at depots, leverage private-sector investments in plant and equipment and promote commercial business ventures at depots, and foster cooperation between the military and private industry. In response to section 2474, DOD issued policy governing the formation of public-private partnerships and incorporated the concept of these partnerships into its current departmentwide logistics reengineering initiative. In January 2002, the Deputy Under Secretary of Defense (Logistics and Materiel Readiness) issued a policy memorandum on public-private depot maintenance partnerships. The memorandum outlined policy, provided a definition and directed the services to pursue partnerships to strengthen DOD’s depot maintenance operations and, ultimately, to improve support to war fighters. The DOD policy focuses on using partnerships to improve the efficiency and viability of its depots. The policy memorandum noted that partnering can contribute to more effective DOD maintenance operations, to the introduction of innovative processes and technologies, and to the economical sustainment of depot capabilities. The department defines a public-private partnership as “an agreement between an organic depot maintenance activity and one or more private industry or other entities to perform work or utilize facilities and equipment.” According to DOD policy, depot maintenance public-private partnering arrangements generally include (but are not restricted to) one or more of the following forms: Use of public-sector facilities, equipment, and employees to perform work or produce goods for the private sector. Private-sector use of public-sector equipment and facilities to perform work for the public sector. Work-share agreements, using both public- and private-sector facilities and/or employees. DOD included public-private partnerships in its June 2002 logistics reengineering initiative to meet war fighters’ sustainment needs and operational requirements of the National Defense Strategy. The initiative states that public-private partnerships should help address the many challenges facing military depots, which include facilities and equipment that have become severely degraded because of limitations in funds for recapitalization and an aging workforce that has shrunk by 51 percent in the past 10 years. The department’s desired goal, according to this initiative, is a dramatic increase in public-private depot maintenance partnerships. The initiative reinforces the department’s effort to improve the efficiency and viability of its depots, stating that partnerships will result in creating greater private-sector investment in facilities and equipment, better facility utilization, reduced costs of ownership, workforce integration, more efficient business processes, greater credibility, and a more collegial working relationship with the Congress. DOD’s public-private partnership policy is intended to help the services implement the department’s performance-based logistics initiative for its weapon systems sustainment policy and still comply with title 10 provisions constraining the outsourcing of depot maintenance workload. The 2001 Quadrennial Defense Review mandated the implementation of performance-based logistics in order to improve readiness for major weapon systems and commodities. DOD’s resulting performance-based logistics initiative seeks to achieve these improvements by using predetermined performance or readiness goals in evaluating a weapon system’s logistics support provider. While performance-based logistics does not require the use of a contractor as the logistics provider, according to DOD officials, all of the performance-based arrangements thus far have used a contractor as the logistics provider, and they expect that this trend will continue. DOD officials anticipate that as the department implements more performance-based logistics arrangements with contractors as integrators, the contractors will have to partner with military depots for the services to comply with title 10 requirements, thus increasing the use of public-private partnering. DOD’s public-private partnerships for depot maintenance increased from 19 to 93 from fiscal year 1998 through fiscal year 2002 and involved 2.2 percent of DOD’s total depot maintenance program expenditures in fiscal year 2002. The Army had the largest number—42 partnerships in fiscal year 2002. The partnerships at the depots we visited typically accounted for a small portion of each depot’s total workload—0.01 to 2.5 percent—or generally did not increase the workload to be performed at the depots. Two partnership arrangements resulted in large growth in workload at individual depots although service officials do not consider one of them as a typical increase because it was due to the closure of another depot. Furthermore, about one-fifth of the partnerships have not yet produced any workload for the depots, although future workload is expected in many of these cases. However, even with the small amount of new workload generated and the partnerships’ newness, some partnerships provided promising results or good potential. The department’s emphasis on the use of public-private partnerships for depot maintenance has resulted in increases in their use—from 19 in fiscal year 1998 to 93 in fiscal year 2002, an overall 4-fold increase. The partnerships were formed for a variety of reasons, such as the contractors seeking a depot’s unique capabilities. According to depot officials, a key underlying factor for the increased use of partnerships has been the legislative requirement to use at least 50 percent of available funding for depot maintenance work in DOD depots. Simultaneously, long-term logistics support contracts with the private sector are being pursued as the preferred DOD support arrangement. While the department has experienced an increase in the use of partnerships, just over one-half of these were initiated during the last 2 fiscal years. In 1998 we reported that the Army had 13 ongoing partnerships, a number that expanded to 42 during fiscal year 2002—a 3-fold increase. The Navy’s use of partnerships increased from 2 in 1998 to 31 in fiscal year 2002—a 15-fold increase. Similarly, the Air Force’s use of partnerships increased from 3 in fiscal year 1998 to 19 in fiscal year 2002— a 6-fold increase. The Marine Corps’ usage has remained constant with one partnership in fiscal year 1998 and the same one in fiscal year 2002. Overall, partnership growth in the department represents a 4-fold increase from fiscal year 1998 to fiscal year 2002. Figure 1 shows the number of total partnerships by individual military service for fiscal years 1998 and 2002. These partnerships were formed for a variety of reasons and used differing approaches on the basis of the circumstances surrounding the specific partnering effort. For example, in a number of cases, the contractor sought out the depot for its unique capabilities or for its advantageous labor rates. In other cases partnerships formed to meet title 10 requirements to maintain military depot capabilities for key weapon systems. Depot officials stated that a key underlying factor driving the use of partnerships has been the legislative requirement for at least 50 percent of available funds to be used for depot maintenance work in DOD depots. At the same time long-term logistics support contracts with the private sector are being pursued as the preferred DOD support arrangement. The lease of underutilized depot facilities to a contractor and the sale of depot repair services to a contractor are examples of the approaches used to form partnerships. (See appendix II for summary data regarding the reasons cited and approaches used for the 90 partnerships we reviewed.) While DOD has not established goals for the depot maintenance expenditures or workload it expects to be involved in public-private partnerships, currently, partnerships represent a small part of DOD’s overall in-house depot maintenance expenditures and workload. Some partnerships had not yet resulted in work to be performed at their depot, but depot officials anticipate some in the future. Maintenance performed in fiscal year 2002 by the depots under partnerships accounted for only $435 million—or 2.2 percent—of the $19.4 billion dollars that DOD reported spending on depot maintenance in that year. Within the services, the amount of depot maintenance expenditures involved in public-private partnerships varies from about 3.0 percent in the Army and 3.8 percent in the Air Force to about 0.5 percent for the Navy and Marine Corps combined. Furthermore, in fiscal year 2002, the total of all depots’ partnership workload was 4.6 percent of DOD’s total military depot workload. However, as indicated by figure 2, the partnerships’ workload at the 14 service depots we visited varied widely from 0.01 percent to nearly 26.0 percent. Partnerships at 9 of the 14 depots we visited—which have 59 partnerships in total—involved workload that ranged from 0.01 to 2.53 percent of the depot’s total workload. In addition, while partnership activity at the other 5 depots we visited—which have 31 partnerships in total—ranged from 7.5 to 26.0 percent of the depots’ workload, the partnerships themselves were not always the reason why this workload was placed at the depots. According to depot officials, with two exceptions, the placement of most of the partnership workload at these depots was based on program managers’ decisions that occurred prior to the formation of the associated partnership. The program managers’ decisions were based on reasons such as maintaining repair capability in military depots, using the most cost-effective maintenance source, or sustaining the viability of the industrial base. The two instances where partnerships resulted in significant new workloads for a depot were the Army’s Abrams Integrated Management XXI partnership—which accounts for about half of the Anniston workload shown in figure 2—and the Air Force’s Propulsion Business Area partnership-—which accounts for most of the Oklahoma City workload shown in figure 2. The propulsion workload at the Oklahoma City depot resulted from the closure of a major Air Force depot, and according to DOD officials, this workload volume does not represent the typical workload that a depot can expect as a result of a partnership. In addition, as of December 2002, 19—or 21 percent—of the 90 partnerships we reviewed had generated no workload for the depot. For example, seven partnerships at Tobyhanna Army Depot created from fiscal year 1999 and through fiscal year 2001 for the depot to repair electronic equipment for a contractor have not resulted in workload at the depot, although workload was expected. Other partnering efforts, such as the Air Force’s Flexible Acquisition and Sustainment Tool partnership and the Army’s H-60 Helicopter Engineering Logistical Services and Supplies partnership, are too new to have generated workload, but the depots anticipate that workload will be forthcoming. While the small amount of workload and expenditures attributed to partnerships and the newness of many of the partnerships limited the availability of data to assess DOD partnerships’ impact on the efficiency and viability of depots, some partnerships provide promising results or good potential for improving some aspects of repair performance. Of the 90 partnerships we reviewed, 28 either improved some aspects of repair performance or showed potential for doing so. Improvements from these partnerships included better parts availability, reduced repair time, reduced backorders, or reduced depot support costs. These improvements relate to DOD’s objective of enhancing greater depot efficiency and viability. For example, reducing repair time results in improved business processes—one approach for enhancing depot operations. Reducing depot support cost can result in reduced ownership costs of weapon systems— another approach for enhancing depot operations. Appendix IV provides six examples of partnerships that are achieving these improvements. On the other hand, 19 partnerships thus far have generated no work for the depots. DOD and contractor officials have identified 14 characteristics that they believe over time will contribute to a partnership’s success in achieving DOD’s objective of improved depot efficiency and viability, but DOD has not developed sufficient data and goals for assessing its partnering initiative. Many depot partnership managers stated that they are working toward pursuing these 14 characteristics in their partnerships, including having the right metrics in place early in the partnership to measure success. However, DOD’s ability to measure the partnerships’ overall success is limited because it has not yet developed baseline data and measurable goals for assessing the outcomes of its partnering efforts and the metrics that it has developed sometimes will not provide the clear data needed to fully assess the partnerships. While DOD continues to gain experience in partnering, senior-level DOD and contractor officials have identified 14 characteristics, or best practices, that they believe over time may be important for a partnership’s success in contributing toward achieving DOD’s objective. Almost all officials cited three characteristics as key—long-term relationship and commitment, shared vision and objectives, and the right metrics. The other 11 attributes were cited less frequently but, according to the identifying officials, will nonetheless improve the potential for success if present in a partnership. Table 1 summarizes the 14 characteristics cited by DOD and contractor officials as important to the success of partnerships. While we observed the presence of these characteristics in some of the partnerships we reviewed, we did not attempt to validate the extent to which the characteristics were present in all partnerships reviewed, given the newness of many of the partnerships. (See appendix V for examples of how some of the partnerships we reviewed exhibited these characteristics.) Nonetheless, many of the depot officials responsible for managing partnerships stated that the characteristics identified by senior- level contractor and DOD officials will contribute to making partnership efforts successful. They also stated that while the characteristics are not currently present in all partnerships, over time, more partnerships will evolve to include these characteristics. The officials agreed that the characteristic of having long-term commitment should permit both contractors and depots to better plan future workload requirements and create a better business case for the contractor to make investments to improve depot repair capability. The officials agreed that the characteristic of sharing the same partnership vision and objective helps ensure that the partners will not be working at cross-purposes. Additionally, these officials pointed out that another of the characteristics—having the right metrics— is critical to develop early in a partnership. Without establishing sound metrics for partnerships early, the services cannot effectively measure that progress is being made toward achieving the partnerships’ goals and objectives. The officials added that in such instances a partnership risks making no progress toward its goal or possibly even having an impact that is counter to the partnership’s goals and objectives. DOD is limited in its ability to measure the overall success of its partnering efforts because it has not yet developed baseline data and measurable goals for the expected outcomes of the effort. Furthermore, the metrics that DOD has developed sometimes will not provide the data needed to assess the partnerships’ results. While some partnerships have produced positive results, such as reduced repair time, DOD has neither established a baseline regarding efficiency and viability for where the depots are today nor developed measurable goals for the expected outcomes that would define success for achieving improved depot efficiency and viability. Such goals could include measurable targets for the amount of reductions in general and administrative expenses, degree of increased utilization of depot capacity, number of jobs created at depots, and amount of private-sector investment in depot infrastructure and equipment. Establishing such goals would provide DOD and the Congress with a measuring stick against which to determine the progress that DOD’s partnering initiative is making toward improved depot efficiency and viability. Without the goals, DOD’s existing metrics—the data that DOD is collecting to measure individual partnership performance—do not provide the clear information needed to assess a partnership’s progress in improving a depot’s performance. DOD is collecting data to measure individual partnership performance—revenue generated, capital investment, jobs created, cost avoidance, increased facility utilization, improved business processes, and improved responsiveness to customers. However, these metrics are not tied to overarching goals for DOD’s partnership initiative. Consequently, DOD does not have a clear means for assessing the accomplishments of its individual partnerships toward meeting its overarching objective and therefore risks not achieving the improvements to depot operations expected from public-private partnership efforts. For example, investments made by the private sector in military depots to date have been about $6.9 million in total at all DOD depots. However, without an established goal for such investments based on each depot’s strategic capital investment needs, DOD does not have a means of evaluating how effective these investments are toward improving a depot’s viability or efficiency. Furthermore, in some cases, the metrics that DOD has developed may not indicate whether improvements in depot performance are due to a partnership or to other factors. This is because some partnerships coincide with changes to a weapon system program (such as adopting a new repair approach) that may cloud the service’s ability to measure whether the partnership is responsible for any of the measured impacts. For example, metrics for the Army’s T700 helicopter engine partnership will measure changes in an engine’s reliability. However, the Army began a recapitalization effort shortly after the start of the partnership, and according to a program management official, the recapitalization effort will affect the reliability of the metrics. An Army depot official stated that it is not possible to separate the impact of the recapitalization from the impact of the partnership, since the two initiatives were implemented concurrently. Eleven of the partnerships we reviewed involved similar recapitalization or other major weapon system modifications and improvements that likewise have the potential for distorting the metrics for these partnerships. While DOD plans to expand its use of public-private partnerships to improve the efficiency and viability of its depots, several factors could affect the department’s expansion efforts. The opportunities for increased partnering may be limited by external factors that the services cannot create at will, and uncertainties over the extent to which the private sector will invest to improve or develop new capabilities at DOD depots to support partnerships. In addition, should the Congress change title 10 provisions pertaining to depot maintenance, the changes could affect the impetus for public-private partnerships. The opportunities available for DOD to expand its use of public-private partnerships may be limited by external factors that the services cannot replicate or create at will. Indeed, the creation of some partnerships resulted from the occurrence of one-time business opportunities arising from external factors, such as contractors’ decisions to divest themselves of repair capabilities. Such one-time opportunities may be critical to developing successful partnerships, but their occurrence is unpredictable. For example, Northrop Grumman made a business decision to discontinue its in-house composite repair capability for B-2 aircraft flight control surfaces. This created an opportunity for the Air Force’s Ogden depot to develop repair capability for the flight control surfaces and enter into a partnership with Northrop Grumman, which retained the overarching contract responsibility for the B-2’s airframe maintenance. This partnering opportunity between the Ogden depot and Northrop Grumman was wholly contingent on the contractor’s decision to divest itself of this repair capability. Expanding the use of partnerships to new or upgraded systems where depots do not currently have the capability to accomplish the work will require investment directly from system program offices or from the private-sector partner to develop new system capabilities in the depot. Although DOD expects private-sector partners to contribute to developing these capabilities, the extent to which the private sector will make such investments is uncertain. The department’s January 2002 partnership policy encourages public- private partnerships to be structured to improve the deteriorating condition of depot facilities and equipment by “leveraging private-sector investments, such as facilities and equipment, to contribute to re- capitalization of depot maintenance activities.” However, DOD’s data on the investments made by the private sector in military depots to support partnership as of the end of fiscal year 2002 show only about $6.9 million in private-sector investment at all DOD depots. Ninety-six percent of this total occurred at one depot—the Army’s Anniston depot—and the remaining 4 percent occurred at one other depot—the Air Force’s Warner Robins depot. For fiscal year 2002, DOD invested about $330 million in the depots through its defense working capital fund’s capital investment program. This funding was for equipment replacement, productivity improvements, environmental compliance, computer equipment and software, and minor construction. Additional investments are made in depots by program management offices for establishing new system capabilities, and while DOD does not quantify the amount of this investment, we reported in 2001 that program management offices had invested $403 million over a 10-year period ending in 2000—about $40 million annually. The department recognizes that adequate funding has not been made available to revitalize the depots and incorporate new systems capabilities, and is looking to private-sector investments by its partners to mitigate this shortfall. In its recently issued depot maintenance strategy plan, the Air Force states that a commercial-sector benchmark for adequate investment levels in depots is from 6 to 7 percent of revenue per year. Assuming that this represents a reasonable target for the services, investments in depots’ infrastructure would equate to about $621 million for fiscal year 2002. However, at its fiscal year 2002 level, private-sector depot investments resulting from partnerships equated to about 1 percent of this investment level. While the department has not established specific goals for the share of private-sector investments, the extent to which DOD will be able to rely on the private-sector investments is uncertain. Recently, DOD considered proposing changes to title 10 provisions that limit the outsourcing of depot maintenance workloads. Should the Congress make such changes, the impetus for expanded use of public-private partnerships could be reduced. While DOD recognizes that some of its partnerships have resulted from external factors beyond the services’ control, the department expects that its initiative to expand contractors’ involvement in logistics support for weapon systems will increase partnering opportunities for depots. According to DOD officials, this will occur because the services will require contractors to partner with depots for some depot maintenance work to satisfy title 10 provisions that limit the amount of depot maintenance work that can be performed by the private sector. Recently, however, much publicity has surrounded discussions within DOD over its tentative proposal to change title 10 by repealing six provisions in order to create greater flexibility in determining the most effective and efficient sources for depot maintenance. At the time we completed our review, DOD had discontinued this current effort to repeal these provisions, but the department has proposed repeal of depot-related provisions in the past and could again in the future. If the Congress were to repeal these provisions, private-sector contractors might not consider public-private partnering as an attractive alternative to performing the work themselves or to subcontracting the work to another private-sector entity. Our work found that these provisions have fostered the use of partnerships. For example, 11 percent of the 90 partnerships we reviewed cited compliance with title 10 provisions as the reason for partnering (see fig. 3 in app. III), and depot officials indicated it was an underlying factor influencing the decisions to form other partnerships. According to depot officials, these title 10 provisions currently provide the key impetus for the expansion of public-private partnerships and removal of these title 10 provisions could have an adverse impact on partnering opportunities. Even with the significant increase in the number of DOD’s public-private partnerships from fiscal year 1998 through fiscal year 2002, the existing partnerships represent only 2.2 percent of DOD’s $19 billion depot maintenance program. DOD does plan to greatly expand the use of public-private partnerships to help achieve the partnership initiative’s objective of improving the efficiency and viability of its military depots. However, it has neither established a baseline regarding depots’ efficiency and viability for where they are today nor developed measurable goals for expected outcomes to define the degree of the improved depot efficiency and viability desired. Additionally, the metrics that DOD has developed will not, in certain circumstances, provide the relevant data needed to assess individual partnership results. Without initially establishing both clear and measurable goals to define success in improving the efficiency and viability of its depots and the metrics that provide the relevant data for the measurement, DOD has limited objective means to assess whether the partnerships are working as intended. Furthermore, while DOD is expecting private-sector investment in public depots to support the creation of capability to support new systems the extent to which this investment is likely to occur is uncertain. Absent additional planning, this situation could result in capability shortfalls or lead to delays in establishing needed capabilities. To improve DOD’s management, direction, potential for success, and assessment of its public-private partnerships, we provided DOD with a number of recommendations in a draft of this report. In commenting on the draft, DOD indicated that it does not plan to implement our recommendations because it found them to be too general and thus not actionable. However, the department’s reluctance to establish overall goals for partnerships makes it unclear as to the overall role that DOD envisions for partnerships in its depots—even though DOD’s focus on partnering was intended as one means of fostering improvements in government owned and operated depot facilities. We have long reported on weaknesses in DOD’s processes for identifying core capabilities to be accomplished in government-owned depot maintenance facilities, continuing deterioration in depot facilities with inadequate recapitalization plans, and a smaller but aging workforce with inadequate human capital plans in place to preserve depot capabilities for the future. Such conditions place at risk the role of these facilities in ensuring the existence of a ready and controlled source of in-house technical competence and resources so that the military can respond to mobilizations, national defense emergencies, and contingencies. Clear goals for partnership arrangements are important if they are expected to play a role in improving depot operations. To improve the management, direction, potential for success, and assessment of its public-private partnerships, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Acquisition, Technology and Logistics to establish baseline data and overarching goals for expected outcomes of partnership efforts, including the partnership initiative’s desired improvements to depot operations and develop or refine metrics as needed to provide a more complete basis to assess the results of the depot partnering arrangements as well as ensuring that they differentiate between improvements to a weapon system’s support resulting from partnering and from other factors or changes affecting the weapon system. To support the expansion of partnership arrangements for new systems, we recommend that the Secretary of Defense require the Under Secretary of Defense for Acquisition, Technology and Logistics to require specific assessment and planning for new capability in military depots where partnership arrangements for new systems are expected and as part of this planning, assess the likelihood of private-sector investment in new systems capability in military depots and other alternatives as needed. To encourage the Department of Defense to more clearly identify its long-term goals for its depot facilities and the role of public-private partnerships in meeting those goals, the Congress should consider requiring DOD to develop measurable goals for improving future operations of its depot facilities to include (1) facilities recapitalization, (2) retention of specific depot capabilities, and (3) human capital plans for preserving a viable workforce. In doing so, the Congress should also consider requiring DOD to establish time frames against which it will periodically assess and report to the Congress on progress in each of these areas, including the contribution of partnering arrangements to those goals. In commenting on a draft of this report, the Deputy Under Secretary of Defense for Logistics and Material Readiness agreed with the report’s information, analysis and conclusions but only partially concurred with the report’s recommendations. Overall, he expressed the view that the recommendations were so generally drawn that they are not actionable as a practical matter. We disagree and continue to believe that they are needed actions. The department’s comments are included in this report in appendix VI. With regard to our first recommendation to establish baseline data and overarching goals for expected outcomes of partnerships, DOD stated that it has already established baseline data and goals. However, these baselines and goals relate to individual partnerships rather than to the partnership program as a whole. We agree that baseline data and goals are needed to measure the progress of individual partnership initiatives; however, our intent was to have the department establish overarching goals with measurable outcomes to help gauge the success of DOD’s overall partnership initiative toward strengthening DOD’s depot maintenance operations. Such goals would be key to measuring progress toward achieving the expectation identified in DOD’s partnership policy memorandum, which was to have partnerships “contribute to more effective depot maintenance operations, the introduction of innovative processes or technologies, and the economical sustainment of organic capabilities.” We do not agree that the goals stated in the policy memorandum in and of themselves are specific enough to provide measurable outcomes against which to assess the collective effectiveness of the department’s efforts to improve depot efficiency and viability. Regarding our second recommendation to develop or refine metrics as needed to provide a more complete basis to assess the results of depot partnering arrangements, DOD said it will be difficult, if not impossible, to differentiate between improvements solely resulting from partnering versus other factors. While we agree that it may be difficult, we nonetheless believe that it will be critical in assessing the department’s partnering initiative. Unless the department develops meaningful metrics that reasonably determine relative contributions of various factors contributing to changed conditions in weapon system support, it will not be in a position to determine the results of ongoing partnerships and the conditions under which additional partnerships should be undertaken. Regarding our third recommendation to require specific assessment and planning for new capability in military depots where partnership arrangements for new systems are expected, the department stated that it currently requires assessment and planning for new weapon systems but agreed that more emphasis could be placed on determining the role that public-private partnerships may play in establishing new depot capabilities. However, it did not identify any specific action planned to do so—we believe it is important for the department to identify steps to be taken to give this increased emphasis. Regarding our fourth recommendation to assess as part of planning, the likelihood of private-sector investment in new systems capability in military depots, the department stated that capital investment by the private sector across the broad spectrum is unrealistic, stating that it was never the department’s intention for its public-private partnership program to supplant the need for capital investment and funding by the services. We did not intend to suggest that partnerships supplant service funding but rather give visibility to a goal established by the department in its public- private partnership policy memorandum, which states that one objective of public-private partnerships is “leveraging private-sector investments such as facilitates and equipment to contribute to re-capitalization of depot maintenance activities.” We continue to believe that the assessment called for in our recommendation is important both to help assess the contribution of partnerships in achieving this partnering objective as well as to more clearly assess capital investment needs from other sources. Finally, we disagree with the department’s statement that our recommendations are not actionable as a practical matter. A key element needed for the department to achieve its objective of more effective military depot maintenance operations through public-private partnerships is the ability to measure and assess the contribution of partnerships toward meeting that objective. As a practical matter, without establishing clear and measurable goals for its partnering program, the department is limited in its ability to assess whether the partnerships are working as intended to produce positive results or, conversely, are having a negative effect on military depot maintenance operations. We are sending copies of this report to interested congressional committees; the Secretary of Defense; the Secretaries of the Army, the Navy, and the Air Force; the Commandant of the Marine Corps; and the Director, Office of Management and Budget. We will 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 questions regarding this report, please contact me at (202) 512-8412 or [email protected]. Other major contributors to this report are listed in appendix VII. To determine the extent to which the Department of Defense (DOD) is participating in public-private partnerships for depot maintenance; we met with officials from the Office of the Secretary of Defense (OSD) and from service logistics offices to identify recent, ongoing, and planned partnerships within each service and identified the military depots associated with these partnerships. We also reviewed partnership data maintained in the Joint Depot Maintenance Activities Group partnering database. We visited 14 of DOD’s 20 major military depots (see appendix II for the depots visited and the partnerships reviewed) to examine in more depth the partnerships associated with these depots. We selected depots that had the greatest volume of partnership activity, also ensuring that we included each service. Of the six depots we did not visit, four did not have any partnerships reported in the Joint Depot Maintenance Activities Group partnering database—the Marine Corps Maintenance Center Barstow, Barstow, California; the Naval Surface Warfare Center, Crane Division, Crane, Indiana; the Naval Undersea Warfare Center, Keyport Division, Keyport, Washington; and the Aerospace Maintenance and Regeneration Center, Tucson, Arizona—the other two depots—Pearl Harbor Naval Shipyard and Letterkenny Army Depot—reported two partnerships and one partnership, respectively. We did not assess why these sites had this low volume of partnership activity. To collect information on the partnerships we reviewed, we developed a data collection instrument for each depot to complete for each partnership. The information collected on each partnership included the type of partnership, reasons why the partnership was formed, roles and responsibilities of each partner, and the legislative authority or basis for the partnership. We did not, however, validate the data provided by the depots or attempt to assess whether or not the tasks and responsibilities assumed by the contractor and military depot partners represented the best division of work for achieving success within the partnership. To calculate the growth in public-private partnerships, we used our 1998 work reviewing the use of public-private partnerships in DOD as a baseline, tallied the number of partnerships by service, and compared these numbers with the partnerships reported in the Joint Depot Maintenance Activities Group partnering database as of December 4, 2002. To determine the relative size or scale of the partnership efforts within DOD, we analyzed fiscal year 2002 data on (1) the workload that each partnership brought to the each depot compared with the total ongoing workload for each depot, (2) the total workload that the partnerships brought to the depots compared to the total combined workload for all depots visited, and (3) the total dollar value of depot maintenance performed under the partnerships at the depots we visited compared with the department’s total depot maintenance expenditures. To determine the characteristics that need to be present to achieve effective partnerships and where DOD is in its ability to measure success, we met with OSD logistics officials, service logistics officials, high-level contractor officials, and officials at each depot visited. We discussed evaluating the effectiveness of ongoing partnerships—measuring success against DOD’s objective of improved depot efficiency and viability—with these officials and collected relevant data and also discussed the characteristics of successful partnerships with the senior-level DOD and contractor officials. To identify the characteristics of successful partnerships, we reviewed the information collected through structured interviews with senior-level DOD and contractor officials and grouped the characteristics into categories based on the similarities of responses. We also discussed the extent to which depot partnership managers expect these characteristics to be present in current partnerships or will be present in future partnerships. To determine whether DOD has developed a sufficient framework for measuring success, we reviewed the metrics that DOD has developed to gauge the performance of its partnerships and assessed whether these metrics included measurable goals and outcomes tying the partnerships’ performance to DOD’s public-private partnership policy objective. We also assessed the relevance of the department’s metrics to DOD’s public-private partnership policy objective. We did not test or validate the accuracy of the reported performance data related to the public-private partnerships but instead considered the structure of the metrics to assess their relevance to DOD’s partnership policy objective. To analyze the sufficiency of data for evaluating the extent to which partnerships improved the economy and efficiency of depot operations and improved the viability of the depots, we compared the relative volume of each depot’s partnership workload with the ongoing workload at each depot visited and assessed the age of the partnerships to determine if enough data existed to make an evaluation. To determine the amount of investments made by the private sector in military-depot plant and equipment, we extracted information from a database on partnerships developed by the Joint Depot Maintenance Activities Group at OSD’s request. We also used this database to identify the expected annual value of depot work for each partnership and presented this data in appendix II. When no annual estimate was identified in the database, we calculated an annual work value by dividing the total expected value for the partnership by the expected partnership life, where possible. In those instances where this was not possible, we presented the total revenue generated by the partnership to date. We did not perform a reliability assessment on this Joint Depot Maintenance Activities Group database. Through discussions with depot officials and reviews of individual partnerships, we identified instances where the partnering efforts produced promising outcomes as related to DOD’s objective of improved depot efficiency and viability. To determine what future management challenges face DOD’s planned expansion of public-private partnerships, we relied on our discussions with OSD logistics officials, service logistics officials, high-level contractor officials, and officials at each depot visited to identify challenges that may inhibit the department’s expansion efforts. To assess the potential impact of proposed legislative changes on limiting DOD’s planned expansion of public-private partnerships, we discussed the impact of removing title 10 provisions that currently limit the outsourcing of military depot maintenance and repair workload with OSD maintenance policy officials, depot officials, and contractor officials and discussed how these title 10 provisions affect contractors’ and military depots’ decisions to form public- private partnerships. To assess whether the opportunities for partnering are limited, we reviewed the reasons why ongoing partnerships developed and then discussed with these officials the services’ ability to control or create opportunities that can lead to successful partnerships. We also discussed the relationship between the expansion of public-private partnerships and DOD’s implementation of performance-based logistics with OSD officials and reviewed the services’ performance-based logistics implementation plans. To assess the potential impact of DOD’s new policy calling for private-sector investment in depots on establishing and funding needed depot capabilities, we reviewed and compared the new public- private partnership policy with DOD’s overarching acquisition policy, and discussed the partnering policy’s implementation with depot and OSD officials. We conducted our review from February 2002 through February 2003 in accordance with generally accepted government auditing standards. Contractor sought out depot for its unique capabilities and advantageous labor rates. $2 million Direct sale/government-furnished resources—Depot performs finishing operations, paints the vehicle and provides production services. The contractor performs vehicle test and acceptance and supplies all parts and material for the production of the vehicle. Both the depot and the contractor perform vehicle assembly. Contractor sought out depot for its unique capabilities and advantageous labor rates. $40,000 Direct sale—Depot performs hull and component modification and repair. The contractor performs vehicle assembly, test and acceptance, and provides all parts and material. Contractor sought out depot for its unique capabilities and advantageous labor rates. $1 million Direct sale/lease—Depot performs vehicle hull upgrade, tail upgrade, paints vehicle, disassembles engine, and removes asbestos. The contractor performs vehicle disassembly and reassembly, sub assembly/component rework, and systems integration and test. Provided collocation with related Fox vehicle upgrade partnership. Lease—Depot provides use of a facility. Contractor uses facility to receive, store, and issue Fox vehicle subassemblies, components and parts for fielded vehicles. Depot had available production facilities needed by the contractor. Lease—Depot provides use of a facility. Contractor performs manufacture of a new gunner’s primary site. Program manager directed work share and contractor sought out depot for its unique capabilities. No annual estimate available, but total revenue reported since partnership’s inception in January 1997 through March 2002—$15.9 million. Work share/lease—Depot performs vehicle disassembly, hull overhaul and conversion, and provides the “dismate” power pack. The contractor overhauls subassemblies and components, performs engine and suspension modification, vehicle assembly, systems integration and test, and final paint. Program manager directed work share. $15.3 million Work share—This is a partnership for the upgrade of the M1 tank to the M1A2 version. Depot performs vehicle receipt, disassembly, hull rework and upgrade, demilitarization of the turret, overhaul of major subassemblies and components, and then ships tank parts to the contractor in Lima, Ohio. Contractor performs vehicle reassembly, turret installation and systems test and integration. Program developed by program manager, contractor, and depot to enhance current depot engine overhaul programs, and reduce operations and support costs. Lease—Depot provides use of underutilized facility to contractor. Contractor uses facility to supply parts and material to support the depot’s turbine engine repair/overhaul line. Base realignment and closure (BRAC) process closed a government-owned facility where contractor performed work. $200,000 Direct sale/lease—Depot provides material handling and movement, and the contractor manufactures recuperator plates. Program manager directed work share. $47 million Work share—This is a partnership for a recapitalization of the M1A1 tank. Depot performs vehicle receipt, disassembly; overhaul of hull, turret, and major subassemblies and components; and ships the tank to contractor in Lima, Ohio. The contractor performs vehicle reassembly and systems test and integration. Program manager directed work share. No annual estimate available, but total revenue reported since partnership’s inception in January 1998 through March 2002—$9 million. Work share—Depot performs vehicle disassembly, structural repair of the hull and front blade repair. Contractor performs modification, reassembly, and systems test and integration. BRAC process closed a government-owned facility where contractor performed work. No annual estimate available, but total revenue reported since partnership’s inception in January 1998 through March 2002—$1.6 million. Work share—Depot performs overhaul and conversion of chassis assembly and armament system, and provides turret kit components. Contractor fabricates and assembles the new cab, performs vehicle reassembly and systems test and integration. Program manager directed work share. $1.6 million Work share—Depot performs vehicle disassembly, hull rework, demilitarization of turrets, overhaul of major subassemblies and components, and ships the vehicles to the contractor in Lima, Ohio. Contractor performs chassis assembly, procures and installs bridge systems, and conducts inspections and testing. Contractor sought out depot for its unique capabilities and advantageous labor rates. $8.2 million Work share—Depot fabricates unique parts and spares; disassembles vehicle; cleans, machines, and repairs hull; repairs, converts and paints; and assembles and integrates turret. Depot also performs program management functions. Contractor overhauls subassemblies and components, modifies engine and suspension, assembles and paints vehicle, and performs final systems integration and testing. Desire to reduce repair turnaround time. Partnership involves reengineering of ongoing workload that annually has a value of about $87.7 million. Teaming—Depot provides the labor, facilities and equipment for the overhaul and repair of airframes and components. Contractor provides technical, engineering and logistical support, and spare parts to improve repair turn around time. Desire to reduce repair turnaround time. Partnership is in initial phase of development and implementation, and depot work has not yet begun—no annual estimate yet available. Teaming—Depot will provide the labor, facilities and equipment for the overhaul and repair of airframe and components. Contractor will provide technical, engineering and logistical support to improve repair turn around time. Desire to reduce repair turnaround time. Partnership is in initial phase of development and implementation, and depot work has not yet begun—no annual estimate yet available. Teaming—Depot will provide the labor, facilities and equipment for the overhaul and repair of airframes and components. Contractor will provide technical, engineering and logistical support, and some parts on an emergency basis. Desire to reduce repair turnaround time. Partnership is in initial phase of development and implementation, and depot work has not yet begun—no annual estimate yet available. Teaming—Depot will provide the labor, facilities and equipment for the overhaul and repair of engines. Contractor will provide technical, engineering and logistical support, and some parts to depot workstations. Program manager directed work share. $17.5 million Work share—Depot modifies and overhauls the A2 configuration of the Bradley fighting vehicle and transports the vehicle to the contractor’s York, Pennsylvania facility. Contractor integrates the Bradley Fire Support Team capability into the vehicle. Program manager directed work share. $7.5 million Work share—Depot and contractor overhaul or recapitalize a complete vehicle and each partner performs work on an equal number of vehicles. Program manager directed work share. $700,000 Work share—Depot is overhauling vehicle chassis and components and transports completed chassis to contractor’s overhaul facility. Contractor integrates and upgrades the Loader Launcher and its related components. Contractor sought out depot for its unique capabilities. $347,200 Direct sale—Depot repairs the hoist assemblies and ships them to the contractor’s plant in East Camden, Arkansas. Contractor installs the hoist on the vehicle. Contractor sought out depot for its unique capabilities. No annual estimate available but total revenue reported since partnership’s inception in March 2001 through March 2002— $157,000. Direct sale—Depot provides support for testing qualifying and painting the engine and cleaning and painting the axel. Contractor sought out depot for its unique capabilities. Partnership is in initial phase of development and depot work has not yet begun—no annual estimate yet available. Teaming—Depot and contractor have agreed to cooperate in potential partnerships on mutually beneficial programs and solicitations. Contractor sought out depot for its unique capabilities. Partnership completed and total revenue generated during the partnership’s 2 month period of performance— $4,600. Direct sale—Depot provides all raw material and labor to manufacture Patriot missile conduit cover shields for the contractor. Contractor incorporates the shields into the Patriot missile. Contractor sought out depot for its unique capabilities. No annual estimate available, but total revenue reported since partnership’s inception in June 2002 through December 2002— $4,900. Direct sale—Depot repairs circuit cards, which contractor uses in repair of communications security cryptographic equipment. Contractor sought out depot for its unique capabilities. Direct sale—Depot fabricated six items—Local Area Network Box Assembly, Remote TAU Radio Box Assembly, Flat Panel Display Assembly, V1 RWS Rigid Kit, and Router Adapter Plate Assembly. Contractor installed these parts in communications shelters as part of retrofit program. Contractor sought out depot for its unique capabilities and advantageous labor rates. designed, manufactured, and tested two engineering development model Prime Power groups for the program; and provided cabling and interfaces needed to mount Portable Operations Suite in vehicles and power transfer boxes, as well as integration, test and logistics support at the system level. Contractor is responsible for overall design and manufacture of the weapon system. Contractor sought out depot for its unique capabilities and advantageous labor rates. Teaming—Depot produces modular azimuth positioning system kits. Contractor incorporates kits into AN/TPQ-37 FIREFINDER radars. Contractor sought out depot for its unique capabilities. No annual estimate available, but total revenue reported since partnership’s inception in June 2001 through March 2002—$209,000. Teaming—Depot manufactures cable assemblies. Contractor is prime for electronic warfare system that uses these cable assemblies. Contractor sought out depot for its unique capabilities. $500,000 Direct sale/teaming—Depot designed and manufactures modification installation kits that are installed by Laguna Industries at the depot and Fort Hood. The contractor provides the radio that is connected to existing systems using the depot’s installation kit. Blackhawk Management, Inc. Contractor sought out depot for its unique capabilities. No annual estimate available, but total revenue reported since partnership’s inception in December 1999 through March 2002— $941,000. Direct sale/teaming—Depot participated in program to secure repair workload on critical systems in order to help maintain critical capabilities and skills at the depot. The contractor markets the team’s capabilities to potential customers and provides depot and other subcontractors with components for repair. Contractor sought out depot for its unique capabilities and to meet new weapon system title 10 core depot maintenance requirements. assembles and warrants the field radio. Contractor manages overall contract and provides depot components needed to assemble the radio. Contractor sought out depot for its unique capabilities and advantageous labor rates. Although depot initially expected workload from this partnership, none has materialized and none is currently expected. Direct sale/teaming—Depot participated in program to secure repair workload on critical systems in order to help maintain critical capabilities and skills at the depot. The contractor markets its team’s capabilities to potential customers and provides depot and other subcontractors with components for repair. Logistics, Engineering & Environmental Support Services, Inc. Contractor sought out depot for its unique capabilities and advantageous labor rates. Although depot initially expected workload from this partnership, none has materialized and none is currently expected. Direct sale/teaming—Depot participated in program to secure repair workload on critical systems in order to help maintain critical capabilities and skills at the depot. The contractor markets the team’s capabilities to potential customers and provides depot and other subcontractors with components for repair. Contractor sought out depot for its unique capabilities. Although depot initially expected workload from this partnership, none has materialized and none is currently expected. Direct sale/teaming—Depot participated in program to secure repair workload on critical systems in order to help maintain critical capabilities and skills at the depot. The contractor markets its team’s capabilities to potential customers and provides depot and other subcontractors with components for repair. Contractor sought out depot for its unique capabilities. Although depot initially expected workload from this partnership, none has materialized and none is currently expected. Direct sale/teaming—Depot participated in program to secure repair workload on critical systems in order to help maintain critical capabilities and skills at the depot. The contractor markets its team’s capabilities to potential customers and provides depot and other subcontractors with components for repair. Contractor sought out depot for its unique capabilities. No annual estimate available, but total revenue reported since partnership’s inception in October 1998 through March 2002—$2,600. Direct sale/teaming—Depot participated in program to secure repair workload on critical systems in order to help maintain critical capabilities and skills at the depot. The contractor markets its team’s capabilities to potential customers and provides depot and other subcontractors with components for repair. Contractor sought out depot for its unique capabilities. Although depot initially expected workload from this partnership, none has materialized and none is currently expected. Direct sale/teaming—Depot participated in program to secure repair workload on critical systems in order to help maintain critical capabilities and skills at the depot. The contractor markets its team’s capabilities to potential customers and provides depot and other subcontractors with components for repair. Information System Support Inc. Contractor sought out depot for its unique capabilities. Although depot initially expected workload from this partnership, none has materialized and none is currently expected. Direct sale/teaming—Depot participated in program to secure repair workload on critical systems in order to help maintain critical capabilities and skills at the depot. The contractor markets the team’s capabilities to potential customers and provides depot and other subcontractors with components for repair. Contractor sought out depot for its unique capabilities. Although depot initially expected workload from this partnership, none has materialized and none is currently expected. Direct sale/teaming—Depot participated in program to secure repair workload on critical systems in order to help maintain critical capabilities and skills at the depot. The contractor markets its team’s capabilities to potential customers and provides depot and other subcontractors with components for repair. To satisfy title 10 core depot maintenance requirements for the workload involved and contractor sought out depot for its unique capabilities. $5.3 million Direct sale/teaming—Depot repairs power units providing repair facilities, skilled labor, support equipment, production engineering, and logistics support. Contractor provides failed power units, spare parts, engineering support, inventory management, and packaging and shipping. To meet new weapon system title 10 core depot maintenance requirements. $885,000 Direct sale/teaming—Depot repairs components providing touch labor and depot maintenance logistics support. Contractor provides overall program execution, and customer and engineering support. Program manager directed work share. $6.5 million Work share—Depot disassembles the AV-8B aircraft, repairs and/or modifies 287 components, and ships repaired components to contractor. Contractor installs components into new fuselage and delivers remanufactured aircraft to the Navy. Program manager directed work share. $22,000 Work share—Depot dynamically balances turbine engine blades providing facilities, skilled labor, and logistics support. Contractor provides unbalanced blades. Associated Aircraft Manufacturing & Sales, Inc. Contractor sought out depot for its unique capabilities. Partnership began in July 2000, ended in August 2001 and generated total revenue of $7,000. Direct sale—Depot repaired components providing repair facilities, skilled labor, support equipment, spare parts, and technical data. Contractor provided failed components and shipping. Contractor sought out depot for its unique capabilities. $27,042 Direct sale—Depot repairs components providing repair facilities, skilled labor, support equipment, and technical data. Contractor provides failed components, packaging, and shipping. To satisfy title 10 core depot maintenance requirements for the workload involved and contractor sought out depot for its unique capabilities. $771,428 Direct sale—Depot repairs components providing repair facilities, skilled labor, support equipment, and technical data; and collects and provides contractor with failure data. Contractor provides total asset management, failed components, repair parts, configuration management, technical and engineering support, and packaging and shipping; and investigates and incorporates reliability improvements. Contractor sought out depot for its unique capabilities. $12,000 Direct sale—Depot responsible for boresight calibration, shipment preparation, maintenance of inspection and test records, and reporting schedule and funding expenditures. Contractor responsible for inventory and asset tracking, preparation for shipping, repair parts, and technical support. To meet new weapon system title 10 core depot maintenance requirements. $130,600 Direct sale—Depot repairs components providing repair facilities, skilled labor, and support equipment; and collects and provides contractor with failure data. Contractor provides total asset management, failed components, repair parts, configuration management, technical and engineering support, and packaging and shipping. Contractor sought out depot for its unique capabilities. $350,000 Direct sale—Depot repairs components providing repair facilities, skilled labor, support equipment, and technical data; and collects and provides contractor with failure data. Contractor provides failed components, repair parts, and packaging and shipping. Contractor made business decision to close facility where work was previously done $66,667 Direct sale—Depot repairs engines providing repair facilities, skilled labor, support equipment, spare parts, and technical data. Contractor provides failed engines and shipping. Contractor sought out depot for unique its capabilities. $61,111 Direct sale—Depot calibrates test stands, and provides metal processing and engineering support services. Contractor provides access to test stands requiring calibration and items requiring metal processing, and shipping to and from the depot. Neptune Technical Services, Inc. Contractor sought out depot for its unique capabilities. This partnership began in December 2000 and ended in October 2001 but did not produce any workload. Direct sale—Depot was to provide antenna and radome testing, autoclave processing, coordination of measuring machine inspection, and technical data. Contractor was to provide components for testing and shipping. S&K Technologies, Inc. Contractor sought out depot for its unique capabilities. $81,081 Direct sale—Depot repairs components providing repair facilities, skilled labor, support equipment, and technical data. Contractor provides failed components, and packaging and shipping. System & Electronics, Inc. Contractor sought out depot for its unique capabilities. No annual estimate available, but total revenue reported since partnership’s inception in February 1999 through November 2002— $19,000. Direct sale—Depot repairs components providing repair facilities, skilled labor, support equipment, and technical data. Contractor provides failed components and shipping. To meet new weapon system title 10 core depot maintenance requirements. $10 million Direct sale/teaming—Depot repairs components providing touch labor, facilities, equipment, production engineering, technical data, and packaging. Contractor provides failed components, repair parts, obsolescence management, and shipping. Contractor sought out depot for its unique capabilities. $150,000 Direct sale—Depot will paint aircraft providing touch labor, facilities and equipment. Contractor will provide ready-for-paint aircraft, specifications, and paint. Contractor sought out depot for its unique capabilities. $4.5 million Direct sale/government-furnished resources—Depot is providing a drydock and related facilities, and skilled labor. Contractor is providing skilled labor and overall management responsibility for this overhaul. Contractor sought out depot for its unique capabilities. $1.8 million Direct sale—Depot sold general production services—including pipefitting, sheet metal, and insulation—to contractor for these two overhauls. Contractor had overall responsibility for these overhauls. Contractor sought out depot for its unique capabilities. $440,000 Direct sale—Depot sold general production services—including pipefitting, sheet metal, electrician, and machinist—to contractor for these two overhauls. Contractor had overall responsibility for these overhauls. Contractor sought out depot for its unique capabilities. Partnership expected to generate a total of $28.9 million between January 2002 and December 2002. Work share/teaming—Depot is providing manpower (60 percent) and has overall responsibility for submarine overhaul. Contractor is providing manpower (40 percent) and facilities—including a drydock. Contractor sought out depot for its unique capabilities. $486,487 Direct sale—Depot provides equipment, technical support, and knowledge for testing services. Contractor provides program management, technical data, engineering expertise, and research and development expertise. Seavey Island, L.L.C. Contractor sought out depot for its unique facility. Partnership has terminated without producing revenue for the depot. Lease—Depot provided facility. Contractor’s intent was to refurbish facility and sublet as office space. Lease termination negotiations in process because of death of lessee. Contractor sought out depot for its unique capabilities. The sharing of processes under this partnership will not produce workload or revenue for the partners, instead the partners are benefiting from improved repair processes. Teaming—The partnership’s intent is to study (benchmark) similar depot and contractor processes associated with nuclear aircraft carrier overhauls, which will contribute to a mutually beneficial goal of achieving the most timely and cost effective ship repair processes. Partnership established to gain consistent planned and anticipated workload on nuclear aircraft carriers. This partnership establishes a framework for resource sharing that will be used for carrier overhaul partnerships— resulting revenue to the depot will be reported under these resulting partnerships; however, depot has not reported any revenue to date. Direct sale/government-furnished resources—Depot subcontracts segments of its aircraft carrier to contractor owing to resource shortfalls. Contractor also does this in reverse. Depot supports contractor by accomplishing work in propulsion spaces owing to security classification. Contractor supports depot by providing resources such as painters, welders, and pipe fitters. Contractor sought out depot for its unique capabilities. Partnership completed and between partnership’s inception in October 2000 and November 25, 2002 generated total revenue of $156,000. Direct sale—Depot performed work in propulsion plant owing to security classification. Contractor was responsible for overhaul. Contractor sought out depot for its unique capabilities. Partnership completed between partnership’s inception in October 2000 and January 2001 generated total revenue of $31,000. Direct sale/government-furnished resources—Depot provided explosion bulge testing services. Contractor provided high-strength- low-alloy plates for testing. Puget Sound and Pacific Railway 1944 triggering event is unknown. Contractor allowed use of Navy owned railway in exchange for normal maintenance to rails and roadbed. Depot provides funding for major maintenance and capital improvements. Contractor sought out depot for its unique capabilities. No annual estimate available, but total revenue reported since partnership’s inception in October 2001 through November 2002— $67,000. Teaming—Depot will develop work packages for installation on submarine on the basis of contractor provided conversion drawings. Contractor will also provide all standard material, engineered components, and manufactured assemblies. Partnership type—description of partnership tasks out depot for its unique capabilities. Partnership is in initial phase of development and depot work has not yet begun—no annual estimate yet available. Direct sale/work share/lease— Depot provides touch labor, non- destructive inspection, and support equipment operators. Contractor provides engineering, supply chain management, and oversight. $10 million Work share—Test station design is out depot for its unique capabilities. a joint engineering effort between depot and contractor. Contractor will fabricate test stations. Depot and contractor will share effort to rehost software test programs on new test station. Contractor sought out depot for its unique capabilities. resources—Depot performs software maintenance tasks. Contractor integrates products associated with these tasks into the avionics system. Contractor sought out depot for its unique capabilities and advantageous labor rates. $1.2 million Work share/government-furnished resources—Depot provides labor for program installation, and share responsibility for the development of program hardware and software requirements with the contractors. Contractor provides program management and engineering support. BRAC process closed a government-owned facility where work was performed. Because this partnership is terminated, there is no continuing annual workload expected. Teaming—Depot performed analytical inspection and painted A- 10 aircraft, overhauled components and subcontracted KC-135 PDM workload to contractor. Contractor overhauled KC-135 aircraft. The Air Force transferred the contract management out of the depot; therefore, the depot no longer considers this a partnering effort— there is no ongoing partnering interaction between the depot and the contractor. Program manager directed work share. $4.1 million Work share—Depot provides labor to replace antiquated automatic test station. Contractor maintains overarching ICBM system integration responsibilities and oversight. Partnership type—description of partnership tasks $3.0 million Direct sale/work share/government- out depot for its unique capabilities. furnished resources—Depot provides maintenance and repair for 413 different B-2 bomber panels, doors, and surfaces. Contractor provides engineering services and technical assistance. $800,000 Work share/lease—Depot performs out depot for its advantageous labor rates. specified development and software maintenance tasks. Contractor maintains total system performance responsibility for this support effort. BRAC process closed a government-owned facility where work was performed. Teaming—Depot performs overhaul and repair of F100 engines, modules, components, and fuel accessories. Contractor performs overhaul and repair of T56 and TF59 engines, modules, components, and fuel accessories. Contractor sought out depot for its unique capabilities. $276,933 Direct sale—Depot performs jet engine testing. Contractor provides jet engines. Contractor sought out depot for its unique capabilities. $697,894 Work share—Depot inspects and polishes F100 engine parts. Contractor provides F100 engine parts. Contractor made business decision to close facility where work was previously done. Lease—Depot provides depot space and support to contractor. Contractor performs proprietary spray coating processes in depot spray booth. To meet new weapon system title 10 core depot maintenance requirements and contractor sought out depot for its unique capabilities. resources—Depot provides software development and integration support for new components being added to aircraft, which increases the depot’s software capabilities. Contractor maintains its overarching C-130 system integration responsibilities and oversight under the Air Force’s Total Systems Support Responsibility contract; therefore, specific contractor tasks will vary depending on the specific subsystem. To meet new weapon system title 10 core depot maintenance requirements and contractor sought out depot for its advantageous labor rates. $1.6 million Direct sale—Depot identifies hidden defects, deteriorating conditions, corrosion, fatigue, overstress, and other conditions that affect structure of C-17 aircraft. Contractor provides the depot with engineering, parts, and equipment support. Contractor sought out depot for its unique capabilities. No workload has materialized yet and because of the variable and unpredictable frequency of task orders no annual estimate of workload value is available. Work share—Depot will provide labor to support delivery or task orders issued to one of five contractors under the Air Force’s flexible acquisition sustainment tool contract. Contractor will manage the delivery or task orders to ensure performance, however, the specific contractor tasks will vary depending on the specific delivery or task order. Contractor made business decision to close facility where work was previously done. Lease—Depot provides facility where contractor repairs LANTIRN components. Contractor made business decision to close facility where work was previously done, and contractor sought out depot for its unique capabilities and advantageous labor rates. $796,000 Direct sale—Depot repairs 155 different components and delivers repaired components to contractor. Contractor provides failed components for repair. To meet new weapon system title 10 core depot maintenance requirements and contractor sought out depot for its unique capabilities and advantageous labor rates. $1.4 million Work share—Depot upgraded two laboratories to accommodate testing of upgraded avionics, and provides software engineering support to rehost operational flight software into upgraded avionics. Contractor provides upgraded avionics components for testing and rehosting. Northrop Grumman To satisfy title 10 $9.7 million Work share—Depot performs prime core depot maintenance requirements for the workload involved. mission equipment repair, system and ground support software maintenance, and various backshop functions. Contractor determines depot’s work requirements, and provides depot with sustaining engineering and other support functions. Program manager directed work share. $22 million Work share/lease—Depot disassembles and reassembles vehicle; rebuilds transmission, electronics, generators, and other components; installs new engine; and blasts and paints vehicle. Contractor provides labor expertise and equipment to modify vehicle hulls. Partnerships were formed for a variety of reasons such as to allow industry to take advantage of depots’ unique capabilities and advantageous labor rates, to take advantage of industry’s engineering capabilities and accessibility to spare and repair parts, and to help meet title 10 requirements while increasingly relying on the private sector for logistics support activities. Depending on the specific circumstances surrounding the work to be performed, the services used various arrangements—such as work share and teaming—to form their partnerships. Although the partnerships involve many logistics functions performed in various combinations by both public- and private-sector partners, in general, contractors perform more spare parts, engineering, and technical data functions, while the military depots provide more repair labor, facilities, and equipment. Reasons for Partnering Partnerships between military depots and contractors were formed for a variety of reasons. Service depot officials identified nine reasons for entering into partnerships as indicated in figure 3. In some instances, a combination of these reasons motivated the parties to form a partnership. As shown by figure 3, the largest category involved contractors seeking out a depot for its unique capabilities—57 times for the partnerships we reviewed. Other reasons frequently cited were contractors seeking out a depot for its advantageous labor rates—13 times, program mangers directing work share arrangements—12 times, and meeting title 10 requirements that limit the outsourcing of depot maintenance—10 times. As discussed in the body of the report, DOD expects these title 10 requirements to increasingly become an important driver to expanding partnerships as the department increases contractors’ involvement in logistics support for weapon systems because the contractors will often be required to partner with depots in order to satisfy title 10 provisions that limit the outsourcing of depot workload. The reasons for partnering discussed above and the circumstances surrounding a depot’s workload shape how the services develop the approach used for each of their partnerships, including the selection of a partnership type and how they divide responsibilities for the performance of logistics functions. The depot maintenance partnerships we reviewed used one or a combination of five partnering approaches: work share, direct sale, lease, government-furnished resources, and teaming. Figure 4 illustrates how frequently the five partnership types were used for the partnerships we reviewed. As indicated by figure 4, “direct sale” was the most frequently used approach. According to DOD officials, that approach is expected to increase in number with the expansion of contractor-managed logistics- support arrangements for weapon systems. The five public-private partnership approaches are described below. 1. Direct sale. An arrangement whereby military and commercial entities enter into a contractual relationship for the use of military depot maintenance facilities and employees to provide the private sector with articles and/or services. Forty-eight—53 percent—of the 90 partnerships we reviewed used the direct sale approach, making it the most frequently used partnering arrangement. DOD expects the use of direct sale arrangements to increase as DOD expands contractor involvement in logistics support for weapon systems in order to comply with title 10 provisions that limit the outsourcing of depot maintenance. The Navy’s F-18 Integrated Readiness Support Team and the Air Force’s B-2 Advanced Composite partnerships are examples of the direct sale approach to partnering. These examples each involve one partner—the depot—performing work directly for, and receiving payment from, the other partner—the contractor. (See appendix II for more detail on these and other partnerships.) 2. Work share. An arrangement whereby a combination of military and commercial facilities and/or employees is used to execute a program manager’s work package—including tasks such as weapon systems remanufacture, modification, or upgrade. Under the work share arrangement, the program manager issues a work order to the military participant and a contract to the private-sector participant. The relationship between the participants to accomplish the work package is usually coordinated with a memorandum of understanding or memorandum of agreement instead of a contract. Twenty-six—29 percent—of the 90 partnerships we reviewed used the work share approach, and this approach was typically used to form the services’ larger partnerships. The Army’s M1/M1A2 Abrams Tank upgrade partnership and the Navy’s Harrier Aircraft remanufacturing partnership are examples of work shares. These examples involve each partner’s performing its designated share of the workload directly for the weapon system’s program office and the paying of each partner by the program manager. 3. Teaming. An arrangement whereby military and commercial entities enter into a contractual relationship to accomplish a deliverable stipulated in a contract. The relationship between the participants is usually initially outlined in a teaming agreement during the proposal’s preparation and then formalized as a contractor/subcontractor relationship subsequent to contract award. Twenty-seven—or 30 percent—of the 90 partnerships we reviewed used the teaming approach. Most of the teaming arrangements occurred in the Army— 19, with the Navy using the teaming approach for six of its partnerships and the Air Force using teaming for two of its partnerships. 4. Lease. An arrangement whereby military and commercial entities enter into a contractual relationship for the private sector’s use of public depot maintenance facilities and/or its equipment to perform work for either the public or private sector. Twelve—13 percent—of the 90 partnerships we reviewed used the lease approach, often in conjunction with other partnering approaches. For example, the upgrade partnership for the Army’s Fox Nuclear, Biological, Chemical Reconnaissance System vehicle uses a lease arrangement in conjunction with a direct sale arrangement. The lease portion of the Fox partnership involves the depot’s providing underutilized facilities at Anniston Army Depot and the contractor’s paying for facility upkeep and utilities. The Air Force’s partnership for the F100 aircraft engine special technologies coating facility is an example of a stand-alone lease arrangement not involving other partnering arrangements. In this example, the Air Force’s Oklahoma City depot provides underutilized facilities, while the contractor pays the depot for the use of the facilities, provides facility upkeep, and pays utilities. 5. Government-furnished resources. An arrangement whereby military and commercial entities enter into an agreement for private-sector use of public depot maintenance facilities and/or its equipment and employees at no cost in connection with and under the terms of a contract. Nine—10 percent—of the 90 partnerships we reviewed used the government-furnished resources approach, which was also often used in conjunction with other partnering approaches. The Air Force’s F-16 block 40 avionics software maintenance/upgrade and the Navy’s Puget Sound railway partnerships are examples of the government- furnished resources approach to partnering. Under the F-16 partnership, the government performs F-16 component software maintenance tasks for the contractor without charge as a government- furnished resource, while the contractor performs final software integration. In the railway partnership, the government provides the contractor with access to a Navy-owned railway in exchange for the contractor’s performing normal maintenance on the railway. According to DOD and contractor officials, the type of partnership selected is based on what approach or combination of approaches best served the objectives of the partnership. For example, in the case of the Army’s Fox vehicle upgrade partnership, the Army contracted with General Dynamics to upgrade its Fox vehicle. To improve the economy and efficiency of the upgrade, the contractor elected to partner with the Army’s Anniston depot for a portion of the work and to colocate its segment of the upgrade with Anniston’s segment at the Anniston depot. Consequently, the contractor’s approach used a combination of two partnership types—direct sale and lease. Depot maintenance involves not only the application of labor to repair and maintain military equipment but also several other logistics elements or functions such as supply support, production engineering, facilities, and equipment. For the partnerships we reviewed, these logistics elements or functions were performed or provided by both public- and private-sector partners in various combinations on the basis of the characteristics of the workload and the abilities of the partners. In the case of the Navy’s auxiliary power unit repair effort, for example, the depot was repairing power units but did not have all the spare parts needed to complete repairs in a timely manner. To improve the availability of overhauled power units, the Navy awarded a contract for the power unit program’s overall system support and performance. As a condition of the contract, the contractor partnered with a Navy depot to perform depot repairs to comply with title 10 requirements that limit the outsourcing of depot maintenance. The partnership that developed for this workload involved the depot’s providing labor, facilities, and equipment, while the contractor provides technical data and spare parts. Figure 5 compares the frequency with which logistics functions are performed by depots and contractors for the partnerships we reviewed. As indicated by figure 5, the contractors’ contribution to the partnerships consisted of performing or providing more of the spare parts, engineering, and technical data functions than the other functions; and the depots’ contribution to partnerships consisted more of providing repair labor, facilities, and equipment. Some partnerships provide promising results or good potential for results related to improvements in parts availability, reduced repair time, reduced back orders, or reduced support costs. These improvements align with some of the partnership approaches included as a part of DOD’s logistics reengineering initiative—more efficient business processes, better facility utilization, workforce integration, and reduced cost of ownership—and may therefore contribute to enhancing depot efficiency and viability. The following examples provide illustrations of some of the improvements the partnerships achieved: T700 Engine. Corpus Christi Army Depot wanted to reduce the repair time and improve reliability for the Army’s T700 helicopter engine. Consequently, it entered into a partnership with General Electric to achieve these improvements. (See fig. 6 on p. 53.) Under the partnership, Corpus Christi provides the needed facilities and equipment and repairs the engine. General Electric provides spare parts, and technical, engineering, and logistics services. According to depot officials, this effort has resulted in the introduction of General Electric’s best practices at the depot, which in turn has resulted in the T700 engine repair line’s realizing a 26 percent reduction in engine turnaround time and a 40 percent increase in test cell pass rates. Depot and contractor officials both attribute the T700 engine’s improved depot repair times to better parts availability and improvements to the depot’s repair processes, although they also recognize that the related T700 recapitalization effort begun shortly after the formation of the partnership may also be a factor influencing these improvements. Auxiliary Power Unit. Cherry Point Naval Aviation Depot was repairing auxiliary power units for four aircraft but was experiencing production delays owing to poor spare parts support. To improve the availability of overhauled power units, the depot formed a partnership with Honeywell— the auxiliary power units’ manufacturer. (See fig. 7 on p. 54.) Under the partnership, the depot provides labor, facilities, and equipment, while the contractor provides production engineering and spare parts. According to depot officials, the number of units’ awaiting depot repair because of lack of parts went from 118 when the partnership began in July 2000 to zero in October 2002. According to the auxiliary power units users in the fleets, the resulting improvement in support has been outstanding. For example, the back orders for the power units were reduced from 125 in July 2000 to 26 in October 2002. Depot officials attribute these improvements to better parts support and the introduction of more efficient business practices to the repair process that include replacing rather than repairing worn components. USS Enterprise. Northrop Grumman Newport News shipyard was scheduled to overhaul the nuclear-powered aircraft carrier USS Enterprise in fiscal year 2002 but lacked the necessary capacity at its facility to perform the work as scheduled. (See fig. 8 on p. 55.) Consequently, Northrop Grumman formed a partnership with the Navy wherein the Norfolk Naval Shipyard provided drydock space and the Navy’s four shipyards provided 108,000 man-days of labor to augment Northrop Grumman’s overhaul of the aircraft carrier, which resulted in the overhaul’s completion as scheduled. Northrop Grumman retained overall responsibility for the overhaul and also contributed labor, equipment, production engineering, and technical data. According to shipyard officials, this partnership allowed the contractor and the shipyards to share their labor resources, which along with the drydock space, increased the Navy’s maintenance ability and therefore increased its production, making carriers available to the fleet sooner than would otherwise have been feasible. AGT1500 Recuperator. The Abrams Tank Recuperator production was formerly located at the Army’s Stratford Engine Plant in Connecticut, which was closed by BRAC in 1995. Honeywell relocated the capability to Anniston Army Depot in 1998 and entered a partnership with the depot at that time. (See fig. 9 on p. 57.) According to depot officials, this partnership is an example of a “pure” facility lease arrangement in which production has been colocated with its primary user—Anniston’s M1 tank engine repair line. The production operation benefits from base operations support provided by the depot. On-site production eliminates the need for a parts manager at the depot. It also eliminates the need for the Defense Logistics Agency to stock and issue recuperators, which means Anniston avoids Defense Logistics Agency surcharges. The minimal supply chain also reduces the need for raw material inventory and on-hand finished- goods inventory. Production is adjusted to meet customer demand on a near “just-in-time” basis. According to depot officials, these benefits resulted from Honeywell’s recuperator production operation’s proximity to the depot. LANTIRN Phase II. Lockheed Martin was under contract for the depot maintenance and repair of the Air Force’s LANTIRN system, but its vendors were not providing timely turnaround on the repair of certain LANTIRN components. To improve component support, Lockheed Martin and the Air Force’s Warner Robins depot negotiated a direct sale agreement for the depot to repair various quantities of 155 LANTIRN components. (See fig. 10 on p. 58.) According to Warner Robins officials, since the start of partnership in August 2001, the depot’s performance in repairing the components has been very good. For example, the depot’s average component repair turnaround time of 18 days under the partnership is much better than the average turnaround time of 93 days under Lockheed Martin’s prior vendors and also better than the negotiated turnaround time of 45 days agreed to under the partnership. Depot officials attributed these improvements to (1) Lockheed Martin’s colocation at the depot, which reduced the shipping time between Lockheed Martin and its vendors— some of which were overseas—and (2) ongoing Warner Robins’ operations that historically were more efficient in the repair of the LANTIRN components than were Lockheed Martin’s prior vendors. ICBM Global Positioning System. As the Air Force’s intercontinental ballistic missile (ICBM) logistics integrator, TRW Inc. had a requirement to arrange for the modification of ICBMs to add satellite global positioning capability. (See fig. 11.) However, TRW’s component manufacturing subcontractor’s estimate for the modification was too costly. To achieve the required modification at less cost, TRW Inc. formed a partnership with the Air Force’s Ogden depot to replace the old tracking system with the required global positioning system capability. Under the partnership, Ogden provides the labor for the modification installation, while TRW Inc. performs its integration and engineering support responsibilities. As a result of the partnership, the depot estimates that the program will save about $11 million in 4 years, thereby reducing the overall support cost of ICBMs. According to depot officials, the savings will result from the depot’s ability to produce and install the guidance modification for less than the original equipment manufacturer. DOD and contractor officials have identified 14 characteristics that they believe over time will contribute to a partnership’s success in achieving DOD’s objective of improved depot efficiency and viability. The following describes these characteristics and provides examples of how some of the partnerships we reviewed exhibited these characteristics. 1. Long-term relationship and commitment. A long-term relationship and commitment (1) permits both contractors and depots to better plan future workload requirements and create a better business case for the contractor to make investments to improve depot repair capability and (2) allows the contractor to help manage parts obsolescence. For example, the F/A-18 partnership involves a long-term relationship between the Navy and Boeing to provide logistics support for the F/A- 18E/F aircraft over the life cycle of the weapon system. Boeing and the depots are projecting partnering workloads for the Navy depots for the next 30 years, allowing the partners to create a phased plan to move from providing maintenance and repair on limited aircraft components to eventually encompass the entire weapon system. 2. Shared partnership vision and objectives. Having partners share the same partnership vision and objectives helps ensure that the partners will not be working at cross-purposes. The Navy ship depot maintenance partnerships involving shipyard work and workforce sharing—USS Memphis, USS Enterprise, and USS John C. Stennis— exemplify this characteristic. With the downsizing of the Navy, a corresponding decrease in the Navy and contractor shipyard workforces occurred. To manage the resulting downsized workforces and avoid the unnecessary duplication of skills, Navy and private shipyard officials developed and implemented a workforce-sharing initiative whereby shipyard workers are assigned to public or private workloads depending on the skills needed to perform the work and the Navy’s ship maintenance priorities. The partners view the shipyards as a shared resource that needs to be effectively managed in order to provide the Navy with the needed overhaul capability and cost and schedule performance while minimizing the collective workforce requirements. 3. The right metrics and incentives. The right metrics and incentives are needed to effectively measure that progress is being made and that the partners are effectively motivated to achieve partnership goals and objectives. For example, the prime reason why the Navy entered into its auxiliary power unit partnership at its Cherry Point depot was the shortage of power units within the fleets. To ensure that this problem was addressed by the partnership, the metrics that the Navy uses to evaluate the partners are the same metrics used to assess the quality of auxiliary power unit support to the fleet—e.g., depot turnaround-time, testing acceptance rates, and system availability. 4. Early acquisition community involvement. Developing the partnership with acquisition community involvement during the early phases of a weapon system’s acquisition helps to ensure that any additional depot maintenance capability development needed is fully planned and funded. The C-17 partnership efforts under way at Air Force depots illustrate that not building the partnership concept into the acquisition process early enough can lead to funding challenges. Until the Air Force recently determined that a significant portion the C-17 depot maintenance was core under 10 USC 2464 and would involve a public-private partnership, the system acquisition strategy was focused on contractor-provided depot maintenance. Consequently, the acquisition community had not planned or budgeted for the development of depot capability to support the currently planned partnering efforts. The Air Force is exploring ways of dealing with the potential shortfall. 5. Complementary skills and abilities. Each partner should bring complementary skills and abilities to the partnership because if each partner’s capabilities are the same, the relationship may result in a competitive and potentially adversarial relationship, not the cooperative synergistic relationship hoped for in a partnership. The Air Force’s Low Altitude Navigation Targeting Infrared for Night (LANTIRN) partnering approach provides an example in which each partner brought complementary abilities to the effort. The contractor managed the repair of the LANTIRN system but did not have the ability within its supplier network to repair subcomponents in a timely manner. The Air Force’s Warner Robins depot already had an ongoing repair line for these components and was able to easily supply the contractor’s requirements for maintaining the LANTIRN system. 6. Senior-level advocacy and support. DOD and contractor senior management support for a partnership is necessary to ensure that the effort receives the focus and resources needed to achieve success. The Air Force’s Joint Surveillance Target Attack Radar System (JSTARS) partnership, for example, illustrates the value of this characteristic. Senior Air Force and contractor leaders endorsed the partnership, requiring their managers to be innovative in overcoming the obstacles created by years of competitiveness and the associated tension. The partners responded by putting the right people in place with the mindset and leaderships skills necessary to make the partnership work. 7. Sound business case analysis. A comprehensive business case analysis, including expected outcomes, should be conducted as part of the decision process for entering a partnership to ensure a sound result benefiting both the depot and the private-sector partners. The Air Force’s ICBM Automatic Test Systems partnership, for example, was formed after the Air Force conducted an analysis to assess the cost- benefit of the effort. As a result, the Air Force documented its expected savings of approximately $30 million over the 5-year partnership. 8. Mutual trust and shared risk. The partnership should be firmly grounded in mutual trust, open communications, and balanced risk among partners. For example, according to the business development office at the Corpus Christi Army Depot, the T700 partnership involved both parties’ investing the necessary time to understand each other’s goals and develop a level of trust so that both parties were willing to share risks in order to make their partnering effort successful. 9. Flexibility to change partnership scope. To ensure the ability to adapt to changing circumstances or factors, the partnerships should have the flexibility to change the partnership scope. The Air Force’s F100 partnership illustrates this characteristic. For example, the partnership currently involves two types of F100 workload—the inspections of selected engine components and engine testing—but the partnership agreement provides for adding additional F100 workloads and other engine workloads. 10. Balanced workload. Workload should be balanced among the partners to ensure meaningful involvement for each partner and ensure that one partner does not receive only low-skilled work or no work at all. The AV-8B Harrier Remanufacturing partnership demonstrates a balanced division of workload among the partners. Both the depot and the contractor were responsible for segments of the remanufacturing effort that involved challenging tasks requiring highly skilled labor. For example, the depot partner modified and rewired the aircraft wing and rebuilt complex aircraft components, while the contractor built and provided new aircraft components and then incorporated these components along with the wing and components from the depot into the remanufactured aircraft. The division of tasks helped each partner maintain and improve its respective technical expertise. 11. Independent review and oversight. Independent review and oversight provides an objective assessment of whether each partnership is achieving the expected benefits and that each partner performs as expected. Such a review also provides a basis for correcting or redirecting partnership efforts if expectations are not being met. To this end, OSD has begun a process to provide review and oversight of depot maintenance partnering efforts throughout the department. For example, OSD has directed its Joint Depot Maintenance Analysis Group to collect and maintain data on the conduct and performance of service partnerships. OSD plans to use these data to redirect and improve partnering efforts toward achieving DOD’s goals and objective. 12. Enforce partnership decisions and requirements. To ensure successful partnering efforts, the partners’ senior management must provide a mechanism for enforcing compliance with partnership decisions and requirements. The Air Force’s JSTARS partnership effort, for example, incorporates the partnership agreement and requirements into the overarching system logistics support contract. According to depot officials, the contract is the most effective means for compelling partner compliance with partnership decisions and requirements. 13. Full coordination with all stakeholders. Public-private partnership efforts should include steps to get feedback from all stakeholders on planned efforts and adjust the partnering strategies to reflect the legitimate concerns of these stakeholders. The Army’s Multiple Launch Rocket System Hoist Assembly partnership exemplifies full coordination among the depot; the contractor; and the major command’s general counsel, business operations office, and acquisition community. 14. Clearly documented objectives in partnering agreement. Once clear mutual partnering objectives are determined, they should be documented into a formal partnering agreement. For example, the Army’s Tobyhanna depot follows a standard procedure of documenting all partnering arrangements with formal agreements. This documentation typically includes a nondisclosure agreement, which protects shared information that is proprietary or otherwise business sensitive, and a partnering agreement that includes the partnership’s objectives, a statement of work to be performed, the partners’ roles and responsibilities, and other terms and conditions as needed. Julia Denman, Larry Junek, Robert Malpass, M. Jane Hunt, Jack Edwards, Robert Ackley, and John Strong also made significant 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. 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For several years, the Department of Defense (DOD) and the Congress have encouraged the defense logistics support community to pursue partnerships with the private sector to combine the best commercial processes and practices with DOD's extensive maintenance capabilities. In January 2002, DOD issued policy encouraging the use of public-private depot maintenance partnerships to improve the efficiency and viability of its depots. GAO reviewed these partnerships and assessed the extent that DOD is participating in these partnerships, the characteristics needed to achieve effective partnerships and where DOD is in its ability to measure success, and the management challenges to DOD's planned expansion of partnerships. While the number of public-private partnerships that DOD is participating in has increased from 19 to 93 from fiscal year 1998 through fiscal year 2002, the existing partnerships represented only 2 percent of DOD's fiscal year 2002 $19 billion depot maintenance program. Even with the small amount of expenditures and workload associated with partnerships, some partnerships that GAO reviewed either improved some aspects of repair performance or showed potential for doing so. On the other hand, 19 partnerships have generated no work thus far. DOD and contractor officials have identified 14 characteristics that they believe over time will contribute to a partnership's success in achieving DOD's objective of improved depot efficiency and viability. However, DOD has a limited ability to measure the overall success of its partnering efforts because it has not yet developed measurable goals for the expected outcomes of the effort and the metrics that it has developed sometimes will not provide the data needed to fully assess the partnerships. Without initially establishing clear, measurable goals to define success in improving the efficiency and viability of its depots and metrics that provide the relevant data for the measurement, DOD has limited objective means to assess whether the partnerships are working as intended. Furthermore, DOD faces challenges in its efforts to expand its use of public-private partnerships. For example, opportunities available for DOD to expand its use of these partnerships may be limited by external factors that the services cannot replicate or create at will, such as one-time business opportunities. Also, while DOD is expecting private sector funding to support the establishment of capability for depot partnerships for new systems, the amount of private-sector investment to date is only $6.9 million, and the extent to which the private-sector will make additional investments is uncertain.

You are an expert at summarizing long articles. Proceed to summarize the following text: Our work has identified several challenges related to U.S. efforts in Afghanistan. Among those we highlighted in our 2013 key issues report are a dangerous security environment, the prevalence of corruption, and the limited capacity of the Afghan government to deliver services and sustain donor funded projects. Dangerous security environment. Afghanistan’s security environment continues to challenge the efforts of the Afghan government and international community. This is a key issue that we noted in 2007 when we reported that deteriorating security was an obstacle to the U.S. government’s major areas of focus in Afghanistan.2009, the U.S. and coalition partners deployed additional troops to disrupt and defeat extremists in Afghanistan. While the security situation in Afghanistan has improved, as measured by enemy- In December initiated attacks on U.S. and coalition forces, Afghan security forces, and non-combatants, including Afghan civilians, the number of daily enemy-initiated attacks remains relatively high compared to the number of such attacks before 2009. In 2012, attacks on ANSF surpassed attacks on U.S. and coalition forces (see fig. 2). Prevalence of corruption in Afghanistan. Corruption in Afghanistan continues to undermine security and Afghan citizens’ belief in their government and has raised concerns about the effective and efficient use of U.S. funds. We noted in 2009 that according to the Afghan National Development Strategy pervasive corruption exacerbated the Afghan government’s capacity problems and that the sudden influx of donor money into a system already suffering from poor procurement practices had increased the risk of corruption and waste of resources. According to Transparency International’s 2013 Corruption Perception Index, Afghanistan is ranked at the bottom of countries worldwide. In February 2014, the Afghan President dissolved the Afghan Public Protection Force which was responsible for providing security intended to protect people, infrastructure, facilities, and construction projects. DOD had reported major corruption concerns within the Afghan Public Protection Force. Limited Afghan capacity. While we have reported that the Afghan government has increased its generation of revenue, it remains heavily reliant on the United States and other international donors to fund its public expenditures and continued reconstruction efforts. In 2011, we reported that Afghanistan’s domestic revenues funded only about 10 percent of its estimated total public expenditures. We have repeatedly raised concerns about Afghanistan’s inability to sustain and maintain donor funded projects and programs, putting U.S. investments over the last decade at risk. DOD reported in November 2013 that Afghanistan remains donor dependent. These persistent challenges are likely to play an even larger role in U.S. efforts within Afghanistan as combat forces continue to withdraw through the end of 2014. The United States, along with the international community, has focused its efforts in areas such as building the capacity of Afghan ministries to govern and deliver services, developing Afghanistan’s infrastructure and economy, and developing and sustaining ANSF. In multiple reviews of these efforts, we have identified numerous shortcomings and have made recommendations to the agencies to take corrective actions related to (1) mitigating against the risk of providing direct assistance to the Afghan government, (2) oversight and accountability of U.S. development projects, and (3) estimating the future costs of ANSF. In 2010, the United States pledged to provide at least 50 percent of its development aid directly through the Afghan government budget within 2 years. This direct assistance was intended to help develop the capacity of Afghan government ministries to manage programs and funds. In the first year of the pledge, through bilateral agreements and multilateral trust funds, the United States more than tripled its direct assistance awards to Afghanistan, growing from over $470 million in fiscal year 2009 to over $1.4 billion in fiscal year 2010. For fiscal year 2013 USAID provided about $900 million of its Afghanistan mission funds in direct assistance. In 2011 and 2013, we reported that while USAID had established and generally complied with various financial and other controls in its direct assistance agreements, it had not always assessed the risks in providing direct assistance before awarding funds. Although USAID has taken some steps in response to our recommendations to help ensure the accountability of direct assistance funds provided to the Afghan government, we have subsequently learned from a Special Inspector General for Afghanistan Reconstruction (SIGAR) report that USAID may have approved direct assistance to some Afghan ministries without mitigating all identified risks. Since 2002, U.S. agencies have allocated over $23 billion dollars towards governance and development projects in Afghanistan through USAID, DOD, and State. The agencies have undertaken thousands of development activities in Afghanistan through multiple programs and funding accounts. We have previously reported on systemic weaknesses in the monitoring and evaluation of U.S. development projects as well as the need for a comprehensive shared database that would account for all U.S. development efforts in Afghanistan (see table 1). With respect to monitoring and evaluation, although USAID collected progress reports from implementing partners for agriculture and water projects, our past work found that it did not always analyze and interpret project performance data to inform future decisions. USAID has undertaken some efforts in response to our recommendations to improve its monitoring and evaluation of the billions of dollars invested toward development projects in Afghanistan. We and other oversight agencies, however, have learned that USAID continued to apply performance management procedures inconsistently, fell short in maintaining institutional knowledge, and still needed to strengthen its oversight of contractors. For example, in February 2014, we reported that USAID identified improvements needed in its oversight and management of contractors in Afghanistan, including increasing the submission of contractor performance evaluations. We also found that USAID may have missed opportunities to leverage its institutional knowledge, and have recently recommended that USAID further assess its procedures and practices related to contingency contracting. GAO, Afghanistan Reconstruction: Progress Made in Constructing Roads, but Assessments for Determining Impact and a Sustainable Maintenance Program Are Needed, GAO-08-689 (Washington, D.C.: July 8, 2008). comprehensive database of U.S. development projects in Afghanistan in 2012, we suggested that Congress consider requiring U.S. agencies to report information in a shared comprehensive database. Since 2002, the United States, with assistance from coalition nations, has worked to build, train, and equip ANSF so that the Afghan government could lead the security effort in Afghanistan. U.S. agencies have allocated over $62 billion to support Afghanistan’s security, including efforts to build and sustain ANSF, from fiscal years 2002 through 2013. This has been the largest portion of U.S. assistance in Afghanistan. The United States and the international community have pledged to continue to assist in financing the sustainment of ANSF beyond 2014. In April 2012, we reported concerns regarding the need to be transparent in disclosing the long-term cost of sustaining ANSF beyond 2014. DOD initially objected to such disclosure noting that ANSF cost estimates depend on a constantly changing operational environment and that it provided annual cost information to Congress through briefings and testimonies. Our analysis of DOD data estimates that the cost of continuing to support ANSF from 2014 through 2017 will be over $18 billion, raising concerns about ANSF’s sustainability. Furthermore, we reported that on the basis of projections of U.S. and other donor support for ANSF, that there will be an estimated gap each year of $600 million from 2015 through 2017 between ANSF costs and donor pledges if additional contributions are not made. We previously noted in 2005 and 2008 that DOD should report to Congress about the estimated long-term cost to sustain ANSF.Congress mandated that DOD take such steps. In 2012, we once again In 2008, reported that DOD had not provided estimates of the long-term ANSF costs to Congress. Subsequently, in a November 2013 report to Congress on its efforts in Afghanistan, DOD included a section on the budget for ANSF and reported the expected size of ANSF to be 230,000 with an estimated annual budget of $4.1 billion. In February 2013, we reported that while the circumstances in Iraq differ from those in Afghanistan, potential lessons could be learned from the transition from a military to civilian-led presence to avoid possible missteps and better utilize resources. As we have reported, contingency planning is critical to a successful transition and to ensuring that there is sufficient oversight of the U.S. investment in Afghanistan.particularly vital given the uncertainties of the U.S.-Afghanistan Bilateral Security Agreement and post-2014 presence. While the circumstances, combat operations, and diplomatic efforts in Iraq differ from those in Afghanistan, potential lessons can be learned from the transition from a military to civilian-led presence in Iraq and applied to Afghanistan to avoid possible missteps and better utilize resources. In Iraq, State and DOD had to revise their plans for the U.S. presence from more than 16,000 personnel at 14 sites down to 11,500 personnel at 11 sites after the transition had begun—in part because the United States did not obtain the Government of Iraq’s commitment to the planned U.S. presence. Given these reductions, we found that State was projected to have an unobligated balance of between about $1.7 billion and about $2.3 billion in its Iraq operations budget at the end of fiscal year 2013, which we brought to the attention of Congressional appropriators. As a result, $1.1 billion was rescinded from State’s Diplomatic and Consular Programs account. According to DOD officials, U.S. Forces-Iraq planning assumed that a follow-on U.S. military force would be approved by both governments. The decision not to have a follow-on force led to a reassessment of State and DOD’s plans and presence. In April 2014, we reported that State planned for the U.S. footprint in Afghanistan to consist of the U.S. Embassy in Kabul, with additional representation at other locations as security and resources allow. In a review still under way, we are examining the status of U.S. civilian agencies’ plans for their presence in Afghanistan after the scheduled end of the U.S. combat mission on December 31, 2014, and how changes to the military presence will affect the post-2014 U.S. civilian presence. We have found that State plans to provide some critical support services to U.S. civilian personnel after the transition, but is planning to rely on DOD for certain other services. We plan to report in July 2014 on the anticipated size, locations, and cost of the post-2014 U.S. civilian presence, the planned division of critical support responsibilities between State and DOD, and how pending decisions regarding the post-2014 U.S. and coalition military presence will affect the U.S. civilian presence. In closing, the President announced in May 2014 that the United States intends to maintain a military presence in Afghanistan through the end of 2016, stationing about 10,000 military personnel in Afghanistan with two narrow missions: to continue supporting ANSF training efforts and to continue supporting counterterrorism operations against the remnants of al Qaeda. Simultaneously, the President announced that the embassy would be reduced to a “normal” presence. At the same time, the United States has made commitments to continue providing billions of dollars to Afghanistan over the next 2 years. These recently announced plans underscore the bottom line of my message today: continued oversight of U.S. agencies is required to ensure the challenges they face are properly mitigated in Afghanistan and that there is oversight and accountability of U.S. taxpayer funds. Chairman Ros-Lehtinen, Ranking Member Deutch, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to answer any questions that you may have at this time. For further information on this statement, please contact me at (202) 512- 7331 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 testimony include Hynek Kalkus (Assistant Director), David Dayton, Anne DeCecco, Mark Dowling, Brandon Hunt, Christopher J. Mulkins, Kendal Robinson, and Amie Steele. 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The U.S. government has engaged in multiple efforts in Afghanistan since declaring a global war on terrorism that targeted al Qaeda, its affiliates, and other violent extremists, including certain elements of the Taliban. These efforts have focused on a whole-of-government approach that calls for the use of all elements of U.S. national power to disrupt, dismantle, and defeat al Qaeda and its affiliates and prevent their return to Afghanistan. This approach, in addition to security assistance, provided billions toward governance and development, diplomatic operations, and humanitarian assistance. To assist Congress in its oversight, GAO has issued over 70 products since 2003 including key oversight issues related to U.S. efforts in Afghanistan. This testimony summarizes the key findings from those products and discusses: (1) the challenges associated with operating in Afghanistan, (2) key oversight and accountability issues regarding U.S. efforts in Afghanistan, and (3) the need for contingency planning as the U.S. transitions to a civilian-led presence in Afghanistan. Since 2003, GAO has identified numerous challenges related to U.S. efforts in Afghanistan. Among the various challenges that GAO and others have identified, are the following: the dangerous security environment, the prevalence of corruption, and the limited capacity of the Afghan government to deliver services and sustain donor-funded projects. As illustrated in the figure below, between fiscal years 2002 and 2013, U.S. agencies allocated nearly $100 billion toward U.S. efforts in Afghanistan. The United States, along with the international community, has focused its efforts in areas such as building the capacity of Afghan ministries to govern and deliver services, developing Afghanistan's infrastructure and economy, and developing and sustaining the Afghan National Security Forces. In multiple reviews of these efforts, GAO has identified numerous shortcomings and has made recommendations to the agencies to take corrective actions related to (1) mitigating the risk of providing direct assistance to the Afghan government, (2) oversight and accountability of U.S. development projects, and (3) estimating the future costs of sustaining Afghanistan's security forces which the United States and international community have pledged to support. In February 2013, GAO reported that while the circumstances, combat operations, and diplomatic efforts in Iraq differ from those in Afghanistan, potential lessons could be learned from the transition from a military- to a civilian-led presence to avoid possible missteps and better utilize resources. As GAO has reported, contingency planning is critical to a successful transition and to ensuring that there is sufficient oversight of the U.S. investment in Afghanistan. This is particularly vital given the uncertainties of the U.S.-Afghanistan Bilateral Security Agreement and the ultimate size of the post-2014 U.S. presence in Afghanistan. While GAO is not making new recommendations it has made numerous recommendations in prior reports aimed at improving U.S. agencies' oversight and accountability of U.S. funds in Afghanistan. U.S. agencies have generally concurred with these recommendations and have taken or plan to take steps to address them.

You are an expert at summarizing long articles. Proceed to summarize the following text: Before commencing operations, new airlines must obtain two separate authorizations from DOT—“economic” authority from the Office of the Secretary of Transportation (OST) and “safety” authority from FAA. Within OST, the Air Carrier Fitness Division is responsible for assessing whether applicants have the managerial competence, disposition to comply with regulations, and financial resources necessary to operate a new airline. FAA’s Flight Standards Service uses a multiphase process to determine whether an applicant’s manuals, aircraft, facilities, and personnel meet federal safety standards. Once airlines begin actual operations, FAA is responsible for monitoring the operations, primarily by conducting safety inspections. FAA conducts two types of inspections: routine and special. Routine inspections are generally spot checks performed by individual inspectors on a periodic basis. FAA’s special inspections complement routine inspections by providing more comprehensive evaluations of airlines’ operations. To analyze the safety performance of new airlines, we used three sets of data—data on accidents from the National Transportation Safety Board (NTSB), FAA’s data on incidents, and FAA’s data on enforcement actions initiated against airlines. We discussed the selection of these data sets with officials from FAA, DOT, and NTSB, who agreed that they were appropriate for our analysis. However, it should be noted that all three have limitations. Specifically, some of NTSB’s files on accidents did not definitively specify the airline that was operating the aircraft; FAA’s data on incidents may be subject to some underreporting; and the data on the number of enforcement actions initiated, while complete, may reflect differences among FAA field offices in the emphasis they placed on initiating enforcement actions. We reviewed and made refinements to these data, where appropriate, to address these concerns. NTSB, the official source of information on airline accidents, defines accidents as events in which individuals are killed or suffer serious injury, or the aircraft is substantially damaged. By NTSB’s definition, accidents can range from fatal crashes in which the aircraft is destroyed and all crew and passengers aboard are killed, to events in which only one person suffers a broken bone and the aircraft is not damaged, to still others in which there is substantial aircraft damage, but no fatalities or serious injuries. FAA generally defines incidents as occurrences other than accidents associated with the operation of an aircraft that affect or could affect the safety of operations. Among the commonly recorded types of incidents are engine malfunctions, system failures, landing gear collapses, and losses of directional control. Other types of incidents include collisions with various structures, such as runway lights, fences, wires, or poles; fires; and in-flight turbulence resulting in damage to the aircraft or less serious personal injury. FAA may initiate enforcement actions in response to apparent or alleged violations of the Federal Aviation Act or federal aviation regulations. The actions that can be taken under FAA’s compliance and enforcement program include administrative actions, such as warning notices and letters of correction, and legal enforcement remedies, such as revoking, suspending, or amending an airline’s operating authority. Examples of violations that can lead to enforcement actions range from an airline’s failure to perform proper aircraft maintenance to a pilot’s failure to maintain the altitude directed by air traffic control. Another example is a pilot who possesses a valid pilot certificate but inadvertently pilots an aircraft without the certificate in his or her possession. The available data show that both new and established airlines experience accidents infrequently. Nevertheless, from 1990 through 1994, new airlines had an average accident rate of 0.60 per 100,000 departures compared with the established airlines’ average rate of 0.36 per 100,000 departures.However, NTSB’s definition of accident can range from fatal crashes in which the aircraft is destroyed and all crew and passengers aboard are killed, to events where there is substantial damage to the aircraft but no fatalities or serious injuries, and to still others where only one person may suffer a broken bone, but the aircraft suffers no substantial damage. As a result, the use and interpretation of accident data require caution. Of the 201 accidents that occurred in 1990 through 1994, 45 involved fatalities, of which 5 involved new airlines. Both new and established airlines had a higher number of incidents and enforcement actions from 1990 through 1994, thus providing much more information for analyzing safety trends. During 1990 through 1994, there were a total of 2,879 incidents and 3,982 enforcement actions. Both new large and commuter airlines experienced higher average rates of incidents and enforcement actions, as a group, than established large and commuter airlines. In particular, for new airlines, the rates of incidents and enforcement actions peaked during their early years of operations. However, there was some clustering of these events among the new airlines. More than half of the new airlines had no incidents during the period of our analysis, and 42 percent of the new airlines had no enforcement actions initiated against them. Thus, while these rates provide useful information for analysis, it would not be appropriate to conclude that new airlines provide unsafe service. (Detailed information on new airlines’ and established airlines’ departures, accidents, incidents, FAA-initiated enforcement actions, and their respective rates is contained in app. II.) In 1990 through 1994, NTSB reported 201 accidents by commercial airlines that provide scheduled service. Most airlines—both new and established—had no accidents during 1990-94. For example, among the 29 new large airlines in our review, 3 had accidents; the other 26 had no accidents during the 5-year period. Similarly, of the 50 new commuters, 7 had accidents. Of the 203 established airlines, 69 had accidents. The remaining 134 had no accidents. Of the 201 accidents, 45 involved fatalities. These accidents ranged from 1 accident in which 132 people on board the aircraft were killed to 12 separate accidents in which 1 person was killed; in 8 of those 12 accidents, the person killed was not on board the aircraft. In one case, for example, an airline employee was killed after walking into a rotating propeller blade. The remaining 156 accidents involved serious injury and/or substantial aircraft damage. New airlines experienced 13 of the 201 total accidents and 5 of the 45 fatal accidents. The new airlines’ accidents resulted in a rate of 0.60 per 100,000 departures, while the established airlines’ accidents resulted in a rate of 0.36 per 100,000 departures. More specifically, new large airlines had an accident rate of 1.35 per 100,000 departures, while large established airlines had a rate of 0.30 per 100,000 departures. In contrast, new commuters had an accident rate of 0.48 per 100,000 departures, while established commuters had a rate of 0.46 per 100,000 departures. Aware that the current definition of accident does not distinguish among the varying degrees of accidents’ severity, NTSB and FAA have undertaken an effort to develop new subclassifications of aviation accidents. One option that has been explored is to define accidents according to the significance of damage, recording and grouping data accordingly. However, according to officials in FAA’s Office of Accident Investigations and NTSB’s Office of Research and Engineering, the results of the joint effort have not yet been completed, and no completion date has been set. During 1990 through 1994, new large and commuter airlines had incident rates that were, on average, 52 percent higher than those of established airlines (overall, a rate of 8.1 incidents per 100,000 departures compared with a rate of 5.4 incidents per 100,000 departures for established airlines). For new large airlines, the incident rate was over twice that of large established airlines (a rate of 11.5 incidents per 100,000 departures compared with a rate of 5.1 incidents per 100,000 departures for large established airlines). The average incident rate for new commuters during 1990 through 1994 was also higher than that of established commuters, although the difference was not as great. (See table 1.) As with our analysis of accidents, these rates represent the combined experiences of the airlines in each of the different categories over the entire 5-year period. Of the new airlines, 38 (48.1 percent) experienced at least one incident sometime during 1990-94, while the other 41 experienced no incidents. Of the new airlines that experienced incidents, the incident rates ranged from 2.8 to 666.7 incidents per 100,000 departures. Of the 203 established airlines, 162 (79.8 percent) had one or more incidents during the same period, while the other 41 experienced no incidents. At certain times during their first 5 years of operations, new airlines that experienced incidents had rates that greatly exceeded the average rates for established airlines. For new large airlines, these times were during their second, fourth, and fifth years of operations. For example, the rate for new large airlines more than tripled between their first and second years of operations. Of the 18 new large airlines that had their second year of operations sometime during 1990 through 1994, 7 (38.9 percent) had incidents. The other 11 second-year new airlines had no incidents. In commenting on a draft of this report, DOT noted that one adverse event for a new airline with a limited number of departures can significantly affect accident, incident, or enforcement rates. We agree that because new airlines have fewer departures, the rates at which they experience problems must be viewed with caution. Nevertheless, our review included the entire data sets of departures, accidents, incidents, and enforcement actions for new and established airlines for a 5-year period, and thus these data are important pieces of information in FAA’s efforts to oversee the airline industry. The purpose of our analysis of these data was to assess analytically whether there were differences between new and established airlines overall that might warrant FAA’s increased oversight of new airlines. Figure 1 shows the change in the incident rates for new large airlines over their first 5 years of operations and compares them with the average rate for large established airlines. For new commuters, the average incident rate during their first year of operations was about the same as for established commuters. But by their third year of operations, new commuters had an incident rate that was twice as great as the rate for established commuters (11.6 versus 5.8 per 100,000 departures) and more than twice the rate they experienced in their first year of operations. (Of the 23 new commuters that operated for at least 3 years during 1990 through 1994, 10 experienced incidents in their third year.) During the new commuters’ fourth and fifth years of operations, the incident rate declined. Figure 2 shows the change in the incident rates for new commuters over their first 5 years of operations and compares them with the average rate for established commuters. Our analysis did not specifically identify the reasons why new airlines experienced higher levels of incidents during certain periods of their first 5 years of operations. We discussed the results of our analysis with FAA officials. They said that they were unaware of these trends—they had not done an analysis similar to ours for new airlines—nor were they aware of any other studies addressing this issue. Nevertheless, they theorized that new airlines may encounter more incidents because their fleets expanded faster than their organizational ability to absorb the growth, train their staff, and maintain their fleets. Other factors can also be a cause for concern and may warrant closer scrutiny. These include precarious financial conditions (which some new airlines encountered) or the level at which major functions, such as maintenance, are contracted out, which can lead to a loss of control or oversight—a concern that FAA recently acknowledged in its review of ValuJet Airlines. FAA’s compliance and enforcement program is designed to promote compliance with both statutory and regulatory requirements. Under this program, the agency may initiate enforcement actions in response to apparent or alleged violations of the laws governing federal aviation or of federal aviation regulations. Enforcement actions may be initiated on the basis of FAA’s inspection results or on information provided by other sources such as air traffic controllers or employees in the airline industry. Enforcement actions include administrative actions, such as warning notices and letters of correction; legal enforcement remedies, such as amending, suspending, or revoking airlines’ operating certificates; and punitive actions, such as imposing civil (financial) penalties and temporarily suspending certificates. For example, FAA may pursue civil penalties against an airline that operates aircraft that are not airworthy, repairs equipment using unacceptable methods, or violates regulations on the transportation of hazardous materials. When an immediate safety need exists, FAA inspectors can also issue an emergency revocation order—the most severe action that can be taken against a domestic airline—to prevent an airline from conducting flight operations. In 1990 through 1994, FAA initiated twice the rate of enforcement actions against new airlines as a group than it initiated against established airlines. FAA initiated 14.8 enforcement actions per 100,000 departures against new airlines and 7.3 per 100,000 departures against established airlines. In addition, just as both new large and commuter airlines experienced elevated rates of incidents during their early years of operations, they also experienced higher rates of enforcement actions during their early years of operations. FAA initiated considerably higher rates of enforcement actions against new large airlines, as a group, than it did against large established airlines. In 1990 through 1994, new large airlines had 8 times more enforcement actions than their established counterparts—an average of 64.3 actions initiated against them per 100,000 departures compared with 7.8 actions per 100,000 departures for large established airlines. Figure 3 shows the change in the rate of enforcement actions initiated against new large airlines during their first 5 years of operations. Most of the enforcement actions that FAA initiated against new large airlines were concentrated among relatively few airlines. Of the 190 total enforcement actions initiated against new large airlines during the period, FAA initiated 141 (74.2 percent) against 10 airlines and 49 against 11 other airlines. FAA initiated no enforcement actions against eight airlines that were new airlines during the period. FAA initiated relatively fewer enforcement actions against both new and established commuters, and the difference in the average number of enforcement actions initiated was smaller. In 1990 through 1994, FAA initiated an average of 7.0 enforcement actions against new commuters per 100,000 departures compared with 6.2 against established commuters per 100,000 departures. As with incident rates, new commuters tended to experience rising rates of enforcement actions until after their third year of operations. Figure 4 shows the incidence of FAA-initiated enforcement actions during the new commuters’ first 5 years of operations. FAA initiated an average of 10.7 enforcement actions against new commuters during their third year of operations—more than 70 percent higher than the average rate for established commuters. During the new commuters’ fourth and fifth years of operations, the rate of enforcement actions initiated declined markedly. Similar to the pattern observed for new large airlines, most of the enforcement actions were initiated against relatively few new commuters. Of the 130 total actions initiated against new commuters in 1990 through 1994, FAA initiated 106 (81.5 percent) against 10 airlines; the other 24 enforcement actions were divided among another 15 airlines. FAA initiated no enforcement actions against the remaining 25 new commuters. FAA’s data reveal that most enforcement cases initiated against scheduled airlines resulted in administrative actions, rather than other actions. Of the total 2,286 enforcement cases that had been initiated in 1993 for which data on final action are available, 1,538 (67.3 percent) concluded with an administrative action, 84 (3.7 percent) concluded with a civil penalty, 79 (3.5 percent) concluded with a certificate suspension, and 18 (0.8 percent) concluded with a revocation. In another 567 cases (24.8 percent), FAA took no action. FAA is responsible for promoting safety in air transportation, and the airlines are responsible for operating their aircraft safely in compliance with the requirements in title 14 of the Code of Federal Regulations that cover the aircraft and its systems, maintenance, and personnel and training. FAA oversees the airlines’ programs by monitoring the safety of all operating airlines and conducting periodic inspections. FAA’s national inspection guidelines in effect during the period of our review, which set priorities and established a minimum standard for the number and type of inspections, did not call for new airlines to be inspected any differently from established airlines. However, the guidelines grant latitude to FAA’s regional and district offices to identify the areas that they determine to be important in the interest of safety. This discretionary surveillance allows inspectors and their supervisors at FAA’s field offices to develop work programs that can be tailored to their particular environments and be balanced against such competing priorities as accident investigations. Over the years, FAA has targeted specific airlines and areas of commercial airline operations for increased surveillance on the basis of a variety of factors. For example, FAA has used an increased frequency of noncompliance with federal aviation regulations, an increased frequency of incidents by individual airlines, the deteriorating financial conditions of individual airlines, and non-airline-specific attributes (such as aging aircraft) to target its surveillance activities. However, FAA has not compared the performance characteristics of new airlines, as a group, with those of established airlines to determine whether new airlines should be targeted for increased surveillance. In general, we found that in 1990 through 1994, FAA’s field offices inspected new large airlines, as a group, more frequently than large established airlines. On average, for large airlines, FAA conducted one inspection for every 20.3 new airline departures and one for every 65.5 established airline departures. For new commuters FAA conducted, on average, one inspection for every 113.1 departures and for established commuters, one inspection for every 107.8 departures. However, there was considerable variation in the relative frequency with which FAA inspected individual airlines. At the extremes, the data showed that a few airlines received more than one inspection for every departure, while a few others made hundreds of flights between inspections. FAA’s inspection effort also varied widely among the new airlines that had the greatest average annual number of departures. Of the 10 new large airlines with the highest average number of departures, inspection rates ranged from once every 8 departures to once every 92 departures. Similarly, of the 10 new commuters with the highest average number of departures, the data indicate that FAA’s inspection rates ranged from once every 38 departures to once every 340 departures. We also found no clear pattern between inspection rates and the airlines’ rate of incidents or FAA-initiated enforcement actions. For example, among the 17 new large airlines responsible for 85 percent of the incidents and enforcement actions in 1990 through 1994, the frequency of inspections varied from one inspection for every two departures to one inspection for every 66 departures. Similarly, among the 13 new commuters that accounted for approximately 80 percent of the incidents and enforcement actions initiated against that group, the frequency of inspections varied from one inspection for every 21 departures to one inspection for every 188 departures. On the other hand, some airlines that had had no accidents, incidents, or enforcement actions initiated against them were inspected by FAA once every several hundred departures. One other, however, was inspected every two departures. More specifically, of the seven new large airlines that were inspected less frequently than the average for all new large airlines, one—ValuJet—had an incident rate that was 40 percent higher than average, but it was inspected only about one-third as frequently as all new large airlines through calendar year 1994. For new commuters, 8 of the 17 that were inspected less frequently than average had incident or enforcement action rates that were higher than average. FAA officials told us that the low inspection rates for new airlines with relatively high problem rates may be due to the fact that some new airlines, particularly new commuters, may serve airports that are not closely located to the field office where their inspectors are assigned. The recent disclosures about safety problems at ValuJet Airlines and FAA’s oversight of ValuJet illustrate the need for FAA to closely monitor new airlines. ValuJet began operations in October 1993 with 2 aircraft and expanded its operations to 47 aircraft about 2 years later. In October 1994, FAA conducted a detailed inspection of ValuJet and found 35 violations of FAA’s air safety regulations. The two most serious violations—flying an aircraft with broken forward and aft cargo door locks and flying an aircraft over 140 flights with a leaking hydraulic line—resulted in a fine of $8,500. In September 1995, FAA conducted another detailed inspection of ValuJet and found 58 violations, including the absence of a continued analysis and surveillance program, conflicts between the airline’s general maintenance manual and the federal aviation regulations, and the conduct of maintenance with unapproved procedures. In February 1996, FAA initiated a “special emphasis program” for ValuJet. The May 6, 1996, preliminary report on this effort identified 130 findings on several aspects of ValuJet’s operations, including flight operations training, crew qualifications, manuals and procedures, and maintenance. After the May 11, 1996, crash, which killed all 110 passengers and crew, FAA intensified its special emphasis review through an intensive 30-day review of ValuJet and its fleet. That review led to a June 1996 consent order, under which ValuJet agreed to suspend its operations. FAA’s announcement of ValuJet’s agreement cited multiple quality assurance shortcomings, systemwide maintenance deficiencies, the inability to establish the airworthiness of aircraft, and a lack of engineering capability. On August 29, 1996, FAA returned ValuJet’s operating certificate, permitting it to resume operations if the airline was found managerially and financially fit by DOT. On the same day, DOT issued an order tentatively finding ValuJet fit, willing, and able to provide domestic scheduled air service. Under agreement with FAA, upon returning to service, ValuJet would operate a substantially smaller fleet, starting with up to nine aircraft and adding up to six more within the following days. ValuJet resumed limited flight operations on September 30, 1996. FAA’s 90 Day Safety Review recognized that FAA’s surveillance system does not differentiate between established airlines and newly certificated airlines and stated that additional surveillance during the first several years of operations is warranted. The safety review recommended a heightened level of surveillance of newly certificated airlines for at least the first 5 years of the companies’ operations. To do its job effectively, and because its resources are limited, FAA must target its inspectors to the areas of greatest risk. To do so, FAA needs to have performance-based criteria to gauge various aspects of aviation safety, and the criteria or measures of safety must be underpinned by reliable data. Even if FAA inspectors are targeted to the areas of greatest risk, they must be adequately trained to effectively carry out their responsibilities. For nearly a decade, we have reported on long-standing shortcomings in these two areas. Although FAA has agreed with most of our recommendations and taken actions to implement them, until all of the these problems are effectively resolved, the effectiveness of FAA’s inspection program will be limited. In 1987, we reported on the need for FAA to develop criteria for targeting safety inspections to airlines with characteristics that may indicate safety problems. In 1991, FAA began designing a resource-targeting system called the Safety Performance Analysis System, but it is not yet fully operational. As of August 1996, SPAS was in place and undergoing operational tests at 47 field offices. FAA expects the next version of SPAS to be available to inspectors in late 1997 and the system to be fully operational in 1999. When fully operational, SPAS could rely on over 25 databases within FAA, other government agencies, and the aviation industry, including, potentially, the Improved Accident/Incident Data Subsystem and the Enforcement Information Subsystem. The current SPAS version uses four: the Program Tracking and Reporting Subsystem (in which inspection results are entered), the Vital Information Subsystem (which contains key data on such items as airlines, pilot and mechanic schools, and repair stations), the Service Difficulty Reporting Subsystem (which contains data on instances of abnormal and potentially unsafe mechanical conditions aboard aircraft), and a non-FAA database of information and analyses on financial credit risks. Building on inspection results and other data, SPAS is intended to assist FAA in applying its limited inspection resources to those entities and areas that pose the greatest risk to aviation safety. The system is also expected to highlight particular types of aircraft or particular airlines for increased surveillance (inspection) or oversight if they are experiencing problems at rates that exceed the averages for that group. Specifically, if problems in a particular inspection category are found at rates exceeding 50 percent of the average experience for that group, the SPAS will trigger “advisory” notifications to the inspector that he or she should look into the situation. If problems are found at rates exceeding 100 percent of the average, the system will trigger a notice of “concern” (alert) to the principal inspectors, who are to respond with a written plan of action. In a 1995 report, however, we concluded that SPAS will not be effective if the quality of its source data is not improved. Specifically, we reported that SPAS may rely on data from numerous databases that contain incomplete, inconsistent, and inaccurate data. To address these concerns, we recommended that FAA develop and implement a comprehensive strategy to improve the quality of those data. FAA agreed to this recommendation and stated that such a strategy would be developed by the end of 1995. In August 1996, FAA reported that this strategy would not be completed until October 1996. The strategy is to provide clear and measurable data quality objectives, accurate assessments of the quality of the current data in each database (including an analysis and possible redirection of FAA’s existing data quality improvement initiatives), milestones for attaining the stated quality objectives, and estimates of the resources required. An FAA official said that implementation would begin immediately afterward. Until FAA implements its data quality improvement strategy, problems with data quality may limit SPAS’ usefulness and prevent it from realizing its full potential to target resources to higher-risk activities. Although FAA management officials told us that inspectors generally have the experience and basic training necessary to accomplish their mission, we and others have reported for several years that FAA’s aviation safety inspectors are not receiving needed training. For example, in 1989 we reported that (1) pilot flight checks were being made by operations inspectors who had not received recurrent flight training and whose qualifications to make pilot flight checks had expired and (2) airworthiness inspectors received only about 50 percent of the training that was planned for them. Recognizing that some of its employees had received expensive training they did not need to do their jobs while others did not receive essential training, in 1992 FAA developed a centralized process to determine, set priorities for, and fund its technical training needs. This centralized process is intended to ensure that funds are first allocated for the training that is essential to fulfilling FAA’s mission. In accordance with this process, each FAA entity has developed a needs assessment manual tailored to the entity’s activities and training needs. In addition, FAA is also providing training through such alternative methods as computer-based instruction, interactive classes televised via satellite, and computer-based training materials obtained from manufacturers. Although these initiatives can help improve the efficiency of FAA’s training programs, we testified in 1996 that the adequacy of inspector training continues to be a concern. During the course of our work on new airlines, we interviewed 37 FAA inspectors who were involved with the initial certification or continuing surveillance of new airlines. Although the results of these interviews are not projectable to the universe of inspectors, they do indicate a continuing concern among FAA safety inspectors about the adequacy of the training they receive. Sixteen of the inspectors said they had gaps in training that affected their effectiveness in doing their jobs. For example, one inspector requested training on Airbus aircraft when the airline he inspected began using that aircraft, but he did not receive the training until 2 years after the airline went out of business. In another case, a maintenance inspector told us he was responsible for inspecting several commuter airlines but had never attended maintenance training school for the types of aircraft he inspects. Instead, FAA sent the maintenance inspector to training on Boeing 727s and composite materials, which were not related to the aircraft he was responsible for. Finally, several inspectors told us that despite their responsibility to approve global positioning system receivers, a navigational system increasingly being used in aircraft, they have had no formal training on this equipment. We also reported that in fiscal years 1993 through 1996, decreases in FAA’s overall budget have significantly reduced the funding available for technical training. FAA’s overall training budget decreased from $147 million to $85 million (42 percent) during this period. FAA’s reduced funding for technical training has occurred at a time when it had received congressional direction to hire over 230 additional safety inspectors in fiscal year 1996. Because new staff must be provided with initial training to prepare them to perform their duties effectively, the cost of this training, combined with overall training budget reductions, may further constrain FAA’s ability to provide training to its existing inspectors in the future. The Federal Managers’ Financial Integrity Act of 1982 (FMFIA) requires that executive agencies prepare an annual statement on the adequacy of internal controls based on assessments conducted in accordance with Office of Management and Budget (OMB) Circular A-123. FMFIA and the circular require that the agency’s annual statement on internal controls include a description of any material weaknesses (and related plans for corrective actions) identified as part of the internal control assessment process. Under OMB Circular A-123, agency managers are requested to use Inspector General reviews and GAO reports to help them identify and correct deficiencies in management controls. In addition, the circular states that the agency should pay particular attention to the views of the agency’s Inspector General in identifying and assessing the relative importance of deficiencies in management controls. According to OMB’s guidelines, management control weaknesses are material when the weaknesses meet one or more of the following criteria, among others: Weaknesses are significant enough to be reported to the President or the Congress; resources are not being used consistently with the agency’s mission; reliable and timely information is not being obtained, maintained, reported, and used for decision-making; and a failure to report a known deficiency may reflect adversely on the agency. In December 1993, the DOT Inspector General stated that FAA’s oversight and inspection program represented both a material weakness and a high-risk area reportable to the President and the Congress. The Inspector General cited several GAO and Inspector General reports as the basis for this conclusion and identified the need for FAA to (1) target inspection resources to areas posing the greatest risks, (2) accomplish planned/targeted inspections, (3) perform quality inspections, (4) record deficiencies and ensure that they are corrected, (5) resolve inspection staff imbalances and retrain or refocus inspectors where necessary, and (6) enforce certification requirements relating to aviation parts. The Secretary of Transportation’s 1993 FMFIA report to the President stated that the DOT Inspector General and GAO had identified deficiencies in some program areas administered by the FAA (e.g., Aviation Inspection and Airport Security) and that, taken as a whole, the deficiencies that were identified may constitute “material weaknesses” in a “high-risk” area. The report, however, did not identify FAA’s oversight and inspection program as a “high-risk” area. The Secretary stated that FAA was actively reviewing all of the issues within the context of FMFIA reporting requirements and that these issues would be reflected in future FMFIA reports, as appropriate. In December 1994, the Inspector General again identified FAA’s aviation oversight and inspection activities as a “high-risk” area and recommended that the Secretary of Transportation include FAA’s safety oversight and inspection activities as a “high-risk” area in DOT’s 1994 FMFIA Report to the President and the Congress. The FAA Administrator, however, disagreed with the Inspector General’s position, stating that there was an insufficient basis to conclude that the FAA’s safety and inspection program was a “material weakness” as defined by FMFIA. The Secretary of Transportation’s 1994 FMFIA report to the President stated that he continued to be concerned about ensuring that the aviation oversight and inspection program meets the highest standards, but did not designate this program as “high risk,” concluding that no new areas of “material weakness” were reported that year. For 1995, the DOT Inspector General did not specifically cite FAA’s aviation oversight and inspection activities in her December 1995 letter to the Secretary on FMFIA issues. However, she stated that past and ongoing work indicated that significant management weaknesses existed in many of the Department’s safety programs and recommended that safety oversight be reflected in the Secretary’s FMFIA report as a “problem area.” An official of the DOT Inspector General’s office told us that a “problem area” is not as serious a designation as a “high risk” or “material weakness.” The Secretary’s 1995 FMFIA report, however, did not discuss safety oversight. Beginning August 1, 1996, OMB no longer requires agencies to designate “high-risk” areas in their FMFIA reports. Agencies will still be required, however, to report any “material weaknesses” in their internal controls. However, as discussed in the following section, DOT and FAA have recently undertaken a number of initiatives that, taken together, have the potential to address these concerns. In a May 14, 1996, memorandum for the President, the Secretary of Transportation outlined several initiatives to strengthen FAA’s inspection operations. These initiatives included accelerating the hiring of additional aviation safety inspectors; examining FAA’s computer systems and developing a comprehensive strategy for upgrading FAA’s computer tracking and data systems; and conducting a comprehensive review of FAA’s inspection operations, including reviewing inspector training and work assignments. Between May 28 and June 7, 1996, FAA’s Flight Standards Service conducted a self-assessment that looked at various issues, including the effectiveness of inspector training. A number of recommendations to improve training resulted from the process, including defining requirements for the currency and recurrent training needs of safety inspectors. FAA plans to implement all of these recommendations within 2 years. On June 18, 1996, the FAA Administrator initiated a safety review on “lessons learned” from FAA’s oversight experience with ValuJet—the FAA 90 Day Safety Review. On September 16, 1996, FAA’s Deputy Administrator issued a report that addressed the certification of new airlines, resource targeting to address safety risks, newly certificated airlines’ operations and growth, contracting out, inspector training and guidance material, and inspector resources. The report made over 30 recommendations and included proposed implementation strategies. For example, the report noted that FAA could improve its resource targeting to address safety risks and that the only way to significantly improve aviation safety is through changing FAA’s methods of assessing risk and using new analysis techniques on more complete data. The report said that using systems such as SPAS will allow FAA to more effectively use inspection, surveillance, and enforcement resources where they are most likely to improve safety. While recognizing that the inspector workforce is central to FAA’s ability to ensure compliance and maintain a high level of safety, the report also acknowledged that inspector levels have historically been understaffed. It also recognized that FAA’s training programs do not always provide the frequency of training or meet the specific needs identified by employees, managers, and industry. It included recommendations to ensure that FAA’s resources and training are adequate to meet safety requirements. As noted in the 90 Day Safety Review, an effective inspection program requires a stable source of financing. The recently signed Federal Aviation Reauthorization Act of 1996 creates a National Civil Aviation Review Commission that will analyze financial needs and safety trends and make specific recommendations for change. Recent experience with the lack of authority to collect aviation excise taxes underscores the need to develop a long-term financing solution for FAA that will ensure adequate funding of aviation inspectors and required training. Similarly, the report concluded that no guidance directs FAA to maintain heightened surveillance during a new airline’s formative years, when it may be the most unstable. The report recommended heightened levels of surveillance of newly certificated airlines during the first 5 years of the companies’ operations and periodic reviews of new airlines that assess management, financial, and operational capabilities. The Administrator endorsed the recommendations and called for the development of a strategy and timetable to implement the recommended actions. Once implemented, he wrote, these actions will enhance FAA’s ability to target resources more strategically and to respond more rapidly to changes in the aviation industry. Following the crash of TWA Flight 800 on July 25, 1996, the President established a commission headed by the Vice President (commonly known as the Gore Commission) to review aviation security and safety. The Commission is scheduled to issue its final report early next year. In our opinion, these initiatives, taken together, have the potential to address several of FAA’s long-standing problems. DOT regularly publishes certain consumer-related information on individual airlines—such as information on on-time performance and lost luggage. Consumer advocates, academics, and some Members of Congress have expressed an interest in having FAA publish airline-specific safety data. The aviation system safety indicators that FAA already publishes, such as accident rates, incident rates, near mid-air collisions, and pilot deviations, are aggregated rather than published on an individual airline basis. The FAA Administrator and other FAA officials have raised concerns about the potential negative effect of publishing airline-specific safety data. For example, under the Flight Operations Quality Assurance (FOQA) initiative, FAA is encouraging the airlines to monitor and analyze flight data recorder information to determine aviation system weaknesses before they become incidents or accidents. Because the airlines might react negatively to how such data would be used, FAA officials have said that airlines might be hesitant to share such information, which would impair FAA’s efforts to improve the system’s overall safety. We recognize FAA’s desire to obtain such information from the airlines on a voluntary basis. However, FAA’s mission to promote air safety argues that it should have access to whatever data that can help it to better improve air safety. If the airlines do not choose to share such data voluntarily, FAA could pursue the appropriate regulatory or legislative remedies to gain such access. Before publishing airline-specific safety data, FAA would need to address a number of issues. First, FAA would need to develop a consensus among the affected and interested parties (airlines, passengers, aviation safety system analysts, etc.) on the most appropriate criteria for measuring airline safety performance. Second, FAA would need to gather and analyze the data and develop a monitoring system to verify the completeness and accuracy of the data. Third, FAA would need to take appropriate measures, including enforcement actions, where necessary to ensure that airlines comply with data requirements. While such an endeavor is a formidable task, the benefits could be substantial. It would not only allow FAA to publicly disclose airline-specific safety data to help the public in making transportation decisions but, just as importantly, better equip FAA to identify and preemptively act on emerging aviation safety trends. FAA’s current effort to develop a strategy to improve the quality of SPAS databases is an important step that can help solidify the foundation on which an airline-specific safety analysis and a public reporting system would potentially be based. New airlines face a formidable challenge in beginning and sustaining operations, managing growth, and developing their management and maintenance infrastructures. The recent disclosures about ValuJet and FAA’s oversight of this airline reinforce this point. Our analysis of new airlines over a 5-year period shows that, on average, they experienced higher rates of incidents and FAA-initiated enforcement actions than established airlines, particularly during their early years of operations. While such information can be useful for better targeting FAA’s inspection resources, it does not mean that new airlines are unsafe. FAA’s policies that were in effect during the period of our review did not call for new airlines to be monitored any differently from established airlines, and actual inspection rates varied widely among new airlines—some airlines with high incident and enforcement action rates were being inspected less frequently than airlines with few or no such problems. We believe that the basic challenges of starting a new airline, and the overall results of our analysis, argue for closely monitoring the performance of new airlines during their first several years of operations and conducting increased or comprehensive inspections of those airlines with elevated rates of safety-related concerns. The recent disclosures about ValuJet reinforce this argument. FAA’s 90 Day Safety Review recommended heightening the level of surveillance of newly certificated airlines for at least the first 5 years of the airlines’ operations. This recommendation is consistent with our observations and, if properly implemented, would largely address our concerns in this area. On a broader scale, serious problems that hamper the effectiveness of FAA’s aviation safety inspection program have remained unresolved for nearly a decade. While FAA has taken steps to better target its inspection resources and has evaluated safety inspector training and work assignments, concerns in those areas have persisted for years and a number of unresolved issues remain. DOT and FAA have recently undertaken a number of initiatives to address these and other problems, with the FAA 90 Day Safety Review making over 30 recommendations for improvement. We believe that these initiatives have the potential to significantly improve FAA’s inspection program, but only if they are effectively implemented. We believe that, to be effective, DOT’s and FAA’s implementation strategy must be underpinned by (1) clear goals and objectives with measurable performance elements, (2) a monitoring and evaluation element to measure progress, and (3) a reporting mechanism to keep the Secretary of Transportation and the Congress informed about progress and problems. Resource constraints resulting from budgetary reductions in such areas as safety inspector training provides a continuing challenge for FAA. Evaluating the use of and managing existing resources as efficiently as possible is important given the current tight budget situation. Such evaluations could also provide the basis for reprogramming funds to meet critical safety-related needs, or to justify the need for additional resources should they be found necessary. Public concern about the safety of the nation’s aviation system has escalated over the last several months as a result of the ValuJet and TWA crashes, and several groups have expressed interest in having FAA publish airline-specific safety data. While FAA would have to address a number of issues—including gaining consensus on safety parameters, obtaining and verifying data, and ensuring that airlines comply with requirements—before publishing such data, we believe that the time has come for FAA to begin the process that can lead to publishing such data. One step in this process would involve NTSB’s and FAA’s ongoing effort to refine the definition of accident, but the completion date for this effort has not been established. We recommend that the Secretary of Transportation instruct the Administrator of FAA to (1) closely monitor the performance of new airlines, particularly during the early years of operations, and conduct increased and/or comprehensive inspections of those new airlines that experience elevated rates of safety-related problems; (2) evaluate the impact of recent budget reductions on FAA’s critical safety-related functions, including—but not limited to—inspector training, and report the results to the Congress through the appropriations process; and (3) study the feasibility of developing measurable criteria for what constitutes aviation safety, including those airline-specific safety-related performance measures that could be published for use by the traveling public. Furthermore, to ensure the timely and effective implementation of the recommendations included in FAA’s 90 Day Safety Review, we recommend that the Secretary of Transportation require the Administrator of FAA to establish (1) clear goals and objectives addressing the safety review’s identified problem areas; (2) measurable performance criteria to assess how the goals and objectives are being met; and (3) a monitoring, evaluation, and reporting system so that FAA’s implementation of the recommendations contained in FAA’s 90 Day Safety Review can be reported to the Secretary and the Congress on a regular basis. We also recommend that the Chairman of NTSB and the Administrator of FAA jointly establish a date for completing the ongoing reevaluation of the definition of accident. DOT and FAA generally agreed with our findings, conclusions, and recommendations. However, they raised concerns about the statistical foundation of the report. Specifically, they noted that the number of accidents, incidents, and departures for new airlines is small in comparison to the number for established airlines and produces substantial negative bias in comparing accident and incident rates for new and established airlines. We agree that accident and incident rates based on relatively few departures are susceptible to large fluctuations and may not accurately predict longer-term performance, and we have noted that prominently in the report. However, our calculations included 100 percent of these events and not just a sample and therefore show the actual rates as of the period of our analysis. The analysis that is of concern to DOT and FAA provides additional evidence on how FAA might want to target inspection resources and, therefore, does not impact any of our conclusions or recommendations. We have made a number of changes to the report on the basis of the events that have occurred since the draft was provided to DOT for comment on September 6, 1996, as well as DOT’s written comments. Most notable among these events was FAA’s publication of its 90 Day Safety Review on September 16, 1996. That review confirmed the validity of the major issues discussed in our report—the need to closely monitor the performance of new airlines during their early years of operations, as well as the need to better target FAA’s resources, improve data quality, and ensure that FAA’s resources and training programs are adequate to meet safety requirements. Our September 6, 1996, draft of this report contained a proposed recommendation calling for FAA’s aviation safety inspection program to be designated an area of material weakness in DOT’s Federal Managers’ Financial Integrity Act report. In light of the fact that FAA’s 90 Day Safety Review recognized the long-standing concerns that gave rise to our proposed recommendation and made over 30 recommendations that, if properly implemented, have the potential to correct these problems, we have deleted that recommendation from our final report. However, we believe there is a need for continued vigilance on the part of DOT, FAA, and the Congress to ensure that the recommendations in the 90 Day Safety Review are effectively implemented in a timely manner. Consequently, we have added a recommendation that calls for FAA to report periodically to the Secretary of Transportation and the Congress on its progress in implementing the recommendations from the 90 Day Safety Review. A copy of DOT’s comments is included as appendix III. We conducted our review from August 1995 through September 1996 in accordance with generally accepted government audit standards. A detailed discussion of our objectives, scope, and methodology appears in appendix I. We will send copies of this report to the Secretary of Transportation; the Administrator, FAA; the Chairman, NTSB; the Director, Office of Management and Budget; and other interested parties. We will also make copies available on request. This report was prepared under the direction of John H. Anderson, Jr., Director, Transportation Issues, who can be reached at (202) 512-2834 if you have any questions. Other major contributors to this report are listed in appendix IV. The former Chairman, Subcommittee on Aviation, House Committee on Public Works and Transportation, asked us to examine, as the second segment of work addressing issues concerning the Federal Aviation Administration’s (FAA) oversight of new airlines, the agency’s efforts to ensure that new airlines meet safety standards. As agreed with the Subcommittee’s staff, we also addressed this report to the current Chairman and Ranking Democratic Member of the Subcommittee on Aviation. To address this issue, we focused on three questions: Did new airlines perform differently from established airlines during the 5-year period between January 1, 1990, and December 31, 1994, with regard to accidents, incidents, and enforcement actions? At what frequency does FAA inspect new airlines compared with established airlines? And what impediments hinder the effectiveness of FAA’s overall safety inspection program? Before we were able to answer the first question, we had to determine which airlines were “new airlines.” We defined a new airline as one that provided scheduled domestic air service for 5 or fewer years at any time from the beginning of 1990 to the end of 1994. For example, an airline that began service in 1994 would be considered a new airline, since its first year of operations was within the study period. Similarly, an airline that began operating in 1986 would also be considered a new airline in our analysis of 1990 data, because that airline’s fifth year of operations occurred in 1990. However, beginning with the analysis of 1991 data, that same airline’s operations would then be included in the comparison group of established airlines—those that had provided scheduled domestic service for more than 5 years during the 1990-94 period. Thus, we considered any airline that began scheduled operations between January 1986 and December 1994 to be a new airline during relevant portions of the 1990-94 period. This definition of new airline differs from that normally applied in other aviation safety research. Those studies have tended to define new airlines as being airlines that began interstate operations following the Airline Deregulation Act of 1978. However, airlines such as Southwest Airlines that began interstate operations immediately after that act have now been operating for nearly two decades. We believe that a review that focuses more on airlines with considerably fewer years of experience would provide more insight into the safety performance of new airlines. We discussed our definition of new airlines with FAA, the Department of Transportation (DOT), and the National Transportation Safety Board (NTSB), none of whom raised any objection or concern. To determine which specific airlines should be designated as new airlines and which should be designated as established airlines, we reviewed records from DOT’s Airline Fitness Division within the Office of the Secretary of Transportation (OST), the Bureau of Transportation Statistics (BTS), and FAA to develop a list of airlines subdivided into large and commuter new airlines and large and commuter established airlines. First, we obtained historical information from OST’s files on airlines that it had found “fit” and to which DOT had issued operating authority. We initially included as new airlines those that OST had recertificated following a substantial change in their operations. Second, we used industry financial and operating records from BTS to help determine the year in which airlines began scheduled operations, and divided the airline list into “new” and “established” by the year indicated in the records. Because none of the automated databases we analyzed recorded any specific distinction between scheduled commuter airlines and on-demand air taxi services (i.e., chartered airlines), we relied on FAA officials to provide this distinction. As a result, we eliminated on-demand airlines from our list. However, some commuters that operated as both commuters and on-demand airlines at different points during our 5-year period are included among our group of established commuters. BTS and FAA verified our airline lists. At FAA’s suggestion, we made two additional adjustments to our list of new airlines. First, we reclassified as established airlines those airlines that DOT had newly authorized to provide scheduled service at some point between 1986 and 1994 but which had earlier operated as on-demand air taxis. Second, we reclassified as established airlines those that DOT had recertificated following a substantial change of operations. FAA suggested that those airlines should be considered established because they had essentially maintained an unbroken chain of operations from a previous status. To determine which airlines to categorize as “large” or as “commuters,” we analyzed information from OST, BTS, and FAA. OST and BTS use definitions of large and commuter aircraft that differ from FAA’s. According to DOT’s regulations, a large certificated airline is one that holds a certificate issued under section 401 of the Federal Aviation Act of 1958 and that operates aircraft designed to have a maximum passenger seating capacity of more than 60 seats or a maximum payload capacity of more than 18,000 pounds, or that conducts international operations. Small certificated airlines and commuter airlines (“commuters”) generally operate only aircraft with 60 seats or fewer or a payload capacity of 18,000 pounds or less. FAA’s definitions follow the distinction made by parts 121 and 135 of the Federal Aviation Regulations, which basically define an aircraft as “large” or as a “commuter” depending upon whether or not it seats more than 30 passengers. While we relied on FAA to indicate exactly which airlines it considered to be commuters, our distinction between large and commuter airlines was also consistent with DOT’s definitions. This occurred because FAA’s list of commuter airlines included not just those that operated “part 135” aircraft exclusively, but also airlines that operated “part 121” aircraft (“split certificate” airlines). According to information from FAA, those airlines’ part 121 aircraft were turboprop aircraft, such as the De Havilland Dash-8, that may seat between 36 and 56 passengers. FAA’s list of large airlines included only airlines that exclusively operated large aircraft. Most of those large airlines operated jet aircraft in 1994. As a result, we analyzed data for all new airlines and established airlines that provided scheduled domestic service during the 1990 through 1994 period and that reported data to DOT. We excluded air taxis and other airlines providing nonscheduled service. Our universe of 265 airlines comprised 29 new large airlines, 60 large established airlines, 50 new commuters, and 123 established commuters. During the review period, 20 new airlines reached their sixth year of operations and were then analyzed as established airlines. To answer the first question regarding the airlines’ experiences with accidents, incidents, and enforcement actions, we analyzed three different sets of data. First, to analyze data on all airline accidents that occurred from 1990 through 1994, we reviewed information from NTSB, the official source of information on airline accidents. Some of NTSB’s accident data included ambiguous information about the airline operator’s identity. To resolve the uncertainty, we reviewed more extensive information on each accident in question. Still, of the 201 accidents that occurred from 1990 through 1994, for 8 accidents we were unable to determine with certainty which company operated the aircraft involved. For example, NTSB’s files include information on a commuter airline accident in January 1991 involving US Air Express. However, more than one airline company conducts business as US Air Express, and because NTSB did not record the airline’s designator code, which FAA assigns to individual operators, we were unable to assign the accident to any specific company. Second, we analyzed FAA’s data on aviation incidents that occurred during the period. FAA records data on various airline incidents, which the agency defines as an occurrence other than an accident associated with the operation of an aircraft, that affects or could affect the safety of operations. To improve the data’s reliability and the relevance of the analysis, we excluded certain categories of incidents clearly outside the control of the airline, such as birds’ being ingested into jet engines and lightning strikes. We made these changes at the suggestion, and with the assistance, of FAA. Third, we analyzed data on enforcement investigations initiated from FAA’s Enforcement Information System (EIS). EIS includes information on all enforcement actions taken by FAA, whether administrative or legal. FAA’s Assistant Chief Counsel processes reports requiring legal enforcement action or referral for possible criminal investigation and prosecution. Because such actions may take years to conclude (for example, FAA closed its last enforcement actions against Eastern Air Lines in August 1995, although Eastern ceased operations in January 1992), we used the actions initiated to measure enforcement activity. We did not assess the reliability of the incident or enforcement data. However, we discussed the issue with FAA officials, who told us that while there may be omissions in these data, they were the best available for the purposes of our review. For example, the officials told us that although FAA’s incident data may be subject to some underreporting, those data were preferable to NTSB’s airline safety incident data, because NTSB exercises great discretion in deciding which events to investigate. Similarly, the data on the number of enforcement actions initiated, while complete, may be underreported because of differences in how FAA field offices implement the agency’s enforcement program. That is, confronted with similar sets of factual circumstances, some field offices may recommend that FAA initiate an enforcement action while others would not. To provide the basis for comparing the number of accidents, incidents, and enforcement actions across airlines, we divided all such data points by a base of 100,000 (domestic) departures, a common comparative measure of aviation safety. According to FAA and NTSB, since most accidents occur during arrival or departure, the number of departures is considered to be the best normalizing variable. We obtained the departure data from BTS, which received those data directly from individual airlines. However, we did not independently verify the data sent by the airlines or review BTS’ procedures for handling those data. Also, in our calculations of the various rates for each group of airlines, we included data on accidents, incidents, and enforcement actions only if an airline also reported departure data for that year. For example, Eastern Air Lines stopped reporting departure data to BTS in 1991; however, FAA’s data indicate that it initiated an enforcement action against Eastern in 1992. Our calculations of the enforcement rate for large established airlines did not include that 1992 action against Eastern. We analyzed accidents, incidents, and enforcement actions of new airlines by years of operating experience. Such an analysis compares the records of airlines with the same number of years of operations, regardless of the calendar year in which the observation occurred. For example, we compared airlines within their second year of operations, whether that year was 1990 or 1993, against those with fewer and more years of experience. This method focuses on examining the airline’s records over time, as the airlines gain operating experience. To answer the second question on the relative level of surveillance applied to new airlines and established airlines during the 1990-94 period, we compared the number of inspections of new airlines to the number of inspections of established airlines, normalized for departures in each year. We obtained those data from FAA’s Program Tracking and Reporting Subsystem (PTRS). We have long reported on problems with the data in FAA’s safety inspection management system. Because of continuing concerns about the reliability of the data on inspection results, we used the PTRS data only to determine the number of inspections done, and not their outcomes. We also reviewed the national program guidelines for airline surveillance and spoke to responsible FAA officials to determine whether FAA distinguished between new and established airlines in its surveillance and inspection efforts. To answer the third question, we reviewed GAO products, both reports and testimonies published over the last decade, reporting on many aspects of FAA’s aviation safety inspection program. To assess FAA’s progress in addressing the problems that were discussed in those reports and testimonies, we reviewed documentation that monitors the extent of FAA’s implementation of GAO’s recommendations. After completing our analysis, we discussed our preliminary findings with officials of FAA and NTSB. We also provided a draft of our report to DOT for its review and comment. The agency’s letter in response is reproduced in appendix III. We performed our work primarily at FAA headquarters in Washington, D.C., from August 1995 through September 1996 in accordance with generally accepted government auditing standards. Aviation Safety: Targeting and Training of FAA’s Safety Inspector Workforce (GAO/T-RCED-96-26, Apr. 30, 1996). FAA Budget: Issues Related to the Fiscal Year 1996 Request (GAO/T-RCED/AIMD-95-131, Mar. 13, 1995). Aviation Safety: Data Problems Threaten FAA Strides on Safety Analysis System (GAO/AIMD-95-27, Feb. 8, 1995). Aviation Safety: FAA Can Be More Proactive in Promoting Aviation Safety (GAO/T-RCED-95-81, Jan. 12, 1995). Aviation Safety: FAA’s Efforts to Improve Oversight of Foreign Carriers (GAO/T-RCED-95-33, Oct. 4, 1994). FAA Technical Training (GAO/RCED-94-296R, Sept. 26, 1994). Aviation Safety: Unresolved Issues Involving U.S.-Registered Aircraft (GAO/RCED-93-135, June 18, 1993). Aircraft Maintenance: FAA Needs to Follow Through on Plans to Ensure the Safety of Aging Aircraft (GAO/RCED-93-91, Feb. 26, 1993). Aviation Safety: Increased Oversight of Foreign Carriers Needed (GAO/RCED-93-42, Nov. 20, 1992). Aviation Safety: Additional Actions Needed for Three Safety Programs (GAO/T-RCED-92-90, Aug. 4, 1992). Aviation Safety: Commuter Airline Safety Would Be Enhanced With Better FAA Oversight (GAO/T-RCED-92-40, Mar. 17, 1992). Aviation Safety: Better Oversight Would Reduce the Risk of Air Taxi Accidents (GAO/T-RCED-92-27, Feb. 25, 1992). Aviation Safety: FAA Needs to More Aggressively Manage Its Inspection Program (GAO/T-RCED-92-25, Feb. 6, 1992). Aviation Safety: Air Taxis—The Most Accident-Prone Airlines—Need Better Oversight (GAO/RCED-92-60, Jan. 21, 1992). Aviation Safety: Problems Persist in FAA’s Inspection Program (GAO/RCED-92-14, Nov. 20, 1991). Aviation Safety: Emergency Revocation Orders of Air Carrier Certificates (GAO/RCED-92-10, Oct. 17, 1991). Aging Aircraft Maintenance: Additional FAA Oversight Needed (GAO/T-RCED-91-84, Sept. 17, 1991). Aircraft Maintenance: Additional FAA Oversight Needed of Aging Aircraft Repairs (GAO/RCED-91-91A and B, May 24, 1991). Aviation Safety: Limited Success Rebuilding Staff and Finalizing Aging Aircraft Plan (GAO/RCED-91-119, Apr. 15, 1991). Serious Shortcomings in FAA’s Training Program Must Be Remedied (GAO/T-RCED-90-86, June 6, 1990). Staffing, Training, and Funding Issues for FAA’s Major Work Forces (GAO/T-RCED, 90-42, Mar. 14, 1990). Aging Aircraft: FAA Needs Comprehensive Plan to Coordinate Government and Industry Actions (GAO/RCED-90-75, Dec. 22, 1989). Aviation Safety: FAA’s Safety Inspection Management System Lacks Adequate Oversight (GAO/RCED-90-36, Nov. 13, 1989). Meeting the Aging Aircraft Challenge: Status and Opportunities (GAO/T-RCED-90-2, Oct. 10, 1989) and (GAO/T-RCED-89-67, Sept. 27, 1989). Aviation Training: FAA Aviation Safety Inspectors Are Not Receiving Needed Training (GAO/RCED-89-168, Sept. 14, 1989). Aviation Safety: FAA Has Improved Its Removal Procedures for Pilot Examiners (GAO/RCED-89-199, Sept. 8, 1989). FAA Staffing: Recruitment, Hiring, and Initial Training of Safety-Related Personnel (GAO/RCED-88-189, Sept. 2, 1988). Aviation Safety: Measuring How Safely Individual Airlines Operate (GAO/RCED-88-61, Mar. 18, 1988). Aviation Safety: Needed Improvements in FAA’s Airline Inspection Program Are Under Way (GAO/RCED-87-62, May 19, 1987). Department of Transportation: Enhancing Policy and Program Effectiveness Through Improved Management (GAO/RCED-87-3, Apr. 13, 1987). Compilation and Analysis of the Federal Aviation Administration’s Inspection of a Sample of Commercial Air Carriers (GAO/RCED-85-157, Aug. 2, 1985). 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. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO reviewed the safety performance of new airlines having 5 or fewer years of operating experience, focusing on: (1) the frequency with which the Federal Aviation Administration (FAA) inspects new airlines compared with its inspections of established airlines; and (2) FAA efforts to correct long-standing problems that limit the effectiveness of its safety inspection program. GAO found that: (1) although data regarding airline accidents and FAA incident and enforcement actions require cautious interpretation, it appeared that, for the review period of 1990 through 1994, new airlines had higher rates of accidents, incidents, and FAA enforcement actions than established airlines during their early years of operations; (2) FAA officials theorized that new airlines may experience more incidents because their fleets expand faster than their ability to absorb growth, train staff, and maintain fleets; (3) FAA national inspection guidelines that were in effect during the review period did not target new airlines for increased surveillance; (4) no clear pattern in the inspection rates distinguished airlines with relatively high rates of incidents and enforcement actions from those that had few or no problems; (5) FAA aviation safety inspection program shortcomings include insufficient inspector training, inadequate aviation safety databases, and the need to improve the oversight of aging aircraft; (6) FAA actions to better target its inspection resources to areas with the greatest safety risks remain incomplete; and (7) initiatives to accelerate the hiring of safety inspectors, strengthen FAA data collection and tracking systems, review FAA inspection operations, and conduct a safety review have the potential to significantly improve the efficiency and effectiveness of the FAA safety inspection program.

You are an expert at summarizing long articles. Proceed to summarize the following text: Since the 1960s, there have been significant advances in protecting the rights and welfare of human subjects in biomedical and behavioral research. The federal presence has grown in this area, establishing and enforcing regulations for protecting human subjects in federally funded and federally regulated research. HHS’ regulation of biomedical and behavioral research consists of two principal tiers of review: one at the federal level and one at the research institution level. Both tiers are responsible for ensuring that individual researchers and their research institutions comply with federal laws and regulations for protecting human subjects. When the core of HHS’ human protection regulations was adopted by 15 other federal departments and agencies in 1991, it became known as the Common Rule. Within the HHS oversight system there are several entities overseeing compliance with human protection regulations. At the federal level are the NIH’s OPRR and the FDA. At the local level, institutional review boards (IRB)—that is, review panels that are usually associated with a particular university or other research institution—are responsible for implementing federal human subject protection requirements for research conducted at or supported by their institutions. In general, IRB members are scientists and nonscientists who volunteer to review proposed studies. The Common Rule requires research institutions receiving federal support and federal agencies conducting research to establish IRBs to review research proposals for risk of harm to human subjects and to perform other duties to protect human research subjects. It also stipulates requirements related to informed consent—how researchers must inform potential subjects of the risks to which they, as study participants, agree to be exposed. HHS regulations contain additional protections not included in the Common Rule for research involving vulnerable populations—namely, pregnant women, fetuses, subjects of in vitro fertilization research, prisoners, and children. Preventing harm to human subjects’ rights and welfare is the overarching goal of HHS’ protection system. The organizational components of the system—OPRR, FDA, and local IRBs—have heightened the compliance of the research community with human protection guidelines through a variety of activities. OPRR’s chief preventive measure is its assurance process. Assurances are contract-like agreements made by research institutions to comply with federal human subject protection requirements. Assurances include the following: a statement of ethical conduct principles, a guarantee that an IRB has been designated to approve and periodically review the institution’s studies, and the specifics of the IRB’s membership, responsibilities, and process for reviewing and approving proposals. An institution must have an assurance approved by OPRR before the institution can receive HHS research funding. Depending on an institution’s willingness and expertise, as well as the requirements of specific research studies, OPRR can negotiate several different types of assurances. Through a multiple project assurance, for example, OPRR can delegate broad authority to an institution, allowing it to approve a wide array of research studies. Or, through a single project assurance, OPRR can retain the authority to approve studies one by one. As of November 1995, OPRR had 451 active multiple project assurances and over 3,000 active single project assurances. OPRR also had over 1,300 active cooperative project assurances, which pertain to multiple-site research projects. FDA works to prevent the occurrence of human subject protection violations in the drug research it regulates. Before permitting drug research with human subjects, FDA requires researchers to submit a brief statement that they will uphold ethical standards and identify the IRB that will examine their study. FDA can request modifications to proposals or reject proposals deemed to present unacceptable risk. IRBs play a major role in the protection of patients and healthy volunteers, according to federal officials and members of the research community alike. For each study conducted using human subjects, researchers must first get IRB approval. In fact, HHS will neither fund new human subject research nor authorize ongoing research to continue without IRB approval. The IRB’s basic role when deciding whether to approve new research is to determine if the rights and welfare of subjects will be safeguarded. IRB members ensure that a study’s procedures are consistent with sound research design and that the consent document conforms to federal rules for adequate informed consent. IRB reviews, however, generally do not involve direct observation of the research study or the process in which a subject’s consent is obtained. IRB members are expected to recognize that certain research subjects—such as children, prisoners, the mentally disabled, and individuals who are economically or educationally disadvantaged—are likely to be vulnerable to coercion or undue influence. The local nature of most IRBs enables members to be familiar with the research institution’s resources and commitments, the investigators’ capabilities, and community values. IRBs are also required to review previously approved research periodically. The purpose of these continuing reviews is for IRBs to keep abreast of a study’s potential for harm and benefit to subjects so that boards can decide whether the study should continue. No system of prevention is foolproof. Therefore, FDA’s and OPRR’s monitoring and enforcement efforts include review of results of IRB operations, clinical trials, and allegations of researcher misconduct. FDA’s primary tool for monitoring human subject protection is its on-site inspections of the IRBs that oversee drug research. FDA’s inspections of IRBs demonstrate that, at some institutions, compliance with federal oversight rules is uneven. Between January 1993 and November 1995, FDA issued 31 Warning Letters to institutions regarding significant deficiencies in the performance of their IRBs’ oversight of drug research. Among the more serious violations cited were the following: participation of researchers as IRB members in reviewing their own studies, absence of a process for tracking ongoing studies, and failure to ensure that required elements of informed consent were contained in consent documents. The FDA Warning Letters terminated the IRBs’ authority to approve new studies or to recruit new subjects into ongoing studies until FDA received adequate assurance of corrective action. From October 1993 to November 1995, FDA found less serious deficiencies involving about 200 other IRBs, such as failure to document the names of IRB members and failure of IRB minutes to identify controversial issues discussed. In addition to monitoring IRBs, FDA must be satisfied that manufacturers have complied with human subject protection regulations during clinical trials. To this end, FDA conducts on-site inspections of individual drug studies. When examining how a trial was conducted, FDA determines, for example, if subject selection criteria were followed, if subjects’ consent was documented, and if adverse events were reported. FDA’s principal focus in these efforts, however, is to verify the accuracy and completeness of study data as well as the researcher’s adherence to the approved protocol. Most of the drug study violations FDA identifies are relatively minor. From 1977 to 1995, about one-half of the violations related to the adequacy of the informed consent forms. FDA also identifies more serious violations. Since 1980, FDA has taken 99 actions against 84 clinical investigators regarding their conduct of drug research with human subjects. It cited such instances of serious misconduct as failure to obtain informed consent; forgery of subjects’ signatures on informed consent forms; failure to inform patients that a drug was experimental; and failure to report subjects’ adverse reactions to drugs under study, including a subject’s death. FDA has used four types of actions to enforce its regulations: (1) obtaining a promise from a researcher to abide by FDA requirements for conducting drug research, (2) invoking a range of restrictions on a researcher’s use of investigational drugs, (3) disqualifying a researcher from the use of investigational drugs, and (4) criminally prosecuting a researcher. OPRR also responds to inquiries and investigates allegations of potential harm to human subjects. These inquiries and investigations are largely handled by telephone and correspondence; few investigations result in site visits. Over the past 5 years, OPRR has investigated numerous allegations of serious human subject protection violations. One such example was OPRR’s investigation of whether informed consent procedures clearly identified the risk of death to volunteers in the tamoxifen breast cancer prevention trial. OPRR found that informed consent documents at some sites failed to identify some of tamoxifen’s potentially fatal risks, such as uterine cancer, liver cancer, and embolism. In another instance, OPRR compliance investigators found deficiencies in informed consent and in IRB review procedures in a joint NIH-French study of HIV-positive subjects in Zaire. Among cases currently under investigation are allegations that researchers at a university-based fertility clinic transferred eggs from unsuspecting donors to other women, without consent of the donors. In many cases, OPRR has required institutions to take corrective action. In some instances, OPRR has suspended an institution’s authority to conduct further research in a particular area until problems with its IRBs were fixed. From 1990 to mid-1995, there were 17 instances in which OPRR imposed some type of restriction on an institution’s authority to conduct human subject research. Oversight systems are by nature limited to minimizing, rather than fully eliminating, the potential for mishap, and HHS’ system for protecting human subjects is no exception. Various factors reduce or threaten to reduce the effectiveness of IRBs, OPRR, and FDA. First, pressure from heavy workloads and competing priorities can weaken IRB oversight. In some cases, the sheer number of studies necessitates that IRBs spend only 1 or 2 minutes of review per study. Some IRBs allow administrative staff with no scientific expertise—not board members themselves—to review continuing review forms, ensuring only that the information has been provided. The independence of IRB reviews can be compromised in cases in which IRB members have close collegial ties with researchers at their institutions, when there are pressures from institution officials to attract and retain funding, when IRB members have financial ties to the study, and when IRB members are reluctant to criticize studies led by leading scientists. The increasing complexity of research makes it difficult for some IRBs to adequately assess human subject protection issues when members are not conversant with the technical aspects of a proposed study, or when studies raise ethical questions that have not been satisfactorily resolved within the research community. Given the growing number of large-scale trials, if most involved IRBs have approved a proposed study, then IRBs at other institutions may feel pressured to mute their concerns about the study. Pressures to recruit subjects can lead some researchers and IRBs to overlook informed consent deficiencies. Second, various factors may hamper OPRR oversight. OPRR staff make no site visits during assurance negotiations; instead, they review an institution’s written application and conduct written or oral follow-up. In contrast, on the basis of experience gained from on-site investigations for compliance purposes, OPRR staff told us that their ability to evaluate an institution’s human protection system is greatly enhanced by direct observation and personal interaction with IRB staff, IRB members, and researchers. In the future, OPRR expects to conduct from 12 to 24 technical assistance visits annually to institutions holding OPRR assurances. NIH’s organizational structure may hamper the independence of OPRR with respect to its oversight of studies conducted by NIH’s Office of Intramural Research. From a broad organizational perspective, a potential weakness exists because NIH is both the regulator of human subject protections as well as an agency conducting its own research programs. The NIH Director, therefore, has responsibility for both the success of NIH’s intramural research programs and the enforcement of human subject protection regulations by OPRR. Third, FDA’s inspections of drug research may permit violations to go undetected. FDA’s inspection program is geared more toward protecting the eventual consumer of the drug than the subjects on whom the drug was tested. FDA does not inspect all drug studies but concentrates its efforts on commercial products likely to be approved for consumer use. Furthermore, FDA’s routine on-site inspections of drug studies are conducted only after clinical trials have concluded and subjects have completed their participation. Gaps also exist in FDA’s inspection of IRBs. FDA’s Center for Drug Evaluation and Research annually issues the results of about 158 inspections of the approximately 1,200 IRBs reviewing drug studies, although its goal has been to complete and issue reports on about 250 inspections each year. We found that in one of FDA’s 21 districts—one that contains several major research centers conducting studies with human subjects—12 IRBs had not been inspected for 10 or more years. Furthermore, FDA is 3 to 5 years behind in its scheduled reinspection of some IRBs with which it had noted problems. FDA officials told us that some of its inspectors may be inadequately prepared to understand the human subject protection implications of drug studies and to ask meaningful follow-up questions on the research protocols they review. Fourth, additional pressures make it difficult to guarantee the protection of human subjects. When seriously ill individuals, such as some HIV patients, equate experimental and proven therapies, some question the need for protections that appear only to restrict their access to therapy. When physician-researchers do not clearly distinguish between research and treatment in their attempt to inform subjects, the possible benefits of a study can be overemphasized and the risks minimized. When physicians use an innovative but unproven technique to treat patients, they may not consider the procedure to be research. Such treatments, however, could constitute unregulated research, placing people at risk of harm from unproven techniques. Our work suggests that over the last 3 decades federal regulators and members of the research community have improved the protection of human research participants. However, holes inevitably exist in the regulatory net because no oversight system can guarantee complete protection for each individual. The goals remain to encourage researchers’ ethical behavior without hobbling scientific research and to refine regulations and oversight activities to further improve subject protections. Given the many pressures that can weaken the effectiveness of the protection system, continued vigilance is critical to ensuring that subjects are protected from harm. Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions you or the other Members may have. For more information about this testimony, please call Bruce D. Layton, Assistant Director, at (202) 512-7119. Other major contributors included Frederick K. Caison, Linda S. Lootens, and Hannah F. Fein. 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. A recorded menu will provide information on how to obtain these lists.

GAO discussed the Department of Health and Human Services' (HHS) efforts to protect human research subjects, focusing on the prevention, monitoring, and enforcement activities of the National Institutes of Health's Office for Protection from Research Risks (OPRR) and the Food and Drug Administration (FDA). GAO noted that: (1) to ensure the protection of human research subjects, the agencies require researchers to make assurance agreements that they will comply with federal human subject protection requirements and uphold ethical standards; (2) the agencies also use institutional review boards (IRB), local review panels that review research plans to ensure that human subjects are protected; (3) both FDA and OPRR conduct on-site visits and inspections, clinical trials, investigations of allegations of researcher misconduct, and IRB reviews to identify violations of protection requirements; (4) to enforce the regulations, FDA and OPRR have requested modifications to research plans, restricted researchers' use of drugs, disqualified, suspended, or criminally prosecuted researchers; and (5) oversight effectiveness is hampered by heavy IRB workloads and competing priorities, organizational conflicts-of-interest, limited site visits and inspections, and pressures resulting from differing perceptions on the need for research versus treatment.

You are an expert at summarizing long articles. Proceed to summarize the following text: Over the last 50 years, the composition of the American household has changed dramatically. During this period, the proportion of unmarried individuals in the population increased steadily as couples chose to marry at later ages and cohabit prior to marriage—and as divorce rates rose (see fig. 1). From 1960 to 2010, the percentage of single-parent families also rose. In fact, from 1970 through 2012, the estimated proportion of single-parent families more than doubled, increasing from 13 to 32 percent of all families. The decline in marriage and rise in single parenthood over this period were more pronounced among low-income, less-educated individuals, and some minorities. For example, from 1960 to 2010, the proportion of married, 45- to 54-year old men in the highest income quintile declined modestly while the proportion of married men in the lowest income quintile declined from an estimated 71 to 27 percent (see fig. 2). Similarly, the percentage of single parents among 45- to 54-year-old men and women in the highest income quintile remained flat, while there was a steep rise in the percentage of single parents in the lowest income quintile, according to our estimates. In terms of education, among individuals age 18 years and older, the rise in single parenthood was steeper for those without a high school diploma in comparison to their counterparts with 4 or more years of college. Over the same period, the labor force participation rate of married women increased (see fig. 3). In 1960, labor force participation rates among married men, single men, married women, and single women ranged from 89 percent for married men to 32 percent for married women, according to our estimates. Since then, the differences in labor force participation rates for these four groups have narrowed, with labor force participation among married and single women within 3 percentage points in 2010. As a result of married women’s increasing labor force participation, the proportion of married couples with two earners has risen—along with the wives’ contributions to household income. According to the Bureau of Labor Statistics, from 1970 through 2010, women’s median contribution to household income rose from 27 to 38 percent. Further, from 1987 through 2010, the percentage of households in which the wives’ earnings exceeded their husband’s rose from 24 to 38 percent. As marriage and workforce patterns have changed, the U.S. retirement system has undergone its own transition. Specifically, over the last two decades employers have increasingly shifted away from offering their employees traditional DB to DC plans, and roughly half of U.S. workers do not participate in any employer-sponsored pension plan. DB plans typically offer retirement benefits to a retiree in the form of an annuity that provides a monthly payment for life, including a lifetime annuity to the surviving spouse, unless the couple chooses otherwise. In contrast, under a DC plan, workers and employers may make contributions to individual accounts. Depending on the options available under the plan, at retirement DC participants may take a lump sum, roll their plan savings into an IRA, leave some or all of their money in the plan, or purchase an annuity offered through the plan. Further, many of the remaining DB plans now offer lump sums as one of the form-of-payment options under the plan. Participants who elect a lump sum forgo a lifetime annuity. Some DB plan sponsors have also begun offering special, one-time lump sum elections to participants who are already retired and receiving monthly pension benefits. Taken together, the trends in marriage and workforce participation have implications for the receipt of Social Security retirement benefits, especially for women. Specifically, the proportion of women who are not eligible to receive Social Security spousal benefits because they were either never married, or divorced after less than 10 years of marriage— the length of time required for eligibility for Social Security divorced spouse benefits—has increased over the last two decades. The decline in the proportion of women with marriages that qualify them for spousal benefits—coupled with the rise in the percentage of women receiving benefits based on their own work record—has resulted in fewer women today receiving Social Security spousal and survivor benefits than in the past.been more dramatic. In general, the trend away from women receiving spousal benefits is projected to continue, with the largest shift occurring among black women, according to SSA analyses. For many elderly, this shift is likely to be positive, reflecting their higher earnings and greater capacity to save for retirement. However, elderly women with low levels of lifetime earnings, who have no spouse or do not receive a spousal benefit—a group that is disproportionately represented by black women— For blacks, the rise in ineligibility for spousal or widow benefits has are expected to have correspondingly lower Social Security retirement benefits relative to those with higher incomes. These trends have also affected household savings behavior and the financial risks households face in retirement. Households with DC plans have greater responsibility to save and manage their retirement savings so that they have sufficient income throughout retirement. However, our analysis of SCF data shows that many households approaching retirement still have no or very limited retirement savings (see fig. 4). Married households—in which many women now make significant contributions to retirement savings—are more likely to have retirement savings, but their median savings are low. The majority of single-headed households have no retirement savings. Single parents, in particular, tend to have fewer resources available to save for retirement during their working years and are less likely to participate in DC plans. In addition to challenges with accumulating sufficient savings for retirement, individuals may also find it difficult to determine how to invest their savings during their working years and spend down their savings when they reach retirement. During their working years, DC plan participants typically must determine the size of their contributions and choose among various investment options offered by the plan. At retirement or separation from their employer, plan participants must decide what to do with their plan savings. Participants in DB plans also face similar decisions if the plan offers a lump sum option, including whether to take the annuity or lump sum, and if a lump sum is elected, how to manage those benefits. GAO has found that these decisions are difficult to navigate because the appropriate investment strategy depends on many different aspects of an individual’s circumstances, such as anticipated expenses, income level, health, and each household’s tolerance for risk. In addition, individuals with DC plans face challenges comparing their distribution options, in part due to a host of complicated factors that must be considered in choosing among such options. They may also lack objective information to inform these complicated decisions. In fact, while financial experts GAO has interviewed typically recommended that retirees convert a portion of their savings into an income annuity, or opt for the annuity provided by an employer-sponsored DB pension instead of a lump sum withdrawal, we found that most retirees pass up opportunities for additional lifetime retirement income. These choices coupled with increasing life expectancy may result in more retirees outliving their assets. Lastly, the transition from DB to DC plans has increased the vulnerability of some spouses due to differences in the federal requirements for spousal protections between these two types of retirement plans. For DB plans, spousal consent is required if the participant wishes to waive the survivor annuity for his or her spouse. In contrast, for DC plans, spousal consent is not required for the participant to withdraw funds from the account—either before or at retirement—and DC plans do not generally offer annuities at all, including those with a survivor benefit. While this may not be a concern among many couples, it is a concern for some, especially those who depend on their spouse for income. While the trends described above have the potential to affect many Americans, it is likely that they will impact the nation’s most vulnerable more severely. Despite the role Social Security has played in reducing poverty among seniors, poverty remains high among certain groups (see fig. 5). These groups include older women, especially those who are unmarried or over age 80, and nonwhites. Moreover, individuals nearing retirement who experience economic shocks, such as losing a job or spouse, are also vulnerable to economic insecurity. During the 2007-2009 recession, unemployment rates doubled for workers aged 55 and older. When older workers lose a job they are less likely to find other employment. In fact, the median duration of unemployment for older workers rose sharply from 2007 to 2010, more than tripling for workers 65 and older and increasing to 31 weeks from 11 weeks for workers age 55 to 64. Prior GAO work has shown that long- term unemployment can reduce an older worker’s future retirement income in numerous ways, including reducing the number of years the worker can accumulate savings, prompting workers to claim Social Security retirement benefits before they reach their full retirement age, Similarly, our and leading workers to draw down their retirement assets.past work has shown that divorce and widowhood in the years leading up to and during retirement have detrimental effects on an individual’s assets and income, and that these effects were more pronounced for women. As a result of the trends described above, these vulnerable populations may face increasing income insecurity in old age and be in greater need of assistance. For example, during the 2007-2009 recession, the demand for food assistance rose sharply among older adults. Specifically, from fiscal year 2006 to 2009, the average number of households with a member age 60 or older participating in the Supplemental Nutrition Assistance Program rose 25 percent, while the population in that age group rose by 9 percent. Pub. L. No. 89-73, 79 Stat. 218 (codified as amended at 42 U.S.C. §§ 3001-3058ff). past work, we noted that the national funding formula used to allocate funding to states does not include factors to target older adults in greatest need, such as low-income older adults, although states are required to consider such factors when developing the intrastate formulas they use to allocate funds among their local agencies. We found that certain formula changes to better target states with elderly adults with the greatest need would have disparate effects on states, depending on their characteristics. We have also found that lack of federal guidance and data make it difficult to know whether those with the greatest need are being served. Our findings underscore how retirement security can be affected by changing circumstances in the American household and the economy. As the composition of the American family continues to evolve and as our retirement system transitions to one that is primarily account-based, vulnerable populations in this country will face increasing risk of saving sufficiently and potentially outliving their assets. For those with little or no pension or other financial assets, ensuring income in retirement may involve difficult choices, including how long to wait before claiming Social Security benefits, how long to work, and how to adjust consumption and lifestyle to lower levels of income in retirement. Poor or imprudent decisions may mean the difference between a secure retirement and poverty. Planning for these needs will be crucial if we wish to avoid turning back the clock on the gains we have achieved over the past 50 years from Social Security in reducing poverty among seniors. Chairman Nelson, Ranking Member Collins, and Members of the Committee, this completes my statement. I would be happy to answer any questions you might have. In addition to the above, Charlie Jeszeck, Director; Michael Collins, Assistant Director; Jennifer Cook, Erin M. Godtland, Rhiannon Patterson, and Ryan Siegel made significant contributions to this testimony and the related report. In addition, James Bennett, David Chrisinger, Sarah Cornetto, Courtney LaFountain, Kathy Leslie, Amy Moran Lowe, Sheila McCoy, Susan Offutt, Marylynn Sergent, Frank Todisco, and Shana Wallace made valuable contributions. 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.

Over the past 50 years, poverty rates among older Americans have declined dramatically, in large part due to the availability and expansion of Social Security benefits. Social Security is now the most common type of income for retirees. Social Security retirement benefits are available not only to those who qualify based on their own work history, but also to spouses, widows/widowers, and in some cases former spouses of workers who qualify. However, in recent decades, marriage has become less common, women have entered the workforce in greater numbers, and many employers have shifted from offering DB to DC plans. In light of these trends, GAO is reporting on: (1) the trends in marriage and labor force participation in the American household and in the U.S. retirement system, (2) the effect of those trends on the receipt of retirement benefits and savings, and (3) the implications for vulnerable elderly populations and current challenges in assisting them. This statement draws from previously issued GAO work and a recently issued report, which was based on an analysis of nationally representative survey data including the Survey of Consumer Finances, the Survey of Income and Program Participation, and the Current Population Survey (CPS); and a broad literature review. GAO also interviewed agency officials and a range of experts in the area of retirement security. GAO is making no recommendations. The decline in marriage, rise in women's labor force participation, and transition away from defined benefit (DB) plans to defined contribution (DC) plans have resulted in changes in the types of retirement benefits households receive and increased vulnerabilities for some. Since the 1960s, the percentage of unmarried and single-parent families has risen dramatically, especially among low-income, less-educated individuals, and some minorities. At the same time, the percentage of married women entering the labor force has increased. The decline in marriage and rise in women's labor force participation have affected the types of Social Security benefits households receive, with fewer women receiving spousal benefits today than in the past. In addition, the shift away from DB to DC plans has increased financial vulnerabilities for some due to the fact that DC plans typically offer fewer spousal protections. DC plans also place greater responsibility on households to make decisions and manage their pension and financial assets so they have income throughout retirement. As shown in the figure below, despite Social Security's role in reducing poverty among seniors, poverty remains high among certain groups of seniors, such as minorities and unmarried women. These vulnerable populations are more likely to be adversely affected by these trends and may need assistance in old age. Note: The category “White” refers to people who are white only, non-Hispanic. “Black” refers to people who are black only, non-Hispanic. “Asian” refers to people who are either Asian only, Pacific Islander only or Asian and Pacific Islander, and are non-Hispanic. Hispanic people may be any race. Percentage estimates for poverty rates have margins of error ranging from 0.6 to 8.6 percentage points. See the hearing statement for more information on confidence levels and the data.

You are an expert at summarizing long articles. Proceed to summarize the following text: In 2013, we found that most agencies did not comply with spending requirements for the SBIR or STTR programs in all 6 years, based on data the agencies submitted to SBA for fiscal years 2006 to 2011. Specifically, 8 of the 11 agencies did not consistently meet annual spending requirements for SBIR. Data from 3 of the agencies—DHS, Education, and HHS—indicated that they met their spending requirements for all 6 years. For STTR, 4 of 5 agencies did not consistently meet annual spending requirements. Data from 1 agency— HHS—indicated that it met its STTR spending requirements for all 6 years. Figure 1 shows the number of years that each agency complied with spending requirements for fiscal years 2006 through 2011. Additional data on each agency’s spending on the programs is included in our 2013 report. SBIR and STTR program managers identified reasons why spending the required amount in a given fiscal year could be difficult, which we described in our 2013 report. For example, in that report, we found that delays in receiving final appropriations can delay agencies’ awarding of contracts for SBIR or STTR projects. Some program managers said that they tend to wait to award some grants and contracts until receiving their final appropriations in case the agency’s extramural R&D budget—and, therefore, its SBIR or STTR spending requirement—differs significantly from the expected amount. Because the award process can be lengthy, a delay can push the awards and spending into the following fiscal year. As we found in our 2013 report, when appropriations were received late in the year, agencies used differing methodologies to calculate their spending requirements, making it difficult to determine whether agencies’ calculations were correct. Although SBA provided guidance in policy directives on calculating their spending requirements, we found that the policy directives did not provide guidance to agencies on how to calculate such spending requirements when agency appropriations are delayed. We found that, without such guidance, that agencies would likely continue to calculate spending requirements in differing ways. In our 2013 report, we recommended that SBA provide additional guidance on how agencies should calculate spending requirements when agency appropriations are received late in the fiscal year. SBA has since begun taking steps to address this recommendation. We also found in 2013 that agencies participating in the SBIR and STTR programs did not consistently comply with requirements in the Small Business Act to annually report a description of their methodologies for calculating their extramural R&D budgets to SBA and that SBA did not consistently comply with the act’s requirements for annually reporting to Congress. With the exception of NASA in certain years, agencies did not submit their methodology reports to SBA within the time frame required by the Small Business Act for fiscal years 2006 through 2011 for the SBIR and STTR programs. As noted earlier, the act requires that agencies report to SBA their methodologies for calculating their extramural budgets within 4 months after the date of enactment of their respective appropriations acts. However, most participating agencies documented their methodologies for calculating their extramural R&D budgets for these fiscal years and submitted them to SBA after the close of the fiscal year with their annual reports. SBA officials said that they did not hold the agencies to the act’s deadline for submitting methodology reports, in part because delays in receiving annual appropriations pushed the required reporting date until late in the fiscal year and it was more convenient for agencies to submit their methodology reports with their annual reports. By not having the methodology reports earlier in the year as specified by law, however, SBA did not have an opportunity to analyze these methodologies and provide the agencies with timely feedback to assist agencies in accurately calculating their spending requirements. By not providing such feedback, SBA was forgoing the opportunity to assist agencies in correctly calculating their program spending requirements and to help ensure that they spent the mandated amounts. More significantly, we found in 2013 that the majority of the agencies did not include an itemization of each R&D program excluded from the calculation of the agency’s extramural budget and a brief explanation of why it was excluded, as required. We found that it was difficult for SBA to comprehensively analyze the methodologies and determine whether agencies were accurately calculating their spending requirements without having more consistent information from agencies. We also found that agencies could have benefited from guidance on the format of methodology reports, and that without such guidance, participating agencies might continue to provide SBA with broad, incomplete, or inconsistent information about their methodologies and spending requirements. We recommended that SBA provide additional guidance to agencies on the format that they are to include in their methodology reports. We also recommended that SBA provide timely annual feedback to each agency following submission of its methodology report on whether its method for calculating the extramural R&D budget complies with program requirements, including an itemization of and an explanation for all exclusions from the basis for the calculations. SBA is in the process of taking steps to address these recommendations. We also found in 2013 that SBA had not consistently complied with the requirement to report its analysis of the agencies’ methodologies in its annual report to Congress, as required by the Small Business Act. Over the 6 years covered in our review, SBA reported to Congress for 3 of those; fiscal years 2006, 2007, and 2008. We found that these reports contained limited analyses of the agencies’ methodologies, and some of the analyses were inaccurate. For example, SBA’s analysis was limited to a table attached to the annual report to Congress that often did not include information on particular agencies. In our 2013 report, we found that, without more comprehensive analysis and accurate information on participating agencies in SBA’s annual report, Congress did not have information on the extent to which agencies are reporting what is required by law. In that report, we recommended that SBA provide Congress with a timely annual report that includes a comprehensive analysis of the methodology each agency used for calculating the SBIR and STTR spending requirements, providing a clear basis for SBA’s conclusions about whether these calculations meet program requirements. SBA is in the process of taking steps to address this recommendation. In 2013, we also found that changing the methodology to calculate the SBIR and STTR spending requirements based on each agency’s total R&D budget instead of each agency’s extramural R&D budget would increase the amount of each agency’s spending requirement for the programs, some much more than others, depending on how the change was implemented. Also, such a change would increase the number of agencies that would be required to participate in the programs if the threshold for participating in the programs remained the same. For example, two additional agencies—the Departments of Veterans Affairs (VA) and the Interior—would have been required to participate in SBIR in fiscal year 2011 if total R&D budgets had been the criteria because these agencies reported total R&D budgets in excess of $100 million. For STTR, three additional agencies—Commerce, USDA, and VA—would also have been required to participate in the program for fiscal year 2011 if total R&D budgets had been the criteria because these agencies reported total R&D budgets in excess of $1 billion. Some agencies told us in 2013 that changing the methodology to calculate the SBIR and STTR spending requirements could have effects on their R&D programs and create challenges. For example, changing the base would increase SBIR and STTR budgets and could result in reductions in certain types of intramural R&D, with corresponding reductions in full-time equivalent staffing of these programs. In addition, some agency officials said there would potentially be changes in the content of the agency’s extramural R&D effort because of changes in the types of businesses that receive grants and contracts. We found in 2013 that the participating agencies’ cost of administering the SBIR and STTR programs could not be determined because the agencies neither collected that information nor had the systems to do so. Neither the authorizing legislation for the programs nor SBA policy directives require agencies to track and estimate all administrative costs, and neither the law nor the policy directives define these administrative costs. Estimates agencies provided for our report indicated that the greatest amounts of administrative costs in fiscal year 2011 were for salaries and expenses, contract processing, outreach programs, technical assistance programs, support contracts, and other purposes. With the implementation in 2013 of a pilot program allowing agencies under certain conditions to use up to 3 percent of SBIR program funds for certain administrative costs, SBA expected to require agencies in the pilot program to track and report the spending of that 3 percent but not all of their administrative costs. Chairwoman Cantwell, Ranking Member Risch, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. If you or your staff have any questions about this testimony, 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 statement. GAO staff who made key contributions to this testimony are Hilary Benedict, Assistant Director; Antoinette Capaccio; Cindy Gilbert; Rebecca Makar; Cynthia Norris; and Daniel Semick. 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.

Federal agencies have awarded more than 156,000 contracts and grants, totaling nearly $40 billion through the SBIR and STTR programs to small businesses to develop and commercialize innovative technologies. The Small Business Act mandates that agencies, with extramural R&D budgets that meet the thresholds for participation, must spend a percentage of these annual budgets on the two programs. The agencies are to report to SBA and SBA is to report to Congress. This testimony is based on a report GAO issued in September 2013 and addresses for fiscal years 2006 through 2011, (1) the extent to which participating agencies complied with program spending requirements, (2) the extent to which participating agencies and SBA complied with certain reporting requirements, (3) the potential effects of basing the spending requirements for the SBIR and STTR programs on agencies' total R&D budgets instead of their extramural R&D budgets, and (4) what is known about the amounts participating agencies spent for administering the programs. For that report, GAO reviewed agency calculations of spending requirements and required reports, and interviewed SBA and participating agency officials. Using data agencies had reported to the Small Business Administration (SBA), GAO found in its 2013 report that 8 of the 11 agencies participating in the Small Business Innovation Research (SBIR) program and 4 of the 5 agencies participating in the Small Business Technology Transfer (STTR) program did not consistently comply with spending requirements for fiscal years 2006 to 2011. SBA, which oversees the programs, provided guidance in policy directives for agencies on calculating these requirements, but the directives did not provide guidance on calculating the requirements when appropriations are late and spending is delayed. Some SBIR and STTR program managers told GAO that it can be difficult to spend the required amount because delays in receiving final appropriations can delay agencies' awarding of contracts. As GAO found in its 2013 report, when appropriations were received late in the year agencies used differing methodologies to calculate their spending requirements, which made it difficult to determine whether agencies' calculations were correct. GAO found that, without further SBA guidance, agencies would likely continue calculating spending requirements in differing ways. GAO also found in 2013 that the participating agencies and SBA had not consistently complied with certain program reporting requirements. For example, participating agencies did not itemize each program excluded from the calculation of their extramural research or research and development (R&D) budgets and explain why the program was excluded, as required. (Extramural R&D is generally conducted by nonfederal employees outside of federal facilities.) Also, SBA's annual reports to Congress that were available at the time of GAO's review contained limited analysis of the agencies' methodologies, often not including information on particular agencies. By providing more analysis of the agencies' reports, as GAO recommended in its 2013 report, SBA can provide information to Congress on the extent to which agencies were reporting what is required. In 2013, GAO found that the potential effects of basing each participating agency's spending requirement on its total R&D budget instead of its extramural R&D budget would increase the amount of the spending requirement—for some agencies more than others, depending on how the change was implemented. Also, if the thresholds of the spending requirements for participation in the programs did not change, changing the base to an agency's total R&D budget would increase the number of agencies required to participate. In addition, GAO found in 2013 that the agencies' cost of administering the programs could not be determined because the agencies had not consistently tracked costs as they were not required to do so by the authorizing legislation of the programs. Estimates agencies provided to GAO indicated that the greatest amounts of administrative costs in fiscal year 2011 were for salaries and expenses, contract processing, outreach programs, technical assistance programs, support contracts, and other purposes. With the start of a pilot program allowing agencies to use up to 3 percent of SBIR program funds for administrative costs in fiscal year 2013, SBA planned to require participating agencies to track and report administrative costs paid from program funds. GAO is not making any new recommendations, but made several to SBA in GAO's 2013 report on this topic. SBA agreed with those recommendations and is taking steps to implement them.

You are an expert at summarizing long articles. Proceed to summarize the following text: FDA categorizes medical devices in one of three classifications based on the degree of potential risk and control needed to reasonably ensure their safety and effectiveness. Class I, or “low risk,” devices are subject to minimum regulation and include such items as tongue depressors, elastic bandages, and bed pans. Class II, or “medium risk,” devices include syringes, hearing aids, resuscitators, and electrocardiograph machines and are subject to more scrutiny than class I devices. Most medical devices designated as class I or class II reach the market through FDA’s premarket notification—or 510(k)—process. Class III, or “high risk,” devices are the most rigidly controlled and include devices such as heart valves, pacemakers, and defibrillators. These devices are life-supporting or life-sustaining, or are substantially important in preventing the impairment of human life, or present a potentially unreasonable risk of illness or injury. Class III devices are subject to FDA’s premarket approval process, which requires the manufacturer to present evidence, often including extensive clinical data, that there is a reasonable assurance that the device is safe and effective before placing it on the market. To help ensure the safety of medical devices, the Federal Food, Drug, and Cosmetic Act was amended in 1976 to expand FDA’s responsibility for regulating medical devices in the United States. However, studies prepared by our office, the former Office of Technology Assessment, and the Office of Inspector General of the Department of Health and Human Services, as well as congressional investigations and hearings led the Congress to conclude that the 1976 amendments were inadequate to protect the public from dangerous and defective medical devices. Among its concerns, the Congress concluded that FDA’s ability to ensure the removal of dangerous or defective devices, such as heart valves and other life-sustaining devices, from the market was hampered because manufacturers did not have adequate systems for tracking patients with these high-risk devices. The efforts of two medical device manufacturers—Shiley, Inc., and Vitek, Inc.—to notify product recipients of potential product defects highlight the need for effective medical device tracking systems. Shortly after passage of the 1976 Medical Device Amendments, Shiley applied for and received approval to market its Bjork-Shiley artificial heart valve under FDA procedures—which were under development and would not be finalized for another decade. According to a congressional study, between 1979 and 1986, an estimated 40,000 people in the United States received the valve. During this period, the struts that held the mechanical valves in place fractured, leading to death in an estimated two out of three cases where strut failures occurred. Despite a redesign, strut fractures persisted, and Shiley was forced to recall all of its devices and cease production in November 1986. According to the congressional study, Shiley had reported a total of 389 fractures related to one of its valves and 248 deaths, as of January 1990. In December 1990, Shiley voluntarily undertook an effort to locate and inform approximately 23,000 recipients about one of its artificial heart valves that was subject to life-threatening fractures. Although Shiley reported distributing patient registration cards to hospitals to obtain recipients’ names when valves were implanted, less than 50 percent of the cards were reportedly returned. As a result, efforts to locate patients—which also included letters and telephone calls to physicians and announcements in print media—confirmed the locations of only about 14,000 of the 23,000 (61 percent) heart valve recipients, as of November 1991. There were similar difficulties in locating patients who had received a jaw implant device manufactured by Vitek. The device contained layers of teflon or proplast—or various combinations of these materials—which Vitek argued were substantially equivalent to a product on the market prior to the 1976 amendments. Following FDA approval, the devices were reportedly prone to break apart, fragment, and function improperly. FDA estimated that more than 26,000 of the devices were distributed between 1973 and 1988. However, Vitek did not know how many devices were actually implanted because it was not required to and did not maintain records of patients who had received an implant. FDA officials reported that apart from the devices recovered through seizures executed in October 1990, it was unable to determine the number of devices that were in distribution or implanted in patients because the devices were manufactured in sets of two, which could be split between patients. Following Vitek’s declared bankruptcy in June 1990 and the bankruptcy trustee’s refusal to notify recipients of Vitek’s implant device, FDA established and funded a patient notification program, which it estimates cost about $41,000. In September 1991, as part of its patient notification program, FDA notified physicians and hospitals on Vitek’s consignee list and requested that they advise patients about the problems associated with the Vitek implants and treatment options. FDA also conducted an extensive media campaign, which included a video news release and various press releases and forums targeted to health organizations and professionals. In addition, the Medic Alert Foundation, a nonprofit organization, established a registration program for Vitek proplast implant patients at FDA’s request. For an enrollment fee, patients in the registry received updated information about Vitek implants, symptoms and treatments available after the implant was removed, and other devices that could possibly serve patients better. Through the program, FDA could, if needed, locate patients and their doctors. However, in mid-1994, Medic Alert informed FDA that it was no longer financially feasible to operate the program. In November 1994, FDA issued letters to about 5,000 patients to inform them that the notification program was closing and that patients could receive updated information through various organizations. The medical device tracking provision, enacted in November 1990 as part of SMDA 90, was intended to improve manufacturers’ ability to track patients with high-risk medical devices and to ensure that FDA and manufacturers could quickly remove dangerous or defective devices from the market. The provision defines high-risk devices as those that are permanently implantable and would likely have serious adverse health consequences were the device to fail or those that are life sustaining or life supporting and are used outside the device-user facility. The Secretary of Health and Human Services may also designate any other device as high risk. All manufacturers of such devices must adopt a method of device tracking. CDRH’s Office of Compliance has primary responsibility for implementing and enforcing the requirements of the device tracking regulation. These responsibilities include providing agency field staff with guidance on inspecting manufacturers for compliance with the regulation during GMP inspections and monitoring corrections and removals of device products from the market. The Office of Compliance is also responsible for reviewing and approving exemptions and variances from one or more parts of the tracking regulation, filed by a manufacturer, importer, or distributor seeking relief. In addition, FDA’s Office of Regulatory Affairs and FDA’s 21 district offices within the United States and Puerto Rico are responsible for all FDA inspections, which include inspections of medical devices. District office staff conduct on-site GMP inspections for all FDA-regulated facilities and monitor the efforts of recalling manufacturers to ensure that defective or dangerous devices are corrected or removed from the market. In August 1993, FDA issued a medical device tracking regulation that implemented the new tracking requirement of SMDA 90. Under the regulation, manufacturers must adopt a method of tracking that enables them to quickly provide FDA information on the location of the device and patients using them to facilitate efficient and effective mandatory recalls or notifications. Manufacturers generally use one of two basic approaches. The first approach registers the patient at the time of implant and uses a periodic follow-up mechanism—such as post card, letter, or phone call—to update names and addresses. The second approach uses a health care professional, usually a physician, who stays in contact with the patient to update his or her location. While no specific method of tracking is required, under the regulation, manufacturers are required to follow three key tracking requirements: First, manufacturers are required to develop written standard operating procedures for implementing a tracking method to generate the required information on devices and patients. The operating procedures must include data collection and recording procedures that include documentation on the reasons for missing required tracking data, a method for recording all modifications to the tracking system—including changes to the data format, file maintenance, and recording system—and a quality assurance procedure to ensure that the operating procedures are working effectively. The manufacturer’s quality assurance program must provide for audits of the tracking system based on a statistically relevant sampling of the manufacturer’s tracking data. For the first 3 years of tracking a device, manufacturers are required to perform the audits in 6-month intervals; thereafter, the tracking systems must be audited annually. These audits must check both the functioning of the tracking system and the accuracy of the data in the system. Second, manufacturers are required to establish and maintain certain data in their tracking systems. For device products that have not yet been distributed to a patient, the manufacturer must obtain and keep current the name, address, and telephone number of the distributor holding the device, as well as the location of the device. For tracked devices distributed to a patient, the manufacturer must obtain and maintain information on the identity and current location of the patient and other information on the device product, such as the lot, batch, model, or serial number, and the attending physician’s name, address, and telephone number. Finally, upon request by FDA, manufacturers must be able to quickly report device and patient location information. Within 3 workdays of FDA’s request, manufacturers must report the location of tracked devices that have not yet been distributed to patients as well as provide information about the distributor. For devices distributed to patients, manufacturers must report the locations of devices and patients within 10 workdays of FDA’s request. The tracking regulation also states that manufacturers have the responsibility of determining the devices subject to tracking and to initiate tracking. To provide guidance to manufacturers, FDA listed 26 categories of devices in the regulation that it regards as subject to tracking and has focused enforcement efforts on manufacturers of such devices. (See app. II for the 26 device categories.) Distributors of devices—which may include user facilities, physicians, and pharmacies—also have reporting and recordkeeping responsibilities under the device tracking regulation. Distributors must collect, maintain, and report back to the manufacturer current information on the locations of tracked devices and patients who use them. Following concerns that SMDA 90 provisions did not provide manufacturers with clear guidance on which devices were subject to tracking, the medical device tracking provision was revised in FDAMA.Under FDAMA, FDA—not manufacturers—is required to determine whether certain devices are subject to tracking and to issue orders to manufacturers requiring them to adopt a tracking system for these devices. Devices not identified are exempt from the tracking requirement until FDA issues an order to the contrary. FDA has taken several actions to implement the changes mandated by FDAMA. In February 1998, FDA issued orders to manufacturers of devices in categories designated for tracking under SMDA 90 provisions, requiring them to continue their tracking systems while FDA considered reducing the number of devices subject to tracking. In March 1998, FDA announced in a Federal Register notice the availability of guidance on manufacturers’ responsibilities for medical device tracking under FDAMA and requested comments from the public on factors FDA should consider in deciding whether some device categories should no longer be subject to tracking. FDA is currently reviewing these comments and plans to publish a notice in the Federal Register with a revised list of device categories subject to tracking. If a medical device exhibits a problem after it is marketed, one remedial action available to the manufacturer of the device and FDA is to recall the product. In these cases, manufacturers must develop a strategy for implementing recalls and take appropriate action to protect the public health, including effectiveness checks to ensure that users of devices have been notified of the recall. FDA reviews and approves recall strategies and assigns one of three recall classifications—class I, II, or III—to indicate the relative degree of health hazard of the product being recalled. For a class I recall, FDA has determined that the use of or exposure to the product could cause serious health consequences or death. Class II recalls are designated for situations where FDA has determined that the use of or exposure to the product could cause temporary or medically reversible adverse health consequences and the probability of serious health consequences is remote. Class III recalls are reserved for situations that involve minor component malfunction repairs and labeling changes where use of or exposure to the product is not believed likely to cause adverse health consequences. FDA also monitors the progress of recalls and audits a sample of completed recalls to verify that the recalling manufacturer has properly removed defective devices from the market. As a goal, FDA expects manufacturers to complete recalls within 6 months of initiation and requires FDA staff to conduct audits and terminate recalls in not more than 90 workdays after the manufacturer reports the recall completed. (For more details of FDA’s recall process, see app. III.) FDA’s approach to ensuring that device manufacturers are operating tracking systems capable of tracing devices from distribution to end users has several limitations, such as a failure to include audits of the tracking systems in its inspections and infrequent inspections. To address these problems, CDRH’s Office of Compliance is considering initiatives that are intended to strengthen its oversight of manufacturers’ tracking systems, but the details of most of these initiatives have not yet been developed. Moreover, FDA has not taken steps to ensure that tracking continues when manufacturers responsible for tracking go out of business, merge, or are acquired by others. FDA on-site inspections of device manufacturers’ facilities are intended to ensure compliance with the requirements of the GMP regulation, the medical device reporting regulation, and the medical device tracking regulation. Manufacturers of class II or class III devices, such as those subject to tracking, are to receive inspections at least once every 2 years.Although these inspections represent a key element of FDA’s oversight of device tracking, we found that both the scope and frequency of the inspections are limited. FDA’s Compliance Program Guidance Manual requires investigators to determine whether manufacturers are complying with the device tracking regulation by reviewing their written standard operating procedures for tracking during GMP inspections. If the manufacturer does not have a tracking system, the investigator is required to cite the violation on the agency’s list of inspection observations, commonly referred to as FDA form 483. This form is presented to and discussed with the manufacturer’s management at the conclusion of the inspection. The investigator also prepares an establishment inspection report, which summarizes the manufacturer’s operations and any conditions observed during the inspection that may violate federal statutes. FDA’s guidance manual also requires investigators to document in the report whether the manufacturer makes any of the devices subject to tracking, and if so, whether it is meeting its tracking obligations. However, in making assessments of manufacturers’ compliance with the tracking regulation, FDA does not require inspectors to conduct independent audits of the tracking systems to ensure that the systems are working. Moreover, inspectors are directed not to review manufacturers’ quality assurance audit reports that evaluate the functioning and accuracy of data in the tracking systems. Reviewing these reports or conducting independent audits of manufacturers’ tracking systems would assist FDA investigators in assessing whether manufacturers are operating tracking systems capable of quickly identifying the locations of devices and patients that use them. FDA can use its existing regulatory authority to require manufacturers to certify that they are, in fact, conducting required audits. However, a senior FDA official told us that this requirement has never been used and is not included in FDA’s guidance manual. FDA officials explained that its current inspection strategy for assessing compliance with the tracking requirements is intended to educate and encourage compliance among manufacturers before actually enforcing the provisions of the regulation. The officials also explained that due to a written policy established as part of the GMP regulation in 1978, FDA inspectors are precluded from reviewing or copying manufacturers’ records and reports that result from audits performed in accordance with a written quality assurance program at any regulated entity. FDA officials also told us that the medical device industry has resisted the agency’s access to the audits because they fear the audits would yield incriminating information that FDA could use against them. According to FDA officials, this belief may cause manufacturers to be less than candid and thorough in their audits if the audits were subject to FDA inspection. As such, FDA adopted the policy to encourage manufacturers to conduct self-audits that are unbiased and meaningful. Nevertheless, the agency has not conducted its own audits of the tracking systems. In addition, FDA’s inspections of manufacturers’ tracking systems have not been conducted at least once every 2 years, as required by GMP standards. Our analysis of FDA data shows that FDA conducted GMP inspections in 137 (58 percent) of the 238 reportedly active establishments subject to tracking during fiscal years 1996 and 1997. In addition, during fiscal years 1994 and 1995, FDA conducted GMP inspections in only 91 (45 percent) of the 202 reportedly active manufacturers subject to tracking. FDA officials told us that reductions in field staff resources used to conduct inspections has made it difficult for FDA to meet the GMP biennial inspection requirement. According to FDA officials, the number of investigators available to inspect all FDA-regulated facilities—including manufacturers of foods, drugs, biologics, veterinary medicine, and medical devices—has declined since 1993. They noted for example that investigators assigned specifically to cover the approximately 4,400 device manufacturing establishments nationwide declined from 34 in fiscal year 1994 to 28 in fiscal year 1997, while the scope of GMP inspections has increased to include compliance programs for the medical device reporting regulation and medical device tracking regulation. FDA officials acknowledged that changes are needed to better assess compliance with the medical device tracking regulation and improve its oversight of manufacturers subject to tracking. For example, FDA has included in its fiscal year 1999 performance plan a risk-based inspection plan that will require FDA to identify and prioritize device areas of concern to focus resources on the highest priorities. Inspection activities would be prioritized based on several factors, including reports of problems with medical devices, earlier inspections, and devices associated with higher risk. FDA officials told us that many of the devices designated for tracking, such as cardiovascular implants, would likely receive priority attention because of the relative high risk associated with their use. The risk-based plan is expected to be presented to FDA’s Medical Device Field Committee, which is responsible for reviewing and approving significant changes to on-site inspections before they can be included in FDA’s compliance program. To improve FDA’s assessment of manufacturer compliance with tracking requirements, officials of the Office of Compliance told us they are considering separating GMP inspections of manufacturing and distribution processes from records inspections—which typically include reviews of manufacturer compliance with medical device reporting and tracking requirements under SMDA 90—thereby allowing inspectors more time to review manufacturer compliance with recordkeeping requirements. In addition, the Office of Compliance also plans to develop an audit plan that will require FDA inspectors to independently verify the adequacy of manufacturers’ standard operating procedures for tracking and determine whether the procedures are being followed. However, at the time of our review, FDA did not have a draft of the planned changes available for review and had not established a time frame for presenting these changes to FDA’s Medical Device Field Committee for approval. Maintaining accurate and complete tracking records when a manufacturer goes out of business, merges, or is acquired by another manufacturing establishment is critical to ensuring that devices can be traced from distribution to end users if a recall becomes necessary. However, FDA has not acted to ensure that tracking continues in these situations. Several options are available to FDA for covering the costs of operating a tracking system when a manufacturer goes out of business. Requiring manufacturers to notify FDA when mergers and acquisitions take place could also help FDA ensure that device tracking systems continue. The device tracking regulation requires a manufacturer that goes out of business to advise FDA at the time it notifies any government agency, court, or supplier and provide FDA with a complete set of its tracking records and information. Our review of FDA’s registry of device manufacturers shows that 47—or 16 percent—of the 285 establishments subject to tracking were classified by the agency as either tentatively (21 establishments) or permanently (26 establishments) out of business, as of May 1997, and that some manufactured high-risk devices, such as heart valves, pacemakers, ventilators, defibrillators, and apnea monitors. However, none of the manufacturers that were reportedly closed for business has provided FDA with tracking records. FDA officials believe it is possible that several of the manufacturers may have merged or been acquired. In such instances, the tracking regulation requires the acquiring establishment to continue the tracking obligations of the failed one. However, the device tracking regulation does not require the establishment acquiring the rights to manufacture the device to notify FDA when these transactions take place. As a result, FDA officials could not determine the number of manufacturers that were involved in mergers or acquisitions or whether any of them had assumed the tracking responsibilities of establishments involved in these transactions. FDA officials told us they have no plans to recover the tracking records of any failed establishments and operate a tracking system itself. In FDA’s view, absent a public health emergency with a tracked device, the agency would not be able to justify cuts in other programs to carry out a tracking program, which is largely the responsibility of a manufacturer. Further, officials said they have no basis to determine how much it would cost to operate any of the failed establishment’s tracking systems because the variables, such as the number of devices distributed by the manufacturers and used by patients, are unknown. Thus, no valid cost estimates could be made by FDA. While we recognize that FDA would likely incur additional costs to operate the tracking system of a failed establishment, without reliable tracking data, FDA may have serious difficulties promptly recalling and notifying patients if a public health emergency were to occur. To pay the cost of maintaining the tracking systems of failed establishments, FDA could seek legislative authority to require manufacturers of tracked devices to provide some form of financial assurance to FDA that would demonstrate their commitment to meet their tracking obligations. Alternatively, FDA could encourage patients and health providers that use tracked devices of defunct establishments to pay a fee to establish and maintain a registry of the current locations of patients and devices, as was done in the case of the Vitek jaw implants. FDA could also consider shifting resources from other programs or request additional funding from the Congress for the operation of a tracking program. A senior FDA official said the agency could attempt to obtain the tracking records of failed establishments. This, at a minimum, would provide FDA with information on the last known locations of devices and patients in the event a recall and notification became necessary. To locate the records would likely require FDA investigators to visit the last known address of the manufacturer to confirm its closure, the local post office to determine whether a forwarding address was provided, or government agencies or courts that may have received notification of the manufacturer’s closing. For manufacturers involved in mergers and acquisitions, FDA could include a requirement in the medical device tracking regulation that an establishment that has acquired the right to manufacture another manufacturer’s tracked device must notify FDA that it has assumed the tracking duties of the former establishment. This would provide FDA with greater assurance that tracking of critical devices is being continued when mergers and acquisitions have taken place. Medical device recalls are an important remedial action that manufacturers and FDA can take to protect the public from unsafe and ineffective device products. According to FDA, delays in the identification and removal of potentially hazardous devices from the market can increase the chances of inadvertent misuse of devices and risk to public health. To encourage expeditious recalls, FDA requires that manufacturers complete recalls within 6 months from the date of initiation. In addition, FDA, through its Regulatory Procedures Manual, requires district offices to review and audit the recall effort and submit a report to headquarters that summarizes the results of the recall and recommends approval to terminate the recall not more than 90 workdays after the recall is completed. These reports provide FDA with assurance that recalling manufacturers have taken prompt and appropriate actions to resolve problems with devices and assists FDA in identifying trends and evaluating new problem areas in manufacturing and processing. (See app. III for additional detail on FDA’s recall process.) However, our review of recalls of defective tracked devices initiated by manufacturers and monitored by FDA shows that most were not completed within the required time frames. The number of devices subject to recall and type of correction or modification required were among possible factors cited by FDA officials as contributing to delays in manufacturers completing recalls; late submissions of summary recall reports due to other work priorities in district offices were believed to have contributed to delays in FDA terminating the recalls. At this writing, FDA has not conducted a comprehensive review of its recall procedures and recall performance to determine how to improve the timeliness of recalls. From FDA’s recall records and computer databases, we identified 54 recalls of tracked devices, all of which were voluntarily initiated by 35 manufacturers, during fiscal years 1994 through 1996. Three of the 54 recalls were designated by FDA as class I recalls—where FDA had determined that use of or exposure to the device could have serious adverse health consequences; 43 were class II recalls—where FDA determined that use of or exposure to the device could cause adverse health consequences that are reversible or the probability of adverse health consequences is remote; and 7 were class III recalls—where FDA determined that use of or exposure to the device would likely not cause adverse health consequences. The remaining recall was a safety alert. As of January 1998, 49 (90 percent) of the 54 recalls of tracked devices had been completed; however, only 15 (31 percent) of these 49 recalls had been completed within FDA’s 6-month guideline. Thirty-four (69 percent) of the 49 completed recalls took longer than 6 months to complete, including 17 (35 percent) that took between 6 months to 1 year to complete. Seventeen other recalls (34 percent) took more than 1 year to complete, including 4 class II recalls that took more than 2 years. For example, a class II recall of ventilators took 919 calendar days to complete. In addition, we found that five class II recalls were still ongoing as of January 16, 1998, even though four of the recalls were started in 1996 and one started in 1995. Recall completions ranged from 12 calendar days to 1,044 calendar days, with a median of 226 calendar days. (See table 1.) FDA also did not terminate recalls of tracked devices in a timely manner. Of the 49 recalls that were reported completed by manufacturers, less than one-half were terminated by FDA within its 90-workday standard. As of January 16, 1998, FDA had approved 36 (73 percent) of the 49 recalls for termination; 13 recalls (27 percent) were still awaiting termination by FDA, which included two class I recalls of a ventilator and a pacemaker that were completed by the manufacturers in August 1995 and August 1997, respectively. For the 36 recalls terminated by FDA, 24 (67 percent) were reviewed and terminated by FDA within 90 workdays. For 12 completed recalls (33 percent), FDA took more than 90 workdays, including 2 class II recalls of ventilators and defibrillators that required about 1 year or more for termination. (See table 2.) FDA time to terminate the 36 recalls ranged from 1 day to as many as 390 workdays, with a median of 45 workdays. Total recall time for device manufacturers and FDA ranged from 20 days to 786 days, with a median of 333 combined calendar days and workdays. Total recall time for one class I recall of a defibrillator was 529 days. (App. IV shows for each recall, the number of calendar days elapsed for manufacturers to complete the recall, the number of workdays elapsed for FDA to terminate the recall, and the total time elapsed.) It was beyond the scope of this study to identify the underlying reasons for delays in completing recalls of tracked devices. However, we discussed our analysis of the recalls with officials in FDA’s Office of Regulatory Affairs who are responsible for recalls. Although these officials did not conduct an in-depth review of the recalls, they told us that the length of time manufacturers generally took to complete recalls can vary due to factors such as the amount and type of recall correction or modification required, the amount of product subject to recall or correction, the number of notifications needed to obtain responses from consignees, and inadequate attention some manufacturers give to recalls. The officials also explained that while district offices are often slow in submitting the summary reports to FDA for closure due to higher-priority work, such as conducting comprehensive GMP inspections, district offices are monitoring the progress of recalls and completing audit checks to verify the effectiveness of recalls. FDA reported that it is taking a number of actions to complete and close all outstanding recalls initiated during 1994 through 1996, as quickly as possible. These include instructing district offices to complete and close out all outstanding recalls by the end of fiscal year 1998 and updating the recall database with current information on the status of all recalls. FDA’s approach to inspecting medical device tracking systems provides little assurance that manufacturers can track devices through the chain of distribution to patients within a short period of time. Without conducting inspections once every 2 years that include audits of the tracking systems to verify the reliability of data in them, FDA cannot be certain manufacturers are operating systems that will work when recalls are necessary. FDA’s initiatives for improving oversight of high-risk manufacturers appear to be a step in the right direction. However, it is unclear whether these initiatives will provide FDA with adequate oversight of manufacturers subject to tracking, given the workload and size of FDA’s inspection force available to conduct inspections in device establishments. Still, FDA may be able to increase its oversight presence, if as expected, FDA reduces the number of device categories subject to tracking under FDAMA, focuses its inspection priorities on high-risk devices, and separates GMP inspections from record inspections. In addition, because FDA has not acted to recover the tracking records of failed establishments and is unaware of manufacturers involved in mergers or acquisitions, the agency has no assurance that the tracking obligations of such manufacturers are being continued. While we recognize that device tracking is the responsibility of manufacturers, FDA, as the protector of public health, must have a method of continuing the tracking obligations of manufacturers when they go out of business or the agency will likely have serious problems executing prompt and effective recalls—as was the case with Vitek’s jaw implants. FDA can explore a number of options for funding tracking systems for failed establishments to ensure public safety, including seeking necessary legislation. Requiring manufacturers to notify FDA when they merge or acquire the rights to manufacture another establishment’s product would also better fulfill the goals of tracking and protect public health. Finally, because recalls of tracked devices have been executed slowly by manufacturers and FDA, the agency has less assurance that dangerous or defective devices under recall are promptly and appropriately removed from the market and less information available to analyze trends in device problems. Timely completion and termination of recalls provide FDA with greater assurance that defective devices are corrected and removed promptly and effectively and with more information to analyze and resolve device problems. FDA actions to address these problems are encouraging. Nevertheless, FDA’s efforts to improve the timeliness of recalls could benefit from evaluating the reasons why manufacturers and FDA frequently require extensive amounts of time to complete and terminate device recalls. To improve FDA’s ability to monitor manufacturer compliance with the medical device tracking regulation and conduct recalls of tracked devices in a timely manner, we recommend that the Commissioner of FDA develop and implement a plan to verify the completeness and accuracy of data in the tracking systems of device manufacturers to ensure that the systems can trace devices through the chain of distribution to end users, take steps to recover the medical device tracking records of manufacturers that have failed and have not provided such information to FDA and report to the Congress on the results of its assessment of options for covering the costs of operating a device tracking system for failed establishments, revise the medical device tracking regulation to require an establishment that acquires the right to manufacture another establishment’s tracked device either through merger or acquisition to immediately notify FDA that it has assumed the tracking obligations of the former establishment, and examine the reasons for delays in completing recalls of tracked devices and develop and implement strategies for improving the timeliness of recalls. We obtained comments on a draft of this report from FDA and three trade associations that represent the medical device industry—Health Industry Manufacturers Association (HIMA), Medical Device Manufacturers Association (MDMA), and the National Electrical Manufacturers Association (NEMA). In general, FDA agreed with the findings and some of the recommendations in our report and said they had begun acting on them. While NEMA agreed with our findings and recommendations, HIMA and MDMA were concerned that implementing our recommendations would place undue burdens on manufacturers without improving the agency’s oversight of device tracking or benefiting public health. FDA agreed that manufacturers should maintain accurate and complete data in tracking systems and indicated that it was revising its inspection approach to verify that manufacturers have adequate procedures in place to comply with medical device tracking requirements. However, FDA does not plan to verify the data in the tracking systems as we recommended because it believes the agency should focus on ensuring that manufacturers have tracking systems in place. While we agree that determining whether manufacturers have appropriate tracking procedures in place is an important element of an FDA inspection, limiting inspections in this way does not provide FDA with assurance that the data in the tracking system are accurate and complete. HIMA and MDMA were concerned about the methods FDA may use to implement our recommendation to verify tracking system data and the cost of these efforts. HIMA believes it is unnecessary for FDA to conduct independent audits of tracking systems because such audits would duplicate those already performed by the manufacturers. They noted that, if necessary, FDA is authorized to require manufacturers to certify that they are, in fact, conducting required audits. MDMA indicated that we had not linked weaknesses in FDA’s oversight of tracking systems with an adverse impact on public health. They also believed that in order to independently verify tracking system data, FDA would need to conduct “mock recalls” that would require manufacturers to generate reports of the location of all devices in distribution with hypothetical malfunctions. MDMA believes such an effort would be costly and provide little benefit to FDA and the public. In our view, FDA needs to develop an approach to verify the data in manufacturers’ tracking systems. However, the industry’s comments are not without merit and should be considered by FDA as it weighs the costs and benefits of different approaches for addressing this issue. We agree with HIMA that requiring FDA inspectors to conduct independent audits of tracking systems could duplicate manufacturers’ own internal audits and would likely result in some additional costs to FDA and manufacturers. Nevertheless, it may be one way FDA can verify the tracking data without having access to the internal audit reports. HIMA also correctly notes that FDA is authorized to require manufacturers to certify that they are conducting required audits of tracking system. We have revised our report to include certification as an option FDA could use to verify tracking system data. While our report does not link weaknesses in FDA’s oversight of device tracking with adverse health events, as noted by MDMA, we do not believe FDA should await a public health emergency before taking action to ensure that device tracking systems are capable of tracing devices to end users. We disagree with MDMA that FDA would need to conduct mock recalls to independently verify the tracking data. Indeed, such an approach would be costly and inefficient and may be outside of FDA’s authority. Although we are not prescribing a specific method of verification for FDA, the agency could select a random sample of tracking system data and contact end users of devices to confirm their locations. Such an approach would likely take less time and resources to complete than the mock recalls suggested by MDMA. HIMA and MDMA also disagreed with our recommendation that FDA examine options for requiring manufacturers of tracked devices to provide financial assurance to offset the costs FDA may incur in maintaining a tracking program for failed establishments. HIMA said that such a requirement would be costly and difficult to implement. MDMA indicated that while it supports FDA’s efforts to ensure compliance with these regulations, the cost should be borne by the taxpayers who benefit from the tracking of medical devices, rather than the manufacturers. While it may be costly to operate the tracking systems of failed establishments, these systems must be maintained so that end users can be promptly notified of serious device problems that warrant corrective action. However, as HIMA and MDMA point out, there may be ways to cover the cost of this activity other than requiring manufacturers to provide financial assurance. In our view, FDA needs to evaluate approaches for resolving this problem, including who should be responsible for maintaining the tracking records and who should pay the cost of this activity. FDA should report its findings to the Congress, and, if necessary, seek authority from the Congress to implement a solution. We have modified the report and recommendation to address this issue. HIMA believes it would be better to measure the effectiveness of a recall based on a manufacturer’s success in identifying and contacting a device’s end users or patients where notification was required. While we agree with HIMA that the ability of a tracking system to locate end users provides a valuable measure of recall success, we believe that the timeliness of recalls is also important. A key goal of tracking is to ensure that defective or dangerous devices can be corrected or removed from the market within a short period of time. Thus, in our view, FDA’s timeliness guidelines for completing and terminating recalls are valuable indicators for measuring recall performance. 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 of this report to other congressional committees and members with an interest in this matter, and we will make this report available to others upon request. If you or your staff have any questions about this report, please call me at (202) 512-7119 or John Hansen at (202) 512-7105. Other major contributors to this report are Darryl Joyce, Julian Klazkin, and Claude Hayeck. We conducted our study of FDA’s implementation of the provisions of the medical device tracking requirements of the Safe Medical Devices Act of 1990 at FDA’s Office of Compliance within the Center for Devices of Radiological Health (CDRH) and the Office of Regulatory Affairs. In addition to reviewing the laws, regulations, and literature relevant to medical device tracking, we met with officials of CDRH and the Office of Regulatory Affairs to discuss the agency’s efforts to implement the tracking regulation and policies and procedures used to inspect manufacturers’ tracking systems and recall tracked devices. From a list of about 150 manufacturers subject to tracking provided to us by the Emergency Care Research Institute (ECRI), a nonprofit health research agency, we judgmentally selected and interviewed representatives of 10 manufacturers to discuss the methods they used to track devices, which included pacemakers, heart valves, defibrillators, ventilators, apnea monitors, and jaw implants. We also analyzed FDA statistics on the number of GMP inspections conducted in establishments that were subject to tracking during fiscal years 1994 through 1997. We reviewed a list of manufacturers registered with FDA to identify the number of active and inactive establishments that were subject to tracking as of May 1997. To identify recalls of medical devices that were subject to tracking during fiscal years 1994 through 1996, we reviewed a list of recalls of tracked devices known to FDA. To supplement this list, we obtained a list of recalls of tracked devices covering the same period from ECRI because it maintains an automated database that collects information from manufacturers, FDA weekly enforcement reports, and scientific literature on devices subject to recalls. With CDRH staff, we reviewed a total of 135 recalls from these two sources and identified 54 recalls of devices that were subject to tracking. Included in our analysis were recalls of devices distributed on or after August 29, 1993, the effective date of the medical device tracking regulation. We excluded recalls for at least one of the following reasons: date of distribution of the device could not be determined; device was not subject to the tracking regulation; date of distribution of the device occurred prior to the effective date of device was granted an exemption from tracking by FDA; recall commenced in 1997, which was beyond the scope of our study; or recall involved devices distributed outside the United States, which are not subject to tracking. To determine the amount of time manufacturers and FDA took to complete recalls of tracked devices, we analyzed data in recall records and FDA’s recall database maintained by CDRH and the Office of Regulatory Affairs on the dispositions of 54 recalls of tracked devices that were initiated by manufacturers during fiscal years 1994 through 1996. From documentation in the recall records and databases, we calculated the number of calendar days manufacturers took to complete each of the 54 recalls and compared the results against FDA’s instructions to manufacturers to complete recalls within 6 months of initiation. Calendar days were used because we wanted to measure the time elapsed for manufacturers to remove devices subject to recall from the market. The number of workdays FDA took to review and approve recalls for termination was compared to FDA’s requirement that recalls be terminated in not more than 90 workdays after manufacturers reported recalls completed. Next, to measure total recall time, we added the number of calendar days spent by manufacturers to complete recalls to the number of workdays FDA took to terminate the recalls. We did not independently verify the information contained in the recall databases or evaluate the internal controls of the computer systems. FDA’s medical device tracking regulation, effective August 29, 1993, required manufacturers to use the criteria established in SMDA 90 to determine the devices that meet the criteria for tracking and to initiate tracking. To illustrate and provide guidance to manufacturers, FDA listed 26 categories of devices in the regulation that it regarded as subject to tracking. A recall is a voluntary action by a manufacturer to remove a medical device from the market or to correct a problem with a medical device to protect the public from products that present a risk of injury, gross deception, or are otherwise defective. Under SMDA 90, FDA can require manufacturers to report to the agency any corrections and removals of problem devices from the market and order recalls of defective and dangerous devices. However, in practice, with the exception of urgent situations, the majority of recalls are initiated voluntarily by manufacturers with FDA oversight. FDA assigns one of three classifications—class I, class II, and class III—to indicate the relative degree of risk the recalled product presents to public health. For a class I recall, FDA has determined that the use of or exposure to the product could cause serious health consequences or death. Class II is designated for situations where FDA has determined that the use of or exposure to the product could cause temporary or medically reversible adverse health consequences and the probability of serious health consequences is remote. A class III recall is reserved for situations where use of or exposure to the product is considered not likely to cause adverse health consequences. To initiate a recall of a product from the market, manufacturers develop and submit a recall strategy report to FDA that includes information on the reason for the correction or removal of the device, an assessment of the health hazard associated with the device, and volume of product in distribution. The recall strategy also includes provisions for effectiveness checks to ensure that users of devices have been notified of the recall and taken appropriate action to protect the public health. In general, class I recalls require a check with 100 percent of the device users that received notice of the recall and class II recalls require checks of 80 percent of device users. No checks are required for class III recalls because there is no public health risk involved. FDA guidelines instruct manufacturers to complete recalls within 6 months from the date of initiation of the recall. FDA reviews and recommends changes, if any, to the proposed recall strategy; advises the manufacturer of the assigned recall classification; and places the recall in its weekly enforcement report. At least once a month, FDA district offices monitoring recalls receive recall status reports from manufacturers that provide updates on the progress of recalls. Status reports on class I and some class II recalls are forwarded to FDA headquarters for review. Upon completion of the recall, the district offices conduct audit checks to confirm that the recalling manufacturer has properly corrected or removed devices from the market, in accordance with the recall strategy. Audit checks, which generally range from 2 to 10 percent of the total number of device users notified of the recall notice, are always performed on class I recalls and are usually conducted on class II recalls. After the monitoring district has determined that the recall was effective at notifying device users and appropriate action has been taken, a recall termination recommendation and summary of recall report is prepared by the district and forwarded to FDA headquarters for termination approval. This report provides FDA headquarters with documentation that reasonable and appropriate actions have been taken by the manufacturer to correct or remove the defective device product from the market. FDA requires from the time a manufacturer considers the recall completed to FDA’s recall termination approval should not exceed 90 days. Both the Office of Compliance and Office of Regulatory Affairs maintain separate automated computer databases that track the processing of recalls. Table IV.1 shows our analysis of the days elapsed for manufacturers and FDA to complete and terminate recalls of tracked devices that were initiated during fiscal years 1994 through 1996. Monitor (apnea detector, ventilatory effort) DC-defibrillator, low energy (including paddles) Defibrillator, automatic implantable cardioverter Pump, infusion, implanted, programmable Pulse generator, pacemaker, implantable (continued) As of January 16, 1998, FDA had not received a summary recall recommendation report from the district office and, therefore, had not approved the recall for termination. Recall was classified as a safety alert. 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 provided information on whether the Food and Drug Administration (FDA) is providing adequate oversight of the tracking systems of high-risk device manufacturers and whether recalls of devices are executed promptly, focusing on whether: (1) FDA ensures that manufacturers operate tracking systems that are capable of tracking devices through the distribution chain to end users; and (2) device manufacturers and FDA are executing recalls of tracked devices in a timely manner. GAO noted that: (1) there are several weaknesses in FDA's approach for determining whether device manufacturers are operating tracking systems capable of quickly locating and removing defective devices from the market and notifying patients who use them; (2) FDA's inspections of the tracking systems do not include independent audits that could verify the completeness and accuracy of data in the systems; (3) instead, the inspections focus on reviews of the manufacturers' written standard operating procedures for tracking; (4) further, although the good manufactured product standard require FDA to inspect manufacturers of tracked devices at least once every 2 years, only about one-half of the 238 manufacturers subject to tracking were inspected during fiscal year (FY) 1996 and FY 1997; (5) FDA attributed its limited inspection activity to a reduction in field resources; (6) FDA has also not acted to ensure that device tracking continues when establishments go out of business, merge, or are acquired by other entities; (7) FDA officials told GAO they are planning to revise their inspection program to include an audit plan to better assess manufacturers' compliance with the tracking requirements and redirect FDA's compliance priorities toward high-risk devices, such as implant devices; (8) the details for most of these plans, however, have not yet been determined; (9) in GAO's analysis of FDA's recall data, manufacturers and FDA have not acted in a timely manner to correct and remove defective devices from the market; (10) less than one-third of the 54 recalls initiated from FY 1994 through FY 1996 were completed by manufacturers within 6 months, as specified in FDA guidelines; (11) FDA has also had problems terminating device recalls in a timely manner; (12) less than one-half of the 49 recalls reported completed by manufacturers were reviewed and terminated by FDA within the 90-workday standard established by the agency; and (13) FDA officials have identified several factors that may contribute to delays in completing recalls, but an in-depth review of the recall procedures used by manufacturers and FDA has not been conducted.

You are an expert at summarizing long articles. Proceed to summarize the following text: In regulating dual-use exports, the Commerce Department’s BIS faces the challenge of weighing various U.S. interests, which can be divergent or even competing, so U.S. companies can compete globally while minimizing the risk of controlled dual-use items falling into the wrong hands. Under the authority granted in the Export Administration Act (EAA), BIS administers the EAR that require exporters to either obtain a license from BIS or determine government authorization is not needed before exporting controlled items. Even when a license is not required, exporters are required to adhere to the provisions of the EAR when exporting controlled dual-use items. Whether an export license is required depends on multiple factors including the country of ultimate destination, individual parties involved in the export, parties’ involvement in proliferation activities, and planned end use of the item. Dual-use items specified in the EAR’s Commerce Control List are controlled for a variety of reasons, including restricting exports that could significantly enhance a country’s military potential, preventing exports to countries that sponsor terrorism, and limiting the proliferation of chemical, biological, and nuclear weapons and their delivery systems. The U.S. government controls many of these items under its commitments to multilateral export control regimes, which are voluntary agreements among supplier countries that seek to restrict trade in sensitive technologies to peaceful purposes. For those exports requiring a license, Executive Order 12981 governs the dual-use license application review process and establishes time frames for each step in the review process (see fig. 1). One of the first steps in the license application review process is the screening of parties on the application, such as the planned exporter or end user, against BIS’s internal watchlist to identify ineligible parties or parties that warrant closer scrutiny. Neither the EAA nor the EAR provide specific criteria as to which parties are to be included on the watchlist. However, under the EAR, BIS may deny export privileges to persons convicted of export violations, and the watchlist serves as a mechanism for identifying parties that have been denied exporting privileges. This screening process can also serve as a tool for identifying proposed end users sanctioned for terrorist activities and, therefore, ineligible to receive certain dual-use items. BIS has the discretion to add other parties to the watchlist. A match between the watchlist and a party on an application does not necessarily mean that the application will be denied, but it can trigger additional scrutiny by BIS officials, including BIS enforcement officials, during the license application review process. While BIS is responsible for administering the dual-use export control system and licensing dual-use exports, other federal agencies play active roles. As provided for under Executive Order 12981, the Departments of Defense, Energy, and State have the authority to review any export license applications submitted to BIS. These departments specify through delegations of authority to BIS the categories of applications that they want to review based, for example, on the item to be exported. License applications can also be referred to the Central Intelligence Agency (CIA) for review. After reviewing an application, the agencies are to provide the BIS licensing officer with a recommendation to approve or deny the application. In addition to reviewing license applications, the Defense, Energy, and State Departments are also involved in the regulatory process. Before changes are made to the EAR and the Commerce Control List, such as the addition of an item to the list, proposals are reviewed through an interagency review process. BIS is responsible for issuing the regulatory changes related to dual-use exports. For fiscal year 2005, BIS had a budget of $67.5 million, of which $33.9 million was for the administration of the export control system. Of the 414 positions at BIS in fiscal year 2005, 48 were licensing officers. These officers are responsible for developing the Commerce Department position as to whether an application should be approved and responding to exporter requests for commodity classifications as well as performing other duties related to administering the dual-use export control system. BIS has not systematically evaluated the overall effectiveness and efficiency of the system to determine whether its stated goal of protecting U.S. national security and economic interests is being achieved. Specifically, it has not comprehensively analyzed key data on actual dual- use exports, including unlicensed exports that represent the majority of exports subject to its controls. Further, contrary to what is called for under government management standards, BIS has not established performance measures to assess how effectively the system is protecting U.S. interests in the existing security and economic environment. While BIS has established some measures related to the system’s efficiency, those measures focus on narrow aspects of the licensing process. BIS officials also rely on intelligence reports and meetings with industry officials to provide insight into how the system is operating. After the events of September 2001, BIS conducted an ad hoc review of the system to determine if changes were needed. According to BIS officials, no fundamental changes to the system were needed, but they cited the review as the basis for some adjustments—primarily related to controls on chemical and biological agents. However, because BIS did not document its review, we could not assess the sufficiency of the review and the resulting changes. In managing the dual-use export control system, BIS has not conducted comprehensive analyses of available data on items under its control that have been exported. According to BIS officials, they recently began conducting limited analyses of export data to evaluate the potential effects of proposed regulatory changes on U.S. industry. While BIS is cognizant of dual-use exports authorized through the license application review process, it has not analyzed export data to determine the extent to which approved licenses resulted in actual exports. BIS also does not routinely analyze data on the items and destinations for unlicensed exports, which represent the majority of exports subject to BIS’s controls. BIS has not established measures to assess whether it is effectively achieving its goal of protecting national security and economic interests. Under the performance management framework established by the Government Performance and Results Act of 1993, federal agencies are to develop objective performance measures for assessing how well they are achieving their goals over time. These measures should focus on an agency’s outcomes as opposed to its processes. BIS’s lack of effectiveness measures was noted in a 2005 review by the Office of Management and Budget (OMB). In response to OMB’s review, BIS indicated plans for developing measures to assess the system’s effects on national security and economic interests in consultation with the other agencies involved in the export control system. BIS officials informed us that their attempt to devise effectiveness measures did not succeed due to a lack of cooperation and that they opted not to independently pursue the development of effectiveness measures. Without measures of effectiveness to assess it performance, BIS relies on measures related to the efficiency of the dual-use export control system. These efficiency-related measures generally focus on the first steps in the license application review process—how long it takes to review a license application internally and refer an application to another agency. Over the last 3 fiscal years, BIS has reported meeting its licensing-related time frames. However, BIS does not have efficiency-related measures for other steps in the license application review process, such as how quickly a license should be issued or denied once other agencies provide their input, or for the review process as a whole. BIS also does not evaluate the efficiency of other aspects of the system. Most notably, it does not measure whether it is meeting the regulatory time frame for the processing of commodity classification requests, of which there were 5,370 in fiscal year 2005 or about 24 percent of licensing officers’ workload (see app. I for additional information on BIS’s processing times). BIS officials acknowledged that they have not systematically evaluated the dual-use export control system. Instead, BIS officials informed us that they regularly review intelligence reports and meet with industry officials to gauge how well the system is working. A senior BIS official stated there are no anecdotal indications that the system is not effective. The official added that “it stands to reason” that BIS’s controls have limited various parties’ access to U.S. dual-use technologies but that it is difficult to determine how controls are affecting U.S. industry. Also, as evidence of how the system is operating, BIS officials referred us to BIS’s annual report on its foreign policy-based controls. This report summarizes various regulatory changes from the previous year and what the newly imposed controls were intended to achieve. However, this report does not contain an assessment of the impact these controls have had on U.S. interests. To address its lack of evaluations, BIS officials informed us that they are in the process of establishing an Office of Technology Evaluation. BIS is hiring analysts to evaluate topics including how dual-use items should be controlled and how export controls have affected industry. Absent systematic evaluations, BIS conducted an ad hoc review after the September 2001 attacks to determine what changes, if any, needed to be made to the system in light of the new security environment. However, according to BIS officials, they did not produce a report or other documentation regarding their review. Therefore, we could not assess the validity or sufficiency of BIS’s review and the resulting changes. BIS officials told us they determined that, other than some adjustments to its controls, no fundamental changes to the system were needed because they already had controls and procedures in place to deny terrorists access to dual-use technologies. Of the hundreds of regulatory changes made since September 2001, BIS officials identified the following specific changes as stemming from their ad hoc review establishing a worldwide licensing requirement for exports of changing the licensing requirement for biological agent fermenters from fermenters larger than 100 liters to those larger than 20 liters; controlling components that can be used in the manufacture of chemical agents; including additional precursors for the development of chemical agents on the Commerce Control List; revising licensing requirements to further restrict U.S. persons from designing, developing, producing, stockpiling, or using chemical or biological weapons; requiring licenses for exports of equipment related to the production of chemical or biological agents to countries that are not members of the Australia Group; imposing controls on exports of unmanned aerial vehicles capable of dispersing more than 20 liters of chemical or biological agents; and adding amorphous silicon plane arrays, which can be used in night vision or thermal imaging equipment, to the Commerce Control List. According to BIS officials, their review did not result in changes to the license application review process after the events of September 2001. However, decisions by other agencies—namely the Energy Department and the CIA—have resulted in BIS referring more license applications to them. Specifically, in response to Energy’s request, BIS began referring applications related to missile technologies and chemical or biological agents, in addition to the nuclear-related applications Energy was already reviewing. Similarly, based on discussions between BIS and the CIA, the decision was made to refer more applications to the CIA for review to determine whether foreign parties of concern may be involved in the proposed export (see app. I for information on BIS referral rates). Additionally, in response to the changing security environment after September 2001, BIS reprioritized its enforcement activities. Specifically, BIS enforcement officials are to give highest priority to dual-use export control violations involving the proliferation of weapons of mass destruction, terrorist organizations, and exports for unauthorized military or government uses. Further, senior BIS officials noted that they have made regulatory changes to reflect the dynamic geopolitical environment, such as changing licensing requirements for exports to India, Iraq, Libya, and Syria. BIS’s watchlist is intended to facilitate the identification of license applications involving individuals and companies representing an export control concern. However, BIS’s watchlist is incomplete, as numerous export control violators and terrorists are not included on the list. Further, BIS’s process for screening applications does not ensure that all parties on all applications are screened against the watchlist. As a result, the watchlist’s utility in the license application review process is undermined, which increases the risk of dual-use items falling into the wrong hands. BIS’s watchlist does not include certain companies, organizations, and individuals that are known entities of export control concern and, therefore, warrant inclusion on the watchlist. Based on our comparison of the watchlist to publicly available U.S. government documents, including ones available through BIS’s Web site, we identified 147 parties that had either violated U.S. export control requirements, been determined to be suspicious end users, or committed acts of terror but were not on BIS’s watchlist. BIS officials confirmed that, at the time of our review, the parties we identified were not on BIS’s watchlist. Specifically, we identified 5 export control violators that have been denied dual-use export 60 companies and individuals that had committed export control violations and were, therefore, barred by the State Department from being involved in the export of defense items; 52 additional companies and individuals that have been investigated, charged, and, in most cases, convicted of export control violations; 2 overseas companies whose legitimacy as end users could not be established by BIS; and 28 organizations identified by the State Department as committing acts of terror. The above individuals and companies we identified as not being on the BIS watchlist include those that have exported or attempted to export weapons to terrorist organizations, night vision technologies to embargoed countries, and materials that can be used in biological and missile programs. The terrorist organizations include one that has staged attacks against U.S. and coalition forces in Afghanistan and another that has attacked and abducted large numbers of civilians, including children. BIS’s standard for including a party on its watchlist is that the party represents an export control concern. BIS does not have an official definition or explanation as to what constitutes an export control concern. As a result, the decision as to whether a party should be added to the watchlist is left to the judgment of the BIS personnel responsible for maintaining the watchlist. The only specific guidance BIS provides is that parties under investigation by BIS enforcement officials must be added to the watchlist. BIS officials told us that the reasons a company, organization, or individual should be added to the watchlist include previous violations of U.S. export control regulations, inability to determine a party’s legitimacy, possible support of international terrorism, and possible involvement with missile programs of concern. The 147 parties we identified fall within these categories. In addition, BIS officials do not regularly review the watchlist to ensure its completeness. BIS officials said they do not conduct periodic checks as to whether particular parties have been added to the list. They also do not compare the BIS watchlist to other federal agencies’ lists or databases used for similar purposes to determine whether the BIS watchlist is missing pertinent parties. BIS officials offered several explanations for why the 147 parties were not on the watchlist. First, they acknowledged it was an oversight on their part not to include several of the parties on the watchlist. For example, at least two parties were not added to the watchlist because the BIS personnel involved thought they had been added by someone else. Second, for some of the parties, BIS did not receive information from another agency about export control-related investigations. However, these parties could have been identified through publicly available reports. Third, BIS relies on limited sources to identify parties involved in terrorist activities. The officials explained that their primary source for identifying terrorist organizations is the Treasury Department’s public listing of designated terrorists. While Treasury maintains a list of terrorists, its list is not exhaustive and therefore, does not include all known terrorist organizations. Finally, BIS officials noted that many of the parties we identified were individuals and that they do not typically add individuals to the watchlist because applications generally contain names of companies. However, we found numerous individuals included on the watchlist and individuals can and do appear on license applications. BIS’s process for screening applications does not ensure that all parties are screened against the watchlist. To screen parties on applications against the watchlist, BIS relies on a computerized process. The computer system recognizes parties that are identified in one of five specified fields and automatically screens the parties identified in those fields against the watchlist. If there are multiple parties, BIS’s regulations direct the applicant to list the additional parties in the “Additional Information” field. However, the computer system does not recognize the parties listed in that field, which means the parties are not automatically screened against the watchlist. While BIS officials told us that they may identify applications involving multiple parties and manually screen them against the watchlist, they do not have a systematic means of identifying applications involving parties listed in the “Additional Information” field. As a result, BIS cannot ensure that all parties on all applications have been screened. Based on our review of licensing data for the past 8 years, we identified at least 1,187 applications involving multiple parties that would not have been automatically screened. BIS officials informed us that they are aware of this limitation, but have not conducted reviews to determine the number of applications affected. According to BIS officials, since most applications are reviewed by other agencies, the risk of not screening all parties is lessened. However, a senior BIS official acknowledged that by not screening all applications against the BIS watchlist, applications involving parties that are the subject of BIS enforcement investigations would not be identified as that information only resides on the BIS watchlist. Defense and State officials, to whom most license applications are referred, stated that they do not maintain watchlists for the screening of dual-use export license applications and expect BIS to have already screened all parties before referring applications to them. BIS officials informed us of their plans to develop a new computerized screening system to ensure that all parties on applications are screened against the watchlist. However, the new system will not be operational for several years. In the years since the September 2001 terror attacks, GAO has issued a number of reports identifying weaknesses in the dual-use export control system. The weaknesses identified in many of the prior reports relate to ensuring that export controls on sensitive items protect U.S. interests and are consistent with U.S. law. Some of our recommendations to correct those weaknesses remain unimplemented (see app. II for more detailed information on these reports and the status of recommendations). Among the weaknesses identified in prior GAO reports is the lack of clarity as to which items are controlled and whether they are controlled by the Commerce Department or the State Department. A lack of clarity as to whether an item is Commerce-controlled or State-controlled increases the risk that defense-related items will be improperly exported and U.S. interests will be harmed as a result. In most cases, State’s controls over arms exports are more restrictive than Commerce’s controls over dual-use items. For example, a State-issued license is generally required for arms exports, whereas many dual-use items do not require licenses for export to most destinations. Further, most arms exports to China are prohibited, while dual-use items may be exported to China. In 2002, we reported that BIS had improperly informed exporters through the commodity classification process that their items were subject to Commerce’s export control requirements, when in fact the items were subject to State’s requirements. BIS made improper determinations because it rarely obtained input from the Departments of State or Defense during the commodity classification process on which department had jurisdiction over the items in question. We recommended that the Commerce Department, together with the Departments of State and Defense, develop agreed-upon criteria for determining which classification requests should be referred to the other departments, which would minimize the risk of improper determinations. However, BIS has not implemented our recommendation and continues to refer only a few commodity classifications to the Departments of State and Defense. In fiscal year 2005, BIS processed 5,370 commodity classification requests and referred only 10 to State and Defense. Additionally, in 2001, we reported that export control jurisdiction between the Departments of State and Commerce had not been clearly established for almost 25 percent of the items the U.S. government has agreed to control as part of its commitments to the multilateral Missile Technology Control Regime. The two departments have yet to take action to clarify which department has jurisdiction over these sensitive missile technology items. As a result, the U.S. government has left the determination of jurisdiction to the exporter, who by default can then determine which national policy interests are to be considered and acted upon when defense-related items are exported. BIS has taken actions to address other weaknesses identified in GAO reports. For example, in response to a 2004 GAO report, BIS expanded its licensing requirements for the export of missile technology items to address missile proliferation by nonstate actors. Similarly, BIS implemented GAO’s recommendation to require exporters to inform end users in writing of any conditions placed on licenses to help ensure that the end users abide by those restrictions. Exports of dual-use items are important to a strong U.S. economy, but in the wrong hands, they could pose a threat to U.S. security and foreign policy interests. However, BIS has not demonstrated whether the dual-use export control system is achieving its goal of protecting national security and economic interests in the post-September 2001 environment. Without systematic evaluations, BIS cannot readily identify weaknesses in the system and implement corrective measures that allow U.S. companies to compete in the global marketplace while minimizing the risk to other U.S. interests. Further, the absence of known parties of concern on the BIS watchlist and limitations in the screening process create vulnerabilities and are illustrative of what can happen when there is not an emphasis on evaluating how well a system is operating and taking corrective action to address known deficiencies. Also, the weaknesses and associated risks identified in prior GAO reports will persist until the remaining recommendations are implemented. Until corrective actions are taken, the United States will continue to rely on BIS’s management of the dual-use export control system with known vulnerabilities and little assurance that U.S. interests are being protected. To ensure that the dual-use export control system is effective as well as efficient in protecting U.S. interests, we recommend that the Secretary of Commerce direct the Under Secretary for Industry and Security to take the following four actions identify and obtain data needed to evaluate the system; review existing measures of efficiency to determine their appropriateness and develop measures that address commodity classifications; develop, in consultation with other agencies that participate in the system, measures of effectiveness that provide an objective basis for assessing whether progress is being made in achieving the goal of protecting U.S. interests; and implement a plan for conducting regular assessments of the dual- use export control system to identify weaknesses in the system and corrective actions. To ensure that BIS has a process that effectively identifies parties of concern during the export license application review process, we recommend that the Secretary of Commerce direct the Under Secretary for Industry and Security to take the following three actions develop criteria for determining which parties should be on the watchlist; implement regular reviews of the watchlist to help ensure its completeness; and establish interim measures for screening all parties until the planned upgrade of the computerized screening system eliminates current technical limitations. To mitigate the risks identified in prior GAO reports related to the dual-use export control system, we recommend that the Secretary of Commerce direct the Under Secretary for Industry and Security to report to Congress on the status of GAO recommendations, the reasons why recommendations have not been implemented, and what other actions, if any, are being taken to address the identified weaknesses. We provided a draft of this report to the Departments of Commerce, Defense, and State. In its comments on the draft, the Commerce Department did not respond to any of our recommendations and disagreed with our findings and characterizations of the U.S. dual-use export control system following the September 2001 terror attacks. The Departments of Defense and State had no comments on the draft report. The Energy Department declined the opportunity to review and comment on the draft report. In introducing its overall comments, the Commerce Department raises concerns regarding the report’s scope. Commerce states that we expanded the initial scope of our audit from narrowly looking at BIS’s response to the September 2001 terror attacks to the three issues we address in our report. In fact, the scope of our audit has remained the same. To examine BIS’s dual-use export control system and whether changes to the system were made, we focused on three specific issues related to how well the system is operating in the post-September 2001 environment. Based on our examination of these issues, we concluded that there are vulnerabilities in the dual-use export control system and that BIS can provide few assurances that the system is protecting U.S. interests in the current environment. After considering the Commerce Department’s extensive comments, our report’s findings, conclusions, and resulting recommendations remain unchanged. In commenting on our findings, the Commerce Department states that our report presumes BIS must develop a national security strategy to administer the dual-use export control system. Our report does not presume this as our recommendations address the need for BIS to develop performance measures and conduct systematic evaluations for determining the extent to which the system is meeting its stated goal of protecting both national security and economic interests. The Commerce Department further states that BIS represents the “gold standard” for its rigorous process of defining priorities, implementing plans, and measuring success. To support this statement, Commerce lists several actions that BIS has taken since September 2001 and cites BIS’s “Game Plan” as identifying BIS’s priorities and providing a basis for measuring BIS’s performance. However, BIS has not evaluated what effects these actions have had on U.S. interests. Also, the “Game Plan” provided to us at the end of our review did not contain performance measures for assessing how dual-use export controls affect national security or economic interests. Further, OMB determined in its 2005 Program Assessment Rating Tool that BIS lacked measures related to its fundamental purpose. Absent performance measures and systematic evaluations, it is unclear what the basis was for the various actions taken by BIS, what the impact of these actions has been on national security and economic interests, whether these actions are sufficient to protect U.S. interests in the current environment, or how BIS represents the gold standard. The Commerce Department also comments that our report is misleading and does not provide sufficient context for our findings related to BIS’s watchlist. According to Commerce, the 147 parties we identified as not being on the list should be placed in the context of the approximately 50,000 names that are on BIS’s watchlist, and no licenses were issued to the 147 parties. Commerce’s comment does not address our basic point. It was not our intent to identify every party that should be on BIS’s watchlist. Nor did we seek to determine whether licenses were issued to parties not on the watchlist, in part, because BIS’s regulations permit the approval of license applications involving parties on the watchlist. Instead, the point of our finding and our related recommendations is that BIS does not have mechanisms for ensuring a robust watchlist and screening process. To provide additional context, we adjusted the text to reflect the number of names on the watchlist. The Commerce Department also notes that the watchlist is only one check during the license application review process and that there are multiple layers and agencies involved—a fact we address in our report. According to Commerce, the built-in redundancies in the review process minimize the possibility of a party slipping through the cracks. We agree that having multiple layers of review can create an effective system of checks and balances, but only if each agency is fulfilling its responsibilities at each stage in the review. The other agencies involved in the process clearly expect BIS to have a robust watchlist screening process. BIS’s stated reliance on others to compensate for weaknesses in its watchlist creates gaps in the review process and, therefore, undermines the ability of the system to effectively protect U.S. interests. While the Commerce Department cites some measures BIS has taken recently to refine the watchlist, these measures do not address the weaknesses created by the lack of criteria and reviews of who should be on the watchlist or the technical limitations that result in some parties not being screened against the watchlist. Regarding its implementation of GAO’s prior recommendations, the Commerce Department states that BIS has met most of the recommendations and maintains that none of the outstanding recommendations puts BIS’s mission at risk. We disagree since BIS has not implemented recommendations that address the most basic aspects of the export control system. Specifically, BIS’s failure to implement recommendations that would provide for clear, transparent decisions about export control jurisdiction increases the risk that sensitive defense- related items will be improperly exported and that some exporters will be placed at a competitive disadvantage—undermining BIS’s goal of protecting national security and economic interests. The Commerce Department also provided technical comments, which we incorporated into our report as appropriate. Commerce’s comments are reprinted in appendix III, along with our supplemental responses. To assess BIS’s evaluations of the dual-use export control system’s efficiency and effectiveness after the events of September 2001, we compared BIS’s annual reports, performance plans, and budget submissions with performance management and internal control standards. These standards call for federal agencies to develop results- oriented goals, measure progress toward achieving those goals, and have procedures that provide reasonable assurances about the agency’s effectiveness and efficiency. We also spoke with senior BIS officials to identify evaluations they conducted of the system, particularly those conducted after the 2001 terror attacks, and discussed how those evaluations were conducted. To identify changes made to the system, we interviewed BIS officials and reviewed BIS regulatory notices issued since September 2001. Additionally, we interviewed officials from the CIA and the Departments of Defense, Energy, and State to determine changes to the system based on their participation in the dual-use licensing and regulatory processes. We also examined existing data on the system. Specifically, we analyzed data from BIS’s Export Control Automated Support System on applications and commodity classification requests closed between fiscal years 1998 and 2005. To assess data reliability, we performed electronic testing of relevant data elements, interviewed knowledgeable agency officials, and reviewed system documentation. We determined the data were sufficiently reliable for the purposes of our review. In examining the BIS watchlist, we reviewed BIS’s internal guidance for adding parties to the watchlist and discussed with BIS officials the various sources and reasons they use to add parties to the watchlist. Using the reasons they identified, we compared BIS’s watchlist, dated January 2006, to documents publicly available through U.S. government Web sites to assess the list’s completeness. These documents included BIS’s Denied Persons List, Unverified List, and Major Cases List; the State Department’s Debarred Parties List and Patterns of Global Terrorism report; and the Homeland Security Department’s fact sheet on arms and strategic technologies investigations. We confirmed with BIS officials that the parties we identified were not on the watchlist and discussed reasons they were excluded. We also discussed BIS’s process for screening applications with BIS officials and reviewed BIS’s internal guidance. To determine the status of GAO’s prior recommendations to correct weaknesses in the system, we identified reports issued between fiscal years 2001 and 2005 regarding the dual-use export control system and their recommendations. We reviewed BIS’s regulatory notices to determine whether BIS made regulatory changes in response to GAO’s recommendations. We also followed up on the status of recommendations through interviews with Commerce, Defense, and State officials and reviews of supporting documentation they provided. We requested data for fiscal years 2004 and 2005 on actual exports of dual- use items from the Bureau of the Census. As discussed with your staff, we requested the data in October 2005 and did not receive the data in time for inclusion in this report after multiple attempts to obtain the data. The delays from Census prevented us from reporting on actual dual-use exports as planned. 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 will then send copies of this report to interested congressional committees as well as the Secretaries of Commerce, Defense, Energy, and State; the Director, Central Intelligence Agency; the Director, Office of Management and Budget; and the Assistant to the President for National Security Affairs. In addition, this report will be made available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-4841 or [email protected] if you or your staff have any questions concerning this report. 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. The number of dual-use export license applications processed by the Department of Commerce’s Bureau of Industry and Security (BIS) has increased over the last several years. These applications were generally for the export of items in the following categories: materials, chemicals, microorganisms, and toxins; nuclear materials, facilities and equipment and miscellaneous items; telecommunications and information security; and other items subject to BIS’s controls but not specified on the Commerce Control List. As shown in figure 2, from fiscal years 1998 through 2005, the number of applications processed increased by over 50 percent. Additionally, BIS has been referring a larger percentage of applications to other agencies for their review. From fiscal year 1998 to 2005, the total percentage of applications referred to other agencies increased from about 85 percent to about 92 percent. As shown in figure 3, the greatest increases were in the percent of applications referred to the Department of Energy and the Central Intelligence Agency (CIA). After the license application review process is completed, BIS can approve an application, return it without action, or reject it. The majority of applications processed since fiscal year 1998 have been approved, as shown in figure 4. Although the number of applications processed by BIS increased over the last several years, the overall median processing times have remained relatively stable and consistent with time frames established by executive order, as shown in figure 5. As shown in table 1, there have been changes over the years in the top countries of destination for approved and rejected license applications. However, applications for dual-use exports to China have consistently represented a significant portion of BIS’s licensing workload. As shown in figure 6, referring applications to other agencies increases the time it takes to process license applications. Between fiscal years 1998 and 2005, referred license applications took about 24 more days to process than those applications that were processed solely by BIS. BIS’s workload related to commodity classifications has also increased in recent years. As shown in figure 7, the number of commodity classifications almost doubled from fiscal year 1998 to 2005. BIS continues to exceed the 14-day time frame established in the Export Administration Regulations for processing commodity classifications, as shown in figure 8. Appendix II: Prior GAO Reports on the Dual- Use Export Control System and the Status of Recommendations (Fiscal Years 2001-2004) Background: Exports of high performance computers exceeding a defined performance threshold require an export license from the Commerce Department. As technological advances in high performance computing occur, it may become necessary to explore other options to maintain the U.S. lead in defense-related technology. As a step in this direction, the National Defense Authorization Act for Fiscal Year 1998 required the Secretary of Defense to assess the cumulative effect of U.S.-granted licenses for exports of computing technologies to countries and entities of concern. It also required information on measures that may be necessary to counter the use of such technologies by entities of concern. in consultation with other relevant agencies, convene a panel of experts to comprehensively assess and report to Congress on ways of addressing the shortcomings of computer export controls. The Commerce Department has implemented our recommendation. Main issues: The current system for controlling exports of high performance computers is ineffective because it focuses on the performance level of individual computers and does not address the linking or “clustering” of many lower performance computers that can collectively perform at higher levels than current export controls allow. However, the act does not require an assessment of the cumulative effect of exports of unlicensed computers, such as those that can be clustered. countermeasures are necessary, if any, to respond to enhancements of the military or proliferation capabilities of countries of concern derived from both licensed and unlicensed high performance computing. The Defense Department has not implemented our recommendation. The current control system is also ineffective because it uses millions of theoretical operations per second as the measure to classify and control high performance computers meant for export. This measure is not a valid means for controlling computing capabilities. Export Controls: State and Commerce Department License Review Times Are Similar (June 1, 2001, GAO-01-528) Background: The U.S. defense industry and some U.S. and allied government officials have expressed concerns about the amount of time required to process export license applications. No recommendations. Not applicable. Main issues: In fiscal year 2000, State’s average review time for license applications was 46 days while Commerce’s average was 50 days. Variables identified as affecting application processing times include the commodity to be exported and the extent of interagency coordination. Both departments approved more than 80 percent of license applications during fiscal year 2000. Export Controls: Regulatory Change Needed to Comply with Missile Technology Licensing Requirements (May 31, 2001, GAO-01-530) Background: Concerned about missile proliferation, the United States and several major trading partners in 1987 created an international voluntary agreement, the Missile Technology Control Regime (MTCR), to control the spread of missiles and their related technologies. Congress passed the National Defense Authorization Act for Fiscal Year 1991 to fulfill the U.S. government’s MTCR commitments. This act amended the Export Administration Act of 1979, which regulates the export of dual-use items, by requiring a license for all exports of controlled dual-use missile technologies to all countries. The National Defense Authorization Act also amended the Arms Export Control Act, which regulates the export of military items, by providing the State Department the discretion to require licenses or provide licensing exemptions for missile technology exports. Our recommendations have not been implemented. However, the Commerce Department has a regulatory change pending that, once implemented, will require licenses for the export of dual-use missile technologies to Canada. Congress to specifically permit MTCR items to be exempted from licensing requirements. Main issues: The State Department’s regulations require licenses for the exports of missile technology items to all countries—including Canada, which is consistent with the National Defense Authorization Act. However, the Commerce Department’s export regulations are not consistent with the act as they do not require licenses for the export of controlled missile equipment and technology to Canada. if Commerce seeks a statutory change, revise the Export Administration Regulations to comply with the current statute until such time as a statutory change occurs. Export Controls: Clarification of Jurisdiction for Missile Technology Items Needed (Oct. 9, 2001, GAO-02-120) Background: The United States has committed to work with other countries through the MTCR to control the export of missile-related items. The regime is a voluntary agreement among member countries to limit missile proliferation and consists of common export policy guidelines and a list of items to be controlled. In 1990, Congress amended existing export control statutes to strengthen missile-related export controls consistent with U.S. commitments to the regime. Under the amended statutes, the Commerce Department is required to place regime items that are dual-use on its list of controlled items. All other regime items are to appear on the State Department’s list of controlled items. jointly review the listing of items included on the MTCR list, determine the appropriate jurisdiction for those items, and revise their respective export control lists to ensure that proposed exports of regime items are subject to the appropriate review process. The Departments of Commerce and State have not implemented our recommendations despite initially agreeing to do so. Main issues: The Departments of Commerce and State have not clearly determined which department has jurisdiction over almost 25 percent of the items that the U.S. government agreed to control as part of its regime commitments. The lack of clarity as to which department has jurisdiction over some regime items may lead an exporter to seek a Commerce license for a militarily sensitive item controlled by the State. Conversely, an exporter could seek a State license for a Commerce- controlled item. Either way, exporters are left to decide which department should review their exports of missile items and, by default, which policy interests are to be considered in the license review process. Export Controls: Issues to Consider in Authorizing a New Export Administration Act (Feb. 28, 2002, GAO-02-468T) Background: The U.S. government’s policy regarding exports of sensitive dual-use technologies seeks to balance economic, national security, and foreign policy interests. The Export Administration Act (EAA) of 1979, as amended, has been extended through executive orders and law. Under the act, the President has the authority to control and require licenses for the export of dual-use items, such as nuclear, chemical, biological, missile, or other technologies that may pose a national security or foreign policy concern. In 2002, there were two different bills before the 107th Congress—H.R. 2581 and S. 149—that would enact a new EAA. No recommendations. Not applicable. Main issues: A new EAA should take into consideration the increased globalization of markets and an increasing number of foreign competitors, rapid advances in technologies and products, a growing dependence by the U.S. military on commercially available dual-use items, and heightened threats from terrorism and the proliferation of weapons of mass destruction. Export Controls: Rapid Advances in China’s Semiconductor Industry Underscore Need for Fundamental U.S. Policy Review (April 19, 2002, GAO-02-620) Background: Semiconductor equipment and materials are critical components in everything from automobiles to weapons systems. The U.S. government controls the export of these dual-use items to sensitive destinations, such as China. Exports of semiconductor equipment and materials require a license from Commerce Department. Other departments, such as Defense and State, assist Commerce in reviewing license applications. The United States is a member of the multilateral Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies. After initially disagreeing with our recommendations, the Commerce Department has cited our recommendations as the basis for increased resources so it can conduct the recommended analyses. Main issues: Since 1986, China has narrowed the gap between the U.S. and Chinese semiconductor manufacturing technology from approximately 7 years to 2 years or less. China’s success in acquiring manufacturing technology from abroad has improved its semiconductor manufacturing facilities for more capable weapons systems and advanced consumer electronics. The multilateral Wassenaar Arrangement has not affected China’s ability to obtain semiconductor manufacturing equipment because the United States is the only member of this voluntary arrangement that considers China’s acquisition of semiconductor manufacturing equipment a cause for concern. Additionally, U.S. government policies and practices to control the export of semiconductor technology to China are unclear and inconsistent, leading to uncertainty among U.S. industry officials about the rationale for some licensing decisions. Furthermore, U.S. agencies have not done the analyses, such as assessing foreign availability of this technology or the cumulative effects of such exports on U.S. national security interests, necessary to justify U.S. policies and practices. develop new export controls, if appropriate, or alternative means for protecting U.S. security interests; and these efforts to Congress and U.S. industry. Export Controls: More Thorough Analysis Needed to Justify Changes in High Performance Computer Controls (Aug. 2, 2002, GAO-02-892) Background: High performance computers that operate at or above a defined performance threshold, measured in millions of theoretical operations per second, require a Commerce license for export to particular destinations. The President has periodically changed, on the basis of technological advances, the threshold above which licenses are required. The National Defense Authorization Act of 1998 requires that the President report to Congress the justification for changing the control threshold. The report must, at a minimum, (1) address the extent to which high performance computers with capabilities between the established level and the newly proposed level of performance are available from foreign countries, (2) address all potential uses of military significance to which high performance computers between the established level and the newly proposed level could be applied, and (3) assess the impact of such uses on U.S. national security interests. No recommendations. Not applicable. Main issues: In January 2002, the President announced that the control threshold—above which computers exported to such countries as China, India, and Russia— would increase from 85,000 to 190,000 millions of theoretical operations per second. The report to Congress justifying the changes in control thresholds for high performance computers was issued in December 2001 and focused on the availability of such computers. However, the justification did not fully address the requirements of the National Defense Authorization Act of 1998. The December 2001 report did not address several key issues related to the decision to raise the threshold: (1) the unrestricted export of computers with performance capabilities between the old and new thresholds will allow countries of concern to obtain computers they have had difficulty constructing on their own, (2) the U.S. government is unable to monitor the end uses of many of the computers it exports, and (3) the multilateral process used to make earlier changes in high performance computer thresholds. Export Controls: Department of Commerce Controls over Transfers of Technology to Foreign Nationals Need Improvement (Sept. 6, 2002, GAO-02-972) Background: To work with controlled dual-use technologies in the United States, foreign nationals and the firms that employ them must comply with U.S. export control and visa regulations. U.S. firms may be required to obtain what is known as a deemed export license from the Commerce Department before transferring controlled technologies to foreign nationals in the United States. Commerce issues deemed export licenses after consulting with the Defense, Energy, and State Departments. In addition, foreign nationals who are employed by U.S. firms should have an appropriate visa classification, such as an H-1B specialized employment classification. H-1B visas to foreign nationals residing outside of the United States are issued by the State Department, while the Immigration and Naturalization Service approves requests from foreign nationals in the United States to change their immigration status to H-1B. Our recommendations have been implemented. use available Immigration and Naturalization Service data to identify foreign nationals potentially subject to deemed export licensing requirements. establish, with the Defense, Energy, and State Departments, a risk-based program to monitor compliance with deemed export license conditions. If the departments conclude that certain security conditions are impractical to enforce, they should jointly develop conditions or alternatives to ensure that deemed exports do not place U.S. national security interests at risk. Main Issues: In fiscal year 2001, Commerce approved 822 deemed export license applications and rejected 3. Most of the approved deemed export licenses allowed foreign nationals from countries of concern to work with advanced computer, electronic, or telecommunication and information security technologies in the United States. To better direct its efforts to detect possible unlicensed deemed exports, in fiscal year 2001 Commerce screened thousands of applications for H-1B and other types of visas submitted by foreign nationals overseas. From these applications, it developed 160 potential cases for follow-up by enforcement staff in the field. However, Commerce did not screen thousands of H-1B change-of-status applications submitted domestically to the Immigration and Naturalization Service for foreign nationals already in the United States. In addition, Commerce could not readily track the disposition of the 160 cases referred to field offices for follow-up because it lacks a system for doing so. Commerce attaches security conditions to almost all licenses to mitigate the risk of providing foreign nationals with controlled dual-use technologies. However, according to senior Commerce officials, their staff do not regularly visit firms to determine whether these conditions are being implemented because of competing priorities, resource constraints, and inherent difficulties in enforcing several conditions. Export Controls: Processes for Determining Proper Control of Defense-Related Items Need Improvement (Sept. 20, 2002, GAO-02-996) Background: Companies seeking to export defense-related items are responsible for determining whether those items are regulated by the Commerce Department or the State Department and what the applicable export requirements are. If in doubt about whether an item is Commerce or State- controlled or when requesting a change in jurisdiction, an exporter may request a commodity jurisdiction determination from State. State, which consults with Commerce and Defense, is the only department authorized to change export control jurisdiction. If an exporter knows an item is Commerce-controlled but is uncertain of the export requirements, the exporter can request a commodity classification from Commerce. Commerce may refer classification requests to State and Defense to confirm that an item is Commerce-controlled. guidance and develop criteria with concurrence from the State and Defense Departments for referring commodity classification requests to those departments. work with State to develop procedures for referring requests that are returned to companies because the items are controlled by State or because they require a commodity jurisdiction review. With a limited exception, our recommendations have not been implemented. In responding to our report, the State Department indicated it partially agreed with our recommendations, while the Departments of Commerce and Defense agreed to implement our recommendations. Main issues: The Commerce Department has improperly classified some State-controlled items as Commerce- controlled because it rarely obtains input from Defense and State before making commodity classification determinations. As a result, the U.S. government faces an increased risk that defense items will be exported without the proper level of government review and control to protect national interests. Also, Commerce has not adhered to regulatory time frames for processing classification requests. Commerce, Defense and State Departments have added staff to assist with their respective processes. In its implementation of the commodity jurisdiction process, the State Department has not adhered to established time frames, which may discourage companies from requesting jurisdiction determinations. State has also been unable to issue determinations for some items because of interagency disputes occurring outside the process. make jurisdiction recommendations and determinations within established time frames and reallocate them as appropriate. Nonproliferation: Strategy Needed to Strengthen Multilateral Export Control Regimes (Oct. 25, 2002, GAO-03-43) Background: Multilateral export control regimes are a key policy instrument in the overall U.S. strategy to combat the proliferation of weapons of mass destruction. They are consensus-based, voluntary arrangements of supplier countries that produce technologies useful in developing weapons of mass destruction or conventional weapons. The regimes aim to restrict trade in these technologies to prevent proliferation. The four principal regimes are the Australia Group, which controls chemical and biological weapons proliferation; the MTCR; the Nuclear Suppliers Group; and the Wassenaar Arrangement, which controls conventional weapons and dual-use items and technologies. All four regimes expect members to report denials of export licenses for controlled dual-use items, which provides members with more complete information for reviewing questionable export license applications. The United States is a member of all four regimes. The State Department has not implemented our recommendations. representative to the multilateral regimes, establish a strategy to strengthen these regimes. This strategy should include ways for regime members to implement regime changes to their export controls more consistently, and identify organizational changes that could help reform regime activities. Main issues: Weaknesses impede the ability of the multilateral export control regimes to achieve their nonproliferation goals. Regimes often lack even basic information that would allow them to assess whether their actions are having their intended results. The regimes cannot effectively limit or monitor efforts by countries of concern to acquire sensitive technology without more complete and timely reporting of licensing information and without information on when and how members adopt and implement agreed-upon export controls. For example, GAO confirmed that the U.S. government had not reported its denial of 27 export licenses between 1996 and 2002 for items controlled by the Australia Group. Several obstacles limit the options available to the U.S. government in strengthening the effectiveness of multilateral export control regimes. The requirement to achieve consensus in each regime allows even one member to block action in adopting needed reforms. Because the regimes are voluntary in nature, they cannot enforce members’ compliance with regime commitments. For example, Russia exported nuclear fuel to India in a clear violation of its commitments under the Nuclear Suppliers Group, threatening the viability of this regime. The regimes have adapted to changing threats in the past. Their continued ability to do so will determine whether they remain viable in curbing proliferation in the future. ensure that the United States reports all license application denials to regimes. establish criteria to assess the effectiveness of the regimes. Nonproliferation: Improvements Needed to Better Control Technology Exports for Cruise Missiles and Unmanned Aerial Vehicles (Jan. 23, 2004, GAO-04-175) Background: Cruise missiles and unmanned aerial vehicles (UAV) pose a growing threat to U.S. national security interests as accurate, inexpensive delivery systems for conventional, chemical, and biological weapons. Exports of cruise missiles and military UAVs by U.S. companies are licensed by the State Department while government-to- government sales are administered by the Defense Department. Exports of dual-use technologies related to cruise missiles and UAVs are licensed by the Commerce Department. assess and report to the Committee on Government Reform on the adequacy of the Export Administration Regulations’ catch-all provision to address missile proliferation by nonstate actors. This assessment should indicate ways the provision should be modified. The Commerce Department has addressed our recommendation by revising its licensing requirement for missile technology exports. Main issues: U.S. export control officials find it increasingly difficult to limit or track dual-use items with cruise missile or UAV-related capabilities that can be exported without a license. A gap in dual-use export control authority enables U.S. companies to export certain dual-use items to recipients that are not associated with missile projects or countries listed in the regulations, even if the exporter knows the items might be used to develop cruise missiles or UAVs. The gap results from current “catch-all” regulations that restrict the sale of unlisted dual-use items to certain national missile proliferation projects or countries of concern, but not to nonstate actors such as certain terrorist organizations or individuals. Catch-all controls authorize the government to require an export license for items that are not on control lists but are known or suspected of being intended for use in a missile or weapons of mass destruction program. Commerce, Defense and State Departments as a first step, each department complete a comprehensive assessment of cruise missile, UAV, and related dual-use technology transfers to determine whether U.S. exporters and foreign end users are complying with the conditions on the transfers. While the Commerce Department has taken some actions to address our recommendations, the others departments have not done so. The Departments of Commerce, Defense, and State have seldom used their end use monitoring programs to verify compliance with conditions placed on the use of cruise missile, UAV, or related technology exports. For example, Commerce conducted visits to assess the end use of items for about 1 percent of the 2,490 missile-related licenses issued between fiscal years 1998 and 2002. Thus, the U.S. government cannot be confident that recipients are effectively safeguarding equipment in ways that protect U.S. national security and nonproliferation interests. department conduct additional postshipment verification visits on a sample of cruise missile and UAV licenses. Export Controls: Post-Shipment Verification Provides Limited Assurance that Dual-Use Items Are Being Properly Used (Jan. 12, 2004, GAO-04-357) Background: The Commerce Department conducts post- shipment verification (PSV) checks to ensure that dual-use items arrive at their intended destination and are used for the purposes stated in the export license. To conduct PSV checks, Commerce personnel visit foreign companies to verify the use and location of exported items. PSVs serve as one of the primary means of checking whether end users are complying with conditions imposed by the license. Commerce placed conditions on nearly all approved licenses for exports to countries of concern for fiscal years 2000 to 2002. Our recommendations have been implemented. improve technical training for personnel conducting PSV checks to ensure they are able to verify compliance with license conditions. conducting PSV checks assess compliance with license conditions. Main issues: In fiscal years 2000 to 2002, the Commerce Department approved 7,680 licenses for dual-use exports to countries of concern, such as China, India, and Russia. However, we found that during this time Commerce completed PSV checks on only 428 of the dual-use licenses it approved for countries of concern. require that the exporter inform the end user in writing of the license conditions. We identified three key weaknesses in the PSV process that reduce its effectiveness. First, PSVs do not confirm compliance with license conditions because U.S. officials often lack the technical training needed to assess compliance and end users may not be aware of the license conditions by which they are to abide. Second, some countries of concern, most notably China, limit the U.S. government’s access to facilities where dual-use items are shipped, making it difficult to conduct a PSV. Third, PSV results have only a limited impact on future licensing decisions. Companies receiving an unfavorable PSV may receive greater scrutiny in future license applications, but licenses for dual-use exports to these companies can still be approved. In addition, according to Commerce officials, past PSV results play only a minor role in future enforcement actions. 5, §1211, 111 Stat. 1932-34 (1997). 1 nor S. 149 was enacted. 1. The scope of our review has remained unchanged. We examined BIS’s dual-use export control system and whether changes were made to the system by focusing on three specific issues related to how well the system is operating in the post-September 2001 environment. 2. Our report is not premised on a need for BIS to develop a national security strategy, which is outside of BIS’s mission. BIS’s stated goal is the protection of national security and economic interests. In its comments, BIS appears to define “national security interests” in terms of the administration’s National Security Strategy, but BIS has not developed performance measures to evaluate or determine whether the dual-use export control system is supporting and furthering that strategy. Commerce’s comments also do not address what effects the dual-use export control system has had on U.S. economic interests. 3. The eight specific measures cited in our report are not “samples” of steps taken by BIS. Rather, they represent all of the changes identified by BIS officials as a result of their ad hoc review to determine what changes, if any, should be made to the system after the September 2001 terror attacks. 4. Our report accurately depicts what BIS officials told us regarding the ad hoc review they conducted in the aftermath of the 2001 terror attacks. Given that BIS officials did not document their review, we can neither confirm what the review consisted of nor determine the sufficiency of this review and the resulting changes. 5. Our report acknowledges that BIS made adjustments to its enforcement efforts in response to the changing security environment. Also, GAO is currently conducting a separate review of export control enforcement efforts. 6. Our report identifies the specific changes BIS officials stated were the result of their post-September 2001 ad hoc review and acknowledges that BIS has reprioritized its enforcement efforts and taken other actions as a result of various geopolitical changes. However, without performance measures and systematic evaluations, BIS is not in a position to readily identify weaknesses in the dual-use export control system, implement corrective measures, and determine whether those measures are having the intended effects of protecting U.S. national security and economic interests. 7. Commerce’s characterization of BIS’s annual foreign policy report is misleading. BIS’s annual report summarizes export control changes and describes what those changes were intended to achieve. BIS’s report does not contain an assessment of the actual impact foreign policy- based controls have had on U.S. interests. 8. Our report acknowledges that there have been over 100 amendments to the EAR since September 2001. However, based on our review of those amendments, the specific basis for many of these revisions is not clear and given BIS’s lack of evaluations, the impact of these revisions is unknown. Also, it should be noted that many of the regulatory amendments made since September 2001 consisted of administrative changes and technical corrections as opposed to revisions of export requirements for dual-use items. 9. The quotes from senior BIS officials’ speeches do not address whether the dual-use export control system is protecting U.S. interests nor do they provide other evidence that BIS has developed performance measures or conducted systematic evaluations. While these speeches outline BIS’s mission and the role of export controls, the lack of performance measures and systematic evaluations precludes a determination as to whether that mission and role are being successfully fulfilled. It is also unclear how changing the bureau’s name is an example of a successful adaptation to the current environment. Further, the increased scrutiny of license applications was not the result of BIS’s actions as one of the quotes implies. As discussed in our report, increases in the referral of license applications resulted from decisions by other agencies involved in the application review process. 10. Absent any documentation to the contrary, particularly when BIS officials repeatedly acknowledged that BIS had not undertaken systematic evaluations, we stand by our finding that BIS has not systematically evaluated the overall effectiveness and efficiency of the dual-use export control system. Regarding BIS’s ad hoc post-September 2001 review, we could not assess the validity and sufficiency of the review and resulting changes due to the lack of documentation. 11. Commerce’s description of BIS’s Game Plan is misleading and inaccurate. First, BIS’s mission and priorities as summarized in the Game Plan are not consistent with the mission and goals stated in Commerce’s official performance management documents, such as the annual performance plan. The Game Plan may represent BIS’s thoughts for how to align activities and priorities in the future, but it does not depict what has been in place since the September 2001 terror attacks. Second, the Game Plan does not contain measures of effectiveness. When we discussed the Game Plan with BIS officials, they acknowledged that they had not developed measures for evaluating how well the dual-use export control system is protecting national security and economic interests. 12. We agree that the development of measures for determining the effectiveness of the dual-use export system would be difficult. However, BIS’s existing performance measures, which focus on processing times, fall far short of government management standards since they do not provide a basis for determining whether the system is protecting U.S. interests. 13. Our report presents BIS’s position that it was unable to obtain assistance from other agencies to develop performance measures for assessing the dual-use export control system’s effects on national security and economic interests. The two examples of performance measures provided in Commerce’s comments do not relate to BIS’s administration of the export controls system, which was the focus of our review, but rather to BIS’s export enforcement efforts and assistance to other countries. Also, it is not clear how these two measures would provide BIS with a basis for determining the security and economic impact of its controls on dual-use exports. Additionally, Commerce’s statement that BIS is assigning staff to develop a methodology for evaluating the system’s effectiveness indicates that BIS does not yet have a systematic evaluation process in place. 14. Our report discusses that, in the absence of systematic evaluations, BIS officials obtain information from industry to gauge how the dual-use export control system is operating. However, the collection of data from industry does not constitute a measure or evaluation of how the dual-use export control system is affecting U.S. economic interests. Also, BIS officials repeatedly informed us that they do not have measures for determining the impact of dual-use export controls on economic interests. 15. The Office of Management and Budget determined in its 2005 review that BIS lacked measures related to the fundamental purpose of the dual-use export controls system. Given this and our evaluation as well as BIS’s limited measures of efficiency and lack of comprehensive analyses as to which items under its control have actually been exported, BIS is not meeting government performance management standards and, therefore, does not represent the gold standard. 16. We examined the completeness of the watchlist and the thoroughness of BIS’s watchlist screening process and found omissions in the list and weaknesses in the process. Our intent was not to determine whether licenses were approved for parties not on the watchlist. As our report explains, a match between an application and the watchlist does not necessarily mean that the application will be denied but that the application will be more closely scrutinized during the license application review process. 17. Our report places BIS’s watchlist in the context of the larger license application review process. A process built on multiple layers and multiple agencies is only as strong as its weakest link. Other agencies that participate in the license application review process expect BIS to thoroughly screen all parties on all applications against the watchlist before referring applications to them. Given the omissions we identified in the watchlist and the weakness in the screening process, BIS’s watchlist is not serving its intended purpose of helping identify those license applications that warrant additional scrutiny. We identified many of the 147 parties not on the watchlist by using the lists cited in Commerce’s comments. While BIS expects exporters to check these publicly available lists, we found that BIS failed to include all of the publicly-listed parties on its watchlist. It is reasonable that BIS would focus its licensing and enforcement efforts on the “truly bad actors.” However, given that the watchlist is supposed to help BIS identify parties of export control concern, BIS’s ability to focus on “bad actors” is undermined by the omissions we identified in the watchlist. 18. The 147 parties we identified should not be regarded as an exhaustive list of every party of export control concern that should be on BIS’s watchlist. Our intent was not to identify all parties but rather to evaluate the process that BIS uses to determine which parties should be on the list. Therefore, the 147 parties represent examples that illustrate weaknesses in BIS’s management of the watchlist. However, to provide additional context, we revised the text to include the number of names on the BIS watchlist. 19. The measures listed in Commerce’s comments do not address the underlying weaknesses we identified or our corrective recommendations. 20. Our report accurately reflects that several, but not all, of GAO’s prior recommendations regarding the dual-use export control system have been implemented. BIS’s disagreement with the conclusions of GAO’s report on China’s semiconductor industry does not change the fact that BIS continues to cite that report and its recommendations as justification for requested increases in resources. However, BIS has not implemented the report’s recommendations. The continued failure to address GAO’s recommendations regarding the commodity classification process and export control jurisdiction places BIS’s mission of protecting national security and economic interests at risk. Improper decisions regarding jurisdiction and the lack of clear jurisdiction create the risk that defense-related items will be exported without the proper level of government review and control to protect national interests. These weaknesses can also result in companies seeking to export similar items under the different controls of the Departments of State and Commerce, which places some companies at a competitive disadvantage. 21. As discussed in our report’s scope and methodology, we reviewed BIS’s documents, such as its performance plans, that contain BIS’s official performance measures. None of these documents contains performance measures related to the processing of commodity classifications. During meetings with BIS officials, they did not identify additional measures for evaluating the system’s effectiveness. Also, Commerce’s comment is misleading, as our report does not cite BIS statistics on commodity classifications. Our report contains GAO’s analyses of BIS’s data on commodity classification processing times and shows that BIS has exceeded regulatory processing time frames. 22. We are not revising the graphic because it depicts what can occur in the license application review process under different circumstances. 23. Text revised to further clarify the CIA’s role in the license application review process. 24. The examples provided by Commerce are limited to BIS’s analyses of licensing data. However, BIS has not comprehensively analyzed data on actual exports, particularly on unlicensed exports that represent the majority of exports subject to BIS’s control. 25. Our report states that Executive Order 12981 provides time frames for the entire license application review process. However, none of BIS’s performance measures addresses the timeliness of the entire process. Also, BIS has not reported overall timeframes consistently in its annual reports. 26. Our draft report cited changes in BIS’s licensing policy for dual-use exports to Iraq as an illustrative example; however, we have revised our report to include the other countries listed in Commerce’s comments. 27. Despite Commerce’s comment regarding its sources, some of the 147 parties we identified as not being on the watchlist appear on publicly available documents from the State Department’s Directorate of Defense Trade Controls and the Homeland Security Department’s Immigration and Customs Enforcement. 28. We are not revising the text based on Commerce’s comment because our report accurately reflects how the Treasury Department characterizes the list it maintains on individuals and companies. 29. Despite Commerce’s comment that it adds individuals to its watchlist, we identified many individuals who were not on the list but should have been. 30. Our report explains that BIS has a regulatory change pending that once implemented will address this recommendation from 2001. 31. Commerce’s actions regarding production equipment for missile technology items do not resolve the lack of clear jurisdiction between State and Commerce as to which department controls the export of almost 25 percent of the missile technology items the U.S. government agreed to control as part of its commitments to the Missile Technology Control Regime. As a result, GAO’s recommendations regarding this matter remain unimplemented. 32. See comment 20. 33. The memorandum contained in Commerce’s comments does not address GAO’s recommendations that BIS develop criteria, with the concurrence of the State and Defense Departments, for the referral of commodity classification requests and develop procedures for referring other commodity classification requests to the State Department. As a result, GAO’s recommendations regarding this matter remain unimplemented. 34. We revised the report text to more clearly reflect BIS’s actions. In addition to the contact named above, Anne-Marie Lasowski, Assistant Director; Johana R. Ayers; Lily Chin; Arthur James, Jr.; Megan Masengale; Margaret B. McDavid; Bradley Terry; Karen Thornton; and Joseph Zamoyta made key contributions to this report. Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies in the Post-9/11 Security Environment. GAO-05-468R. Washington, D.C.: April 7, 2005. Defense Trade: Arms Export Control System in the Post- 9/11Environment. GAO-05-234. Washington, D.C.: February 16, 2005. Nonproliferation: Improvements Needed to Better Control Technology Exports for Cruise Missiles and Unmanned Aerial Vehicles. GAO-04-175. Washington, D.C.: January 23, 2004. Export Controls: Post-Shipment Verification Provides Limited Assurance That Dual-Use Items Are Being Properly Used. GAO-04-357. Washington, D.C.: January 12, 2004. Nonproliferation: Strategy Needed to Strengthen Multilateral Export Control Regimes. GAO-03-43. Washington, D.C.: October 25, 2002. Export Controls: Processes for Determining Proper Control of Defense- Related Items Need Improvement. GAO-02-996. Washington, D.C.: September 20, 2002. Export Controls: Department of Commerce Controls over Transfers of Technology to Foreign Nationals Need Improvement. GAO-02-972. Washington, D.C.: September 6, 2002. Export Controls: More Thorough Analysis Needed to Justify Changes in High Performance Computer Controls. GAO-02-892. Washington, D.C.: August 2, 2002. Export Controls: Rapid Advances in China’s Semiconductor Industry Underscore Need for Fundamental U.S. Policy Review. GAO-02-620. Washington, D.C.: April 19, 2002. Export Controls: Issues to Consider in Authorizing a New Export Administration Act. GAO-02-468T. Washington, D.C.: February 28, 2002. Export Controls: Clarification of Jurisdiction for Missile Technology Items Needed. GAO-02-120. Washington, D.C.: October 9, 2001. Export Controls: State and Commerce Department License Review Times Are Similar. GAO-01-528. Washington, D.C.: June 1, 2001. Export Controls: Regulatory Change Needed to Comply with Missile Technology Licensing Requirements. GAO-01-530. Washington, D.C.: May 31, 2001. Export Controls: Inadequate Justification for Relaxation of Computer Controls Demonstrates Need for Comprehensive Study. GAO-01-534T. Washington, D.C.: March 15, 2001. Export Controls: System for Controlling Exports of High Performance Computing Is Ineffective. GAO-01-10. Washington, D.C.: December 18, 2000. Export Controls: Statutory Reporting Requirements for Computers Not Fully Addressed. NSIAD-00-45. Washington, D.C.: November 5, 1999. Export Controls: Better Interagency Coordination Needed on Satellite Exports. NSIAD-99-182. Washington, D.C.: September 17, 1999. Export Controls: Change in Licensing Jurisdiction for Commercial Communications Satellites. T-NSIAD-98-222. Washington, D.C.: September 17, 1998 Export Controls: National Security Issues and Foreign Availability for High Performance Computer Exports. NSIAD-98-200. Washington, D.C.: September 16, 1998. Export Controls: Issues Related to Commercial Communications Satellites. T-NSIAD-98-208. Washington, D.C.: June 10, 1998. China: Military Imports From the United States and the European Union Since the 1989 Embargoes. NSIAD-98-176. Washington, D.C.: June 16, 1998. Export Controls: Change in Export Licensing Jurisdiction for Two Sensitive Dual-Use Items. NSIAD-97-24. Washington, D.C.: January 14, 1997. Export Controls: Sensitive Machine Tool Exports to China. NSIAD-97-4. Washington, D.C.: November 19, 1996. Export Controls: Sale of Telecommunications Equipment to China. NSIAD-97-5. Washington, D.C.: November 13, 1996.

In regulating exports of dual-use items, which have both commercial and military applications, the Department of Commerce's Bureau of Industry and Security (BIS) seeks to allow U.S. companies to compete globally while minimizing the risk of items falling into the wrong hands. In so doing, BIS faces the challenge of weighing U.S. national security and economic interests, which at times can be divergent or even competing. In light of the September 2001 terror attacks, GAO was asked to examine BIS's dual-use export control system. In response, GAO is reporting on BIS's (1) evaluations of and changes to the system, (2) screening of export license applications against its watchlist, and (3) actions to correct weaknesses previously identified by GAO. Lack of systematic evaluations. Although BIS made some regulatory and operational changes to the dual-use export control system, it has not systematically evaluated the system to determine whether it is meeting its stated goal of protecting U.S. national security and economic interests. Specifically, BIS has not comprehensively analyzed available data to determine what dual-use items have actually been exported. Further, contrary to government management standards, BIS has not established performance measures that would provide an objective basis for assessing how well the system is protecting U.S. interests. Instead, BIS relies on limited measures of efficiency that focus only on narrow aspects of the license application review process to assess the system's performance. BIS officials use intelligence reports and meetings with industry to gauge how the system is operating. Absent systematic evaluations, BIS conducted an ad hoc review of the system to determine if changes were needed after the events of September 2001. BIS officials determined that no fundamental changes were needed but opted to make some adjustments primarily related to controls on chemical and biological agents. GAO was unable to assess the sufficiency of the review and resulting changes because BIS officials did not document their review. Omissions in BIS's watchlist. GAO found omissions in the watchlist BIS uses to screen export license applications. This screening, which is part of the license application review process, is intended to identify ineligible parties or parties warranting more scrutiny. The omissions undermine the list's utility, which increases the risk of dual-use exports falling into the wrong hands. GAO identified 147 parties that had violated U.S. export control requirements, had been determined by BIS to be suspicious end users, or had been reported by the State Department as committing acts of terror, but these parties were not on the watchlist of approximately 50,000 names. Reasons for the omissions include a lack of specific criteria as to who should be on the watchlist and BIS's failure to regularly review the list. In addition, a technical limitation in BIS's computerized screening system results in some parties on license applications not being automatically screened against the watchlist. Some prior GAO recommendations left unaddressed. BIS has implemented several but not all of GAO's recommendations for ensuring that export controls on sensitive items protect U.S. interests. Among weaknesses identified in prior GAO reports is the lack of clarity on whether certain items are under BIS's control, which increases the risk of defense-related items being improperly exported. BIS has yet to take corrective action on this matter.

You are an expert at summarizing long articles. Proceed to summarize the following text: ICE has not developed and implemented a process to identify and analyze program risks since assuming responsibility for SEVP in 2003, making it difficult for ICE to determine the potential security and fraud risks across the more than 10,000 SEVP-certified schools and to identify actions that could help mitigate these risks. SEVP and CTCEU officials expressed concerns about the security and fraud risks posed by schools that do not comply with program requirements. Furthermore, various cases of school fraud have demonstrated vulnerabilities in the management and oversight of SEVP-certified schools. We reported that SEVP faces two primary challenges to identifying and assessing risks posed by schools: (1) it does not evaluate program data on prior and suspected instances of school fraud and noncompliance, and (2) it does not obtain and assess information from CTCEU and ICE field office school investigations and outreach events. Evaluating SEVP information on prior and suspected cases of school noncompliance and fraud. SEVP does not have a process to evaluate prior and suspected cases of school fraud and noncompliance to identify lessons learned from such cases, which could help it better identify and assess program risks. SEVP has maintained a compliance case log since 2005—a list of approximately 172 schools (as of December 2011) that officials have determined to be potentially noncompliant with program requirements. The compliance case log represents those schools that SEVP, on the basis of leads and out-of- cycle reviews, is monitoring for potential noncompliance. According to SEVP officials, it has not used this list to identify and evaluate possible trends in schools’ noncompliance, although this list could provide useful insights to SEVP to assess programwide risks. Further, SEVP officials said that they have not looked across previous cases of school fraud and school withdrawals to identify lessons learned on program vulnerabilities and opportunities to strengthen internal controls. Our analysis indicates that there are patterns in the noncompliant schools, such as the type of school. For example, of the 172 postsecondary institutions on SEVP’s December 2011 compliance case log, about 83 percent (or 142) offer language, religious, or flight studies, with language schools representing the highest proportion. Without an evaluation of prior and suspected cases of school fraud and noncompliance, ICE is not well positioned to identify and apply lessons learned from prior school fraud cases, which could help it identify and mitigate program risks going forward. Obtaining information from CTCEU and ICE field offices’ investigations and outreach efforts. Based on our interviews with SEVP’s Director and other senior officials, we reported that SEVP had not established a process to obtain lessons learned information from CTCEU’s criminal investigators. Investigators may have valuable knowledge from working cases of school fraud in identifying and assessing program risks, including information such as characteristics of schools that commit fraud, how school officials exploited weaknesses in the school certification process, and what actions ICE could take to strengthen internal controls. For example, according to investigators in one ICE field office, CTCEU was hampered in pursuing a criminal investigation because SEVP officials did not obtain a signed attestation statement within the I-17 application from a school official stating that the official agreed to comply with rules and regulations. Another risk area we reported on is designated school officials’ access to SEVIS. In 2011, CTCEU provided SEVP officials with a position paper expressing concerns that designated school officials, who are not required to undergo security background checks, are responsible for maintaining updated information on foreign students in SEVIS. Investigators at three of the eight field offices we interviewed said that SEVP allowed designated school officials to maintain SEVIS access and the ability to modify records in the system while being the subject of an ongoing criminal investigation, despite requests from CTCEU to terminate SEVIS access for these officials. In addition, CTCEU collects data on its outreach efforts with schools through its Campus Sentinel program; however, the SEVP Director stated that his office had not obtained and analyzed reports on the results of these visits. CTCEU initiated Campus Sentinel in 2011, which ICE operates across all of its field offices nationwide.conducted 314 outreach visits to schools. According to CTCEU investigators, these visits provide an opportunity to identify potential risks, including whether schools have the capacity and resources to support From October 1, 2011, through March 6, 2012, CTCEU programs for foreign students. Obtaining information on lessons learned from CTCEU investigators could help provide SEVP with additional insights on such issues as characteristics of schools that have committed fraud and the nature of those schools’ fraudulent activities. To address these issues, we recommended that ICE develop and implement a process to identify and assess risks in SEVP, including evaluating prior and suspected cases of school noncompliance and fraud to identify potential trends, and obtaining and assessing information from CTCEU and ICE field office investigative and outreach efforts. DHS concurred and stated that ICE will develop and implement such a process by later this year. ICE has not consistently implemented existing internal control procedures for SEVP in four areas: (1) initial verification of evidence submitted in lieu of accreditation, (2) recordkeeping to ensure schools’ continued eligibility, (3) ongoing compliance monitoring of school licensing and accreditation status, and (4) certification of schools offering flight training. Regulations require schools to establish that they are legitimate and meet other eligibility criteria for their programs to obtain certification from ICE. In addition, weaknesses in managing and sharing key information with CTCEU impede SEVP’s prevention and detection of school fraud. The following summarizes these key findings and recommendations we made to address these issues. Initial verification of evidence submitted in lieu of accreditation. ICE requires schools to present evidence demonstrating that the school is legitimate and is an established institution of learning or other recognized place of study, among other things. Non-accredited, post-secondary schools, in particular, must provide “in lieu of” letters, which are evidence provided by petitioning schools in lieu of accreditation by a Department of Education-recognized accrediting agency. ICE policy and guidance require that SEVP adjudicators render an approval or denial of schools’ petitions based on such evidence and supporting documentation. This includes verifying that schools’ claims in the Form I-17, such as accreditation status and “in lieu of” letters, are accurate. However, SEVP adjudicators have not verified all “in lieu of” letters submitted to ICE by the approximately 1,250 non-accredited, post-secondary schools, as required by ICE’s policy. Rather, adjudicators decide whether to verify a letter’s source and the signatory authority of the signee based on any suspicions of the letters’ validity. Investigators at one of the eight ICE field offices we interviewed stated SEVP officials certified at least one illegitimate school—Tri-Valley University in California—because the program had not verified the evidence provided in the initial petition. In March 2012, CTCEU officials stated that several of their ongoing investigations involve schools that provided fraudulent evidence of accreditation or evidence in lieu of accreditation to ICE. Consistent verification of these letters could help ICE ensure that schools are legitimate and detect potential fraud early in the certification process. We recommended that ICE consistently implement procedures for ensuring schools’ eligibility, including consistently verifying “in lieu of” letters. DHS agreed and stated that SEVP personnel have initiated mandatory verification of all “in lieu of” letters. Recordkeeping to ensure continued eligibility of schools. ICE’s standard operating procedures for recordkeeping require SEVP officials to maintain records to document ongoing compliance. We reported that ICE had not consistently maintained certain evidence of selected schools’ eligibility for the program. According to our review of a stratified random sample of 50 SEVP-certified school case files, 30 files did not contain at least one piece of evidence required by the program’s policies and procedures. In addition, ICE was unable to produce two schools’ case files that we requested as part of our randomly selected sample. Without the schools’ information and evidence contained in these case files, including attestation statements and site visit reports, ICE does not have an institutional record to provide reasonable assurance that these schools were initially and continue to be legitimate and eligible for certification. According to ICE officials, the school recertification process would help address issues with incomplete and missing school files because schools are required to resubmit all evidence required by regulation when going through recertification. The Border Security Act required recertification for all SEVP-certified schools by May 2004 and every 2 years thereafter. However, ICE began the first recertification cycle in May 2010 and did not recertify all schools during this 2-year cycle, which ended in May 2012. As of March 31, 2012, ICE reported to have recertified 1,870 schools (approximately 19 percent of SEVP-certified schools). Given the delays in completing recertification, ICE is not positioned to address gaps in SEVP’s case files and cannot provide reasonable assurance that schools that were initially certified to accept foreign students are still compliant with SEVP regulations. Thus, we recommended that ICE establish a process to identify and address all missing school case files, including obtaining required documentation for schools whose case files are missing evidence. DHS concurred and stated that SEVP plans to work with ICE Records Management to develop protocols and actions to strengthen records management. Ongoing compliance monitoring of school licensing and accreditation status. ICE does not have a process to monitor the ongoing eligibility of licensed and accredited, non-language schools enrolling foreign students. ICE regulations require all certified schools to maintain state licensing (or exemption) and provide various forms of evidence to ICE supporting schools’ legitimacy and eligibility. If a school loses its state license, the school would be unable to operate legally as a school within that state. However, ICE does not have controls to ensure that SEVP compliance unit officials would be aware of this issue; therefore, a school without a proper business license may remain certified to enroll foreign students and its designated school officials may continue to access SEVIS. We recommended that ICE develop and implement a process to monitor state licensing and accreditation status of all SEVP- certified schools. DHS concurred and stated that SEVP personnel are developing procedures to ensure frequent validation of license or accreditation information. Certification of schools offering flight training. ICE’s policies and procedures require flight schools to have Federal Aviation Administration (FAA) Part 141 or 142 certification to be eligible for SEVP certification; however, ICE has certified schools offering flight training without such FAA certifications. As the federal agency responsible for regulating safety of civil aviation in the United States, FAA administers pilot certification (licensing) and conducts safety oversight of pilot training. FAA’s regulations for pilot training and certification are found in three parts— Parts 61, 141, and 142. ICE established a policy that requires Part 141 and 142 for eligibility in SEVP because FAA directly oversees these flight schools and training centers on an ongoing basis. We reported identifying 434 SEVP-certified schools that, as of December 2011, offer flight training to foreign students. However, 167 (38 percent) of these flight training providers do not have FAA Part 141 or 142 certification. SEVP senior officials acknowledged that all SEVP-certified schools offering flight training do not have FAA Part 141 or 142 certification even though the program requires it. ICE indicated that in most of the cases, it may have initially certified flight schools with Part 141 or 142 certification but the schools allowed their FAA certification to expire, and ICE did not identify or take compliance action against them. ICE is taking actions to address noncompliant flight schools as of May 2012, including notifying all SEVP-certified schools that do not have the required FAA certification that they must re-obtain the certification. Moreover, SEVP officials stated that they plan to coordinate with FAA to determine which schools have not met the requirements and will take withdrawal actions against them. While these are positive steps, we reported that SEVP had not yet established target time frames for implementing and completing these planned actions. Because ICE has certified or maintained certification of schools that provide flight training without the required FAA certification and oversight, the program is vulnerable to security and fraud risks. Thus, we recommended that ICE establish target time frames for notifying SEVP-certified flight schools that do not have the required FAA certification that they must re-obtain FAA certification. DHS concurred and stated that SEVP is consulting with FAA to develop target time frames. Coordination among SEVP, CTCEU, and ICE field offices. ICE has not consistently followed the standard operating procedures that govern the communication and coordination process among SEVP, CTCEU, and ICE field offices. Specifically, these procedures delineate roles and responsibilities for criminal investigations and establish protocols for SEVP taking administrative actions against schools during and following a criminal investigation. In some instances, SEVP management has not followed CTCEU requests to take or cease administrative actions and has not referred potentially criminal cases to CTCEU in accordance with ICE’s procedures. By strengthening coordination and communication between SEVP and CTCEU, ICE could better ensure that SEVP, CTCEU, and ICE field offices understand which information to share regarding whether to take administrative actions during criminal investigations and that clear criteria exist for referring cases from CTCEU based upon potentially criminal behavior. Thus, we recommended that ICE revise its standard operating procedure to specify which information to share among stakeholders during criminal investigations. DHS concurred and stated that SEVP will work with CTCEU and ICE field personnel to make the necessary revisions. We also recommended that ICE establish criteria for referring cases of a potentially criminal nature from SEVP to CTCEU. ICE agreed and stated that SEVP will work with CTCEU to improve this process. Chairman Schumer, Ranking Member Cornyn, and members of the subcommittee, this concludes my prepared statement. I would be pleased to answer any questions that you may have at this time. For further information regarding this testimony, please contact Rebecca Gambler at (202) 512-8777, or [email protected]. In addition, 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 testimony are Kathryn Bernet, Assistant Director; Frances Cook; Elizabeth Dunn; Anthony C. Fernandez; David Greyer; and, Lara Miklozek. 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. 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This testimony discusses the findings from our June 2012 report assessing U.S. Immigration and Customs Enforcement’s (ICE) oversight of the Student and Exchange Visitor Program (SEVP). ICE, within the Department of Homeland Security (DHS), is responsible for managing SEVP, including ensuring that foreign students studying in the United States comply with the terms of their admission into the country. ICE also certifies schools as authorized to accept foreign students in academic and vocational programs. As of January 2012, more than 850,000 active foreign students were enrolled at over 10,000 certified schools in the United States. In addition, ICE manages the Student and Exchange Visitor Information System (SEVIS), which assists the agency in tracking and monitoring certified schools, as well as approved students. We reported in April 2011 on the need for close monitoring and oversight of foreign students, and that some schools have attempted to exploit the immigration system by knowingly reporting that foreign students were fulfilling their visa requirements when they were not attending school or attending intermittently. Schools interested in accepting foreign students on F and M visas must petition for SEVP certification by submitting a Form I-17 to ICE. Once this certification is achieved, schools issue Forms I-20 for students, which enable them to apply for nonimmigrant student status. The Border Security Act requires DHS to confirm, every 2 years, SEVP-certified schools’ continued eligibility and compliance with the program’s requirements. During the initial petition and recertification processes, a school must provide ICE with evidence of its legitimacy and its eligibility, such as designated school officials’ attestation statements that both the school and officials intend to comply with program rules and regulations. This testimony summarizes the key findings of our report on ICE’s management of SEVP, which was publicly released last week. Like that report, this statement will address ICE’s efforts to (1) identify and assess risks in SEVP, and (2) develop and implement procedures to prevent and detect fraud during the initial certification process and once schools begin accepting foreign students. In summary, we reported that ICE does not have a process to identify and assess risks posed by schools in SEVP. Specifically, SEVP (1) does not evaluate program data on prior and suspected instances of school fraud and noncompliance, and (2) does not obtain and assess information from CTCEU and ICE field office school investigations and outreach events. Moreover, weaknesses in ICE’s monitoring and oversight of SEVP-certified schools contribute to security and fraud vulnerabilities. For example, ICE has not consistently implemented internal control procedures for SEVP in the initial verification of evidence submitted in lieu of accreditation. In addition, ICE has not consistently followed the standard operating procedures that govern the communication and coordination process among SEVP, CTCEU, and ICE field offices. We recommended that ICE, among other things, identify and assess program risks; consistently implement procedures for ensuring schools’ eligibility; and, revise its standard operating procedure to specify which information to share among stakeholders during criminal investigations. ICE concurred with all the recommendations we made to address these challenges and has actions planned or under way to address them.

You are an expert at summarizing long articles. Proceed to summarize the following text: The radio frequency spectrum is the part of the natural spectrum of electromagnetic radiation lying between the frequency limits of 3 kilohertz (kHz) and 300 gigahertz (GHz). Not all spectrum has equal value. The spectrum most highly valued generally consists of frequencies between 225 MHz and 3700 MHz, as these frequencies have properties well suited to many important wireless technologies, such as mobile phones, radio, and television broadcasting. According to NTIA, as of September 2012, federal agencies had exclusive access to about 18 percent of these high- value frequencies, and nonfederal users had exclusive licenses to about 33 percent. The remainder of this spectrum is allocated to shared use. However, in many cases in these shared bands, federal or nonfederal uses may dominate and actual sharing is nominal. NTIA has concluded that overall, approximately 43 percent of these high-value frequencies are predominantly used by federal operations. Federal agencies use spectrum to help meet a variety of missions, including emergency communications, national defense, land management, and law enforcement. Over 60 federal agencies and departments combined have over 240,000 frequency assignments. Agencies and departments within the Department of Defense have the most assignments, followed by the Federal Aviation Administration, the Department of Justice, the Department of Homeland Security, the Department of the Interior, the Department of Agriculture, U.S. Coast Guard, the Department of Energy, and the Department of Commerce, respectively. These federal agencies and departments hold 94 percent of all federally assigned spectrum. Nonfederal entities (which include commercial companies and state and local governments) also use spectrum to provide a variety of services. For example, state and local police departments, fire departments, and other emergency services agencies use spectrum to transmit and receive critical voice and data communications, while commercial entities use spectrum to provide wireless services, including mobile voice and data, paging, broadcast radio and television, and satellite services (see fig. 1). In the United States, responsibility for spectrum management is divided between NTIA and FCC. NTIA and FCC jointly determine the amount of spectrum allocated for federal, nonfederal, and shared use. After this allocation occurs, in order to use spectrum, nonfederal users must follow rules and obtain authorizations from FCC to use specific spectrum frequencies, and federal users must follow rules and obtain frequency assignments from NTIA. In order for nonfederal users to share federal spectrum, NTIA and FCC are jointly involved in the process. The nonfederal party petitions FCC, and FCC in turn coordinates rulemakings and licenses with NTIA through IRAC. NTIA manages sharing between federal users on a day-to-day basis. If federal users are requesting frequency assignments in exclusive nonfederal or shared bands, that request is coordinated through IRAC with FCC. If sharing is solely between nonfederal users in exclusive nonfederal bands, sharing is generally governed by FCC rules and does not go through NTIA, unless there could be out-of-band interference. In addition to its spectrum allocation and authorization duties, NTIA serves as the President’s principal advisor on telecommunications and information policy and manages federally assigned spectrum, including preparing for, participating in, and implementing the results of international radio conferences, as well as conducting extensive research and technical studies through its research and engineering laboratory, the Institute for Telecommunication Sciences. NTIA has authority to issue rules and regulations as may be necessary to ensure the effective, efficient, and equitable use of spectrum both nationally and internationally. It also has authority to develop long-range spectrum plans to meet future spectrum requirements for the federal government. Spectrum sharing can be defined as the cooperative use of common spectrum. In this way, multiple users agree to access the same spectrum at different times or locations, as well as negotiate other technical parameters, to avoid adversely interfering with one another. For sharing to occur, users and regulators must negotiate and resolve where (geographic sharing), when (sharing in time), and how (technical parameters) spectrum will be used (see fig. 2). Spectrum sharing also occurs with unlicensed use of spectrum, since it is accessible to anyone using wireless equipment certified by FCC for those frequencies. Equipment such as wireless microphones, baby monitors, and garage door openers typically share spectrum with other services on a non-interference basis using low power levels to avoid interference with higher priority uses. In contrast with most licensed spectrum use, unlicensed spectrum users have no regulatory protection against interference from other licensed or unlicensed users in the band. However, unlicensed use is regulated to ensure that unlicensed devices do not cause undue interference to operations with a higher priority. For example, in the 5 GHz band, wireless fidelity (Wi-Fi) devices share a band with military radar subject to the condition that the Wi-Fi devices are capable of spectrum sensing and dynamic frequency selection; if radar is detected, the unlicensed user must immediately vacate the channel. As the federal agency authorized to develop national spectrum policy, NTIA has been directed to conduct several projects focused on reforming governmentwide federal spectrum management and promoting efficiency among federal users of spectrum; however, we reported in 2011 that its efforts in this area had resulted in limited progress toward improved spectrum management. NTIA has authority to, among other things, establish policies concerning assigning spectrum to federal agencies, coordinate spectrum use across federal agencies, and promote efficient use of spectrum by federal agencies in a manner which encourages the most beneficial public use. As such, NTIA has a role in ensuring that federally allocated spectrum is used efficiently. According to NTIA’s Redbook and agency officials, efficient use includes ensuring that federal agencies’ decisions to use spectrum to support government missions have been adequately justified and that all viable tradeoffs and options have been explored before making the decision to use spectrum- dependent technology, and ensuring that these tradeoffs are continuously reviewed to determine if the need for spectrum has changed over time. NTIA’s primary guidance to federal agencies is technical guidance provided through NTIA’s Redbook concerning how to manage assigned spectrum. In 2003, the Bush Administration directed NTIA to develop strategic plans, and in March 2008, NTIA issued its report on federal spectrum use entitled the Federal Strategic Spectrum Plan. While the intent of the Federal Strategic Spectrum Plan was to identify the current and projected spectrum requirements and long-range planning processes for the federal government, we reported in 2011 that the final plan is limited in these areas. For example, the plan does not identify or include quantitative governmentwide data on federal spectrum needs. Instead, NTIA’s plan primarily consists of a compilation of the plans submitted by 15 of the more than 60 agencies that use federal spectrum. Additionally, due to the fact that they contained limited information regarding future requirements and technology needs, NTIA concluded that its “long-range assumptions are necessarily also limited.” Furthermore, NTIA’s plan did not contain key elements and best practices of strategic planning. NTIA’s primary spectrum management operations include authorizing federal frequency assignments and certifying spectrum-dependent equipment for federal users; however, these processes are primarily focused on interference mitigation as determined by IRAC and do not focus on ensuring the best use of spectrum across the federal government. In 2011, we found that the process as established by federal regulations for review and approval of frequency assignment and system certification was technical in nature, focusing on ensuring that the new frequency or system that an agency wants to use would not interfere with another agency’s operations. According to NTIA officials, this focus on day-to-day spectrum activities, such as interference mitigation, is due to the agency’s limited resources. This focus, while important, makes limited consideration about the overall best use of federally allocated spectrum. Therefore, NTIA’s current processes provide limited assurance that federal spectrum use is evaluated from a governmentwide perspective to ensure that decisions will meet the current and future needs of the agencies, as well as the federal government as a whole. NTIA’s data management system is antiquated and lacks transparency and internal controls. In 2011, we reported that NTIA collects all federal spectrum data in the Government Master File (GMF), which according to NTIA officials is an outdated legacy system that was developed primarily to store descriptive data. These data are not detailed enough to support the current analytical needs of NTIA or other federal users, as the system was not designed to conduct such analyses. NTIA does not generate any data, but maintains agency-reported spectrum data in the GMF, which are collected during the frequency assignment and review processes. NTIA’s processes for collecting and verifying GMF data lack key internal controls, including those focused on data accuracy, integrity, and completeness. Control activities such as data verification and reconciliation are essential for ensuring accountability for government resources and achieving effective and efficient program results. In 2011, we reported that NTIA’s data collection processes lack accuracy controls and do not provide assurance that data are being accurately reported by agencies. Rather, NTIA expects federal agencies to supply accurate and up-to-date data submissions, but it does not provide agencies with specific requirements on how to justify that the agencies’ spectrum assignments will fulfill their mission needs. NTIA is developing a new data management system—the Federal Spectrum Management System (FSMS)—to replace the GMF. According to NTIA officials, the new system will modernize and improve spectrum management processes by applying modern information technology to provide more rapid access to spectrum and make the spectrum management process more effective and efficient. NTIA projects that FSMS will improve existing GMF data quality, but not until 2018. According to NTIA’s FSMS transition plan, at that time data accuracy will improve by over 50 percent. However, in the meantime it is unclear whether important decisions regarding current and future spectrum needs are based on reliable data. In response to the government initiatives to make a total of 500 MHz of spectrum available for wireless broadband, in 2010 NTIA (1) identified 115 MHz of federally allocated spectrum to be made available for wireless broadband use within the next 5 years, referred to as the Fast Track Evaluation, and (2) developed an initial plan and timetable for repurposing additional spectrum for broadband, referred to as the 10-Year Plan. Fast Track Evaluation. NTIA and the Policy and Plans Steering Group (PPSG) identified and recommended portions of two frequency bands, totaling 115 MHz of spectrum within the ranges of 1695–1710 MHz and 3550–3650 MHz to be made available for wireless broadband use. For each of these bands, NTIA reviewed the number of federal frequency assignments within the band, the types of federal operations and functions that the assignments support, and the geographic location of federal use. Since clearing these bands of federal users and relocating incumbent federal users to new bands was not an option in the given time frame, the bands that NTIA recommended be made available will be opened to geographic sharing by incumbent federal users and commercial broadband. 10-Year Plan. By a presidential memorandum, NTIA was directed to collaborate with FCC to make available 500 MHz of spectrum over the next 10 years, suitable for both mobile and fixed wireless broadband use, and complete by October 1, 2010, a specific plan and timetable for identifying and making available the 500 MHz for broadband use. publicly released this report in November 2010. In total, NTIA and the National Broadband Plan identified 2,264 MHz of spectrum to analyze for possible repurposing, of which 639 MHz is exclusively used by the federal government and will be analyzed by NTIA. Additionally, NTIA will collaborate with FCC to analyze 835 MHz of spectrum that is currently located in bands that are shared by federal and nonfederal users. Furthermore, NTIA has stated that it plans to seek advice and assistance from CSMAC, its federal advisory committee comprised of industry representatives and experts, as it conducts analyses under the 10-Year Plan. Unleashing the Wireless Broadband Revolution, 75 Fed. Reg. 38387. previously evaluated for reallocation, and in 2001, we reported that at the time adequate information was not currently available to fully identify and address the uncertainties and risks of reallocation. Industry stakeholders, including wireless service providers, representatives of an industry association, and a think tank representative we contacted in 2011 expressed concerns over the usefulness of the spectrum identified by NTIA in the Fast Track Evaluation, since most of the spectrum identified (100 of the 115 MHz) is outside the range considered to have the best propagation characteristics for mobile broadband. Overall, there has been limited interest in the bands above 3 GHz for mobile broadband use because, according to industry stakeholders, there has been minimal development of mobile broadband in bands above 3 GHz and no foreseeable advances in this area at this time. According to industry representatives, the 1755–1780 MHz band that NTIA considered as part of the Fast Track Evaluation has the best characteristics for mobile broadband use, and it is internationally harmonized for this use. NTIA did not select this band to be made available in the 5-year time frame due to the large number of federal users currently operating there. However, NTIA identified it as the first band to be analyzed under the 10-Year Plan to determine if it can be made available for commercial broadband use. An industry stakeholder has stated that the 1695–1710 MHz band identified by NTIA in the Fast Track Evaluation is the second-best alternative for wireless broadband if the 1755–1780 MHz band were not made available; however, the 1695– 1710 MHz band is not currently used internationally for wireless broadband, which may reduce device manufacturers’ incentive for developing technology that can be used in these frequencies. While federal spectrum users often share spectrum among themselves, they may have little economic incentive to otherwise use spectrum efficiently, including sharing it with nonfederal users. From an economic perspective, when a consumer pays the market price for a good or service and thus cannot get more of it without this expense, the consumer has an incentive to get the most value and efficiency out of the good as possible. If no price is attached to a good—which is essentially the case with federal agencies’ use of spectrum—the normal market incentive to use the good efficiently may be muted. In the case of federal spectrum users, obtaining new spectrum assignments may be difficult, so an agency may have an incentive to conserve and use the spectrum it currently has assigned to it or currently shares efficiently, but the extent of that incentive is likely weaker than if the agency had had to pay a market price for the all of their spectrum needs. As such, federal spectrum users do not fully face a market incentive to conserve on their use of spectrum or use it in an efficient manner. The full market value of the spectrum assigned to federal agencies has not been assessed, but, according to one expert, would most likely be valued in the tens of billions of dollars. Similarly, many nonfederal users, such as television broadcasters and public safety entities, did not pay for spectrum when it was assigned to them and do not pay the full market price for their continuing use of spectrum so, like federal agencies, they may not fully have market-based incentives to use spectrum efficiently. While licensed, commercial users who purchased spectrum at auction generally have market incentives to use their spectrum holdings efficiently, these users also have incentives that work against sharing spectrum, except in those instances where the incumbent licensee is unlikely to build out its network or offer services to a particular area, such as in certain remote, sparsely populated areas. FCC officials and industry stakeholders and experts told us that these users may prefer not to share their unused spectrum because they are concerned about the potential for interference to degrade service quality to their customers. Also, they may prefer to not give potential competitors access to spectrum. Industry stakeholders and experts also said that companies seeking spectrum may prefer obtaining exclusive spectrum licenses over sharing spectrum that is licensed to another company or federal user, given uncertainties about regulatory approvals, interference, and enforcement if interference occurs. There are several barriers that can deter sharing. One such barrier is that federal agencies will not risk mission failure, particularly when there are security and public safety implications. According to the agency officials we contacted, federal agencies will typically not agree to share spectrum if it puts achieving their missions at risk. The officials stressed that when missions have security and safety implications, sharing may pose unacceptable risks. For example, the military tests aircraft and trains pilots over test ranges that can stretch hundreds of miles, maintaining constant wireless contact. The ranges, according to officials, cannot share the communication frequencies because even accidental interference in communications with an aircraft could result in catastrophic mission failure. Further, sharing information about such flights could expose particular pilots and aircraft, or the military’s larger mission, to increased risk. According to FCC officials, concerns about risk can drive conservative technical standards that can make sharing impractical. In general, the technical analyses and resulting standards are based on worst-case scenarios, and not on assessments of the most likely scenario or a range of scenarios. Moreover, in contrast to FCC’s open rulemaking process, there is little opportunity for public input to the standards setting process. Stakeholders may meet or have discussions with NTIA and the relevant federal agencies, but this occurs without any formal public process. Nor do stakeholders have any effective means to appeal other than by asking FCC to reject NTIA’s analysis or standards. Another barrier is that spectrum sharing can be costly. Stakeholders told us that sharing federal spectrum can be costly for both the nonfederal and federal users seeking to share for the following reasons: Mitigation of potential interference can be costly in terms of equipment design and operation. Users applying to share federal frequencies may find that those frequencies are being used by more than one federal agency or program. As a result of needing to mitigate inference for multiple users, costs to share spectrum in that band could increase. Federal users often use and rely on proven older technology that was designed to use spectrum to meet a specific mission and typically is not conducive to operating as efficiently or flexibly as the state-of-the- art technologies might now allow. Limited budgets may prevent them from being able to invest in newer technology which can facilitate easier sharing. Additionally, we found that spectrum sharing approval and enforcement processes can be lengthy and unpredictable. FCC and NTIA processes can cause two main problems when nonfederal users seek to share federal spectrum, or when nonfederal users share with one another, according to stakeholders: The spectrum-sharing approval process between FCC and NTIA can be lengthy and unpredictable, and the risk associated with it can be costly for new entrants. FCC officials told us that its internal processes can potentially last years if requiring a rulemaking to accommodate shared use of spectrum. In addition to that time, NTIA officials said that IRAC’s evaluation of potential harmful interference could take months. In one example, the Department of Defense, along with other federal agencies and nonfederal entities, currently shares a spectrum band between 413-457 MHz with a nonprofit medical devices provider for use in implant products for veterans. It took approximately 2 years (from 2009 to 2011) for FCC and NTIA to facilitate this arrangement, as FCC required a rulemaking and NTIA required a lengthy evaluation of potential interference. This nonprofit is funded by an endowment and was not dependent on income from the device to sustain itself during this process, but such delays, and the potential for a denial, could discourage for-profit companies from developing and investing in business plans that rely on sharing federal spectrum. Stakeholders we interviewed told us that when federal or nonfederal users share spectrum, both parties have concern that harmful interference may affect their missions or operations if the other party overreaches or does not follow the agreement. They also fear that the enforcement actions that are taken by FCC will happen too slowly to protect their interests or that enforcement outcomes can be unpredictable. Besides lacking incentives and overcoming other barriers, users may also have difficulty identifying spectrum suitable for sharing because data on available spectrum is incomplete or inaccurate, and information on some federal spectrum usage is not publicly available. According to NTIA officials, coordinating spectrum sharing requires accurate data on users, frequencies, locations, times, power levels, and equipment, among other things. We recently reported that both FCC’s and NTIA’s spectrum databases may contain incomplete and inaccurate data. Further, federal agency spectrum managers told us that agencies have not been asked to regularly update their strategic spectrum plans, in which they were required to include an accounting of spectrum use. As mentioned, NTIA is developing a new data system that officials believe will provide more robust data that will enable more accurate analysis of spectrum usage and potential interference, which may in turn identify more sharing opportunities. In addition, recently proposed legislation would require in part that FCC, in consultation with NTIA and the White House Office of Science and Technology Policy, prepare a report for Congress that includes an inventory of each radio spectrum band they manage. The inventory is also to include data on the number of transmitters and receiver terminals in use, if available, as well as other technical parameters—coverage area, receiver performance, location of transmitters, percentage and time of use, a list of unlicensed devices authorized to operate in the band and description of use—that allow for more specific evaluation of how spectrum can be shared. However, experts and federal officials we contacted told us that there may be some limitations to creating such an inventory. For instance, measuring spectrum usage can be difficult because it can only be accomplished on a small scale and technologies to measure or map widespread spectrum usage are not yet available. Additionally, FCC and NTIA officials told us that information on some federal spectrum bands may never be made publicly available because of the sensitive and classified nature of some federal spectrum use. We have previously reported that to improve spectrum efficiency among federal agencies, Congress may wish to consider evaluating what mechanisms could be adopted to provide incentives and opportunities for agencies to move toward more efficient use of spectrum, which could free up some spectrum allocated for federal use to be made available for sharing or other purposes. Federal advisors and experts we talked to identified several options that could provide incentives and opportunities for more efficient spectrum use and spectrum sharing by federal and nonfederal users, which include, among others: (1) assessing spectrum usage fees; (2) expanding the availability of spectrum for unlicensed uses; and (3) increasing the federal focus on research and development of technologies that can enable spectrum sharing and improve spectral efficiency. Assessing spectrum usage fees. Several advisory groups and spectrum industry experts, including those we interviewed, have recommended that spectrum fees be assessed based on spectrum usage. As previously mentioned, with the exception of administrative fees for frequency assignments, federal users incur no costs for using spectrum. As such, federal users may have little incentive to share spectrum assigned to them with nonfederal users or identify opportunities to use spectrum more efficiently—except to the extent that sharing or more efficient use helps them achieve their mission requirements. In 2011, the CSMAC Incentives Subcommittee recommended that NTIA and FCC study the implementation of spectrum fees to drive greater efficiency and solicit input from both federal and nonfederal users who might be subject to fees. The National Broadband Plan has also recommended that Congress consider granting FCC and NTIA authority to impose spectrum fees on unauctioned spectrum license holders—such as TV broadcasters and public safety entities—as well as government users. Fees may help to free spectrum for new uses, since licensees who use spectrum inefficiently may reduce their holdings or pursue sharing opportunities once they bear the opportunity cost of letting it remain fallow or underused. Further, FCC officials told us that they have proposed spectrum usage fees at various times, including in FCC’s most recent congressional budget submission, and requested the legislative authorities to implement such a program. While noting the benefits, the CSMAC Incentives Subcommittee report mentions specific concerns about the impact of spectrum fees on government users. For instance, some CSMAC members expressed concern that fees do not fit into the federal annual appropriations process and new appropriations to cover fees are neither realistic nor warranted in the current budget environment. Other members suggested that fees will have no effect because agencies will be assured additional funds for their spectrum needs. Similarly, the National Broadband Plan notes that a different approach to setting fees may be appropriate for different spectrum users, and that a fee system must also avoid disrupting public safety, national defense, and other essential government services that protect human life, safety, and property. To address some of the concerns regarding agency budgets, the recent PCAST report recommended the use of a “spectrum currency” process to promote spectrum efficiency. Rather than using funds to pay for spectrum, federal agencies would each be given an allocation of synthetic currency that they could use to “buy” their spectrum usage rights. Usage fees would be set based on valuations of comparable private sector uses for which the market has already set a price. Agencies would then have incentive to use their assignments more efficiently or share spectrum. In the PCAST proposal, agencies would also be rewarded for making spectrum available to others for sharing, by being reimbursed for their investments in improving spectrum sharing from a proposed Spectrum Efficiency Fund. Expanding the availability of spectrum for unlicensed use. Unlicensed spectrum use is inherently shared spectrum access, and according to spectrum experts we interviewed and other stakeholders, unlicensed use of spectrum is a valuable complement to licensed spectrum and more spectrum could be made available for unlicensed use. Spectrum for unlicensed use can be used efficiently and for high value applications, like Wi-Fi, for example. Increasing the amount of spectrum for unlicensed use may allow more users to share without going through lengthy negotiations and interference mitigations, and also allow for more experimentation and innovation. More recently, FCC has provided unlicensed access to additional spectrum, known as TV “white spaces,” to help address spectrum demands. The white spaces refer to the buffer zones that FCC assigned the television broadcasters to mitigate unwanted inference between adjacent stations. With the more efficient TV transmission capabilities that resulted from the digital television transition, the buffer zones are no longer needed and FCC approved the previously unused spectrum for unlicensed use. To identify available white space spectrum, devices must access a database which responds with a list of the frequencies that are available for use at the device’s location. As an example, one local official explained that his city uses TV white space spectrum to provide a network of public Wi-Fi access and public safety surveillance functions. Increasing the federal focus on research and development of technologies. Several technological advances promise to make sharing easier, but are still at early stages of development and testing. For example, various spectrum users and experts we contacted mentioned the potential of dynamic spectrum access technology. If made fully operational, dynamic spectrum access technology will be able to sense available frequencies in an area and jump between frequencies to seamlessly continue communication as the user moves geographically and through the spectrum. According to experts and researchers we contacted, progress has been made but there is no indication of how long it will be before this technology is fully deployable. Such new technologies can obviate or lessen the need for extensive regulatory procedures to enable sharing and can open up new market opportunities for wireless service providers. If a secondary user or sharing entity employs these technologies, the incumbent user or primary user would theoretically not experience harmful interference, and agreements and rulemakings that are currently needed may be streamlined or unnecessary to enable sharing. Although industry participants indicated that extensive testing under realistic conditions is critical to conducting basic research on spectrum efficient technologies, we found that only a few companies are involved in such research and may experience challenges in the testing process. Companies tend to focus technology development on current business objectives as opposed to conducting basic research that may not show an immediate business return. For example, NTIA officials told us that one company that indicated it would participate in NTIA’s dynamic spectrum access testing project removed its technologist from the testing effort to a project more closely related to its internal business objectives. Furthermore, some products are too early in the development stage to even be fully tested. For example, NTIA officials also said six companies responded to NTIA’s invitation to participate in the previously mentioned dynamic spectrum access testing project. However, only two working devices were received for the testing, and a third device received did not work as intended. Other companies that responded told NTIA that they only had a concept and were not ready to test an actual prototype. Recent federal advisory committee recommendations emphasize the importance of funding and providing incentives for research and development endeavors. For example, to promote research in efficient technologies, PCAST recommended that (1) the Research and Development Wireless Innovation Fund release funds for this purpose and (2) the current Spectrum Relocation Fund be redefined as the Spectrum Efficiency Fund. As discussed, this adjustment would allow for federal agencies to be reimbursed for general investments in improving spectrum sharing. Similarly, CSMAC recommended the creation of a Spectrum Innovation Fund. Unlike the Spectrum Relocation Fund, which is strictly limited to the actual costs incurred in relocating federal systems from auctioned spectrum bands, the Spectrum Innovation Fund could also be used for spectrum sharing and other opportunities to enhance spectrum efficiency. Radio frequency spectrum is a scarce national resource that enables wireless communications services vital to the U.S. economy and to a variety of government functions, yet NTIA has not developed a strategic, governmentwide vision for managing federal use of this valuable resource. NTIA’s spectrum management authority is broad in scope, but NTIA’s focus is on the narrow technical aspects of spectrum management, such as ensuring new frequency assignments will not cause interference to spectrum-dependent devices already in use, rather than on whether new assignments should be approved based on a comprehensive evaluation of federal spectrum use from a governmentwide perspective. Lacking an overall strategic vision, NTIA cannot ensure that spectrum is being used efficiently by federal agencies. Furthermore, agencies are not required to submit justifications for their spectrum use and NTIA does not have a mechanism in place to validate and verify the accuracy of spectrum-related data submitted by the federal agencies. This has led to decreased accountability and transparency in how federal spectrum is being used and whether the spectrum-dependent systems the agencies have in place are necessary. Without meaningful data validation requirements, NTIA has limited assurance that the agency-reported data it collects are accurate and complete. In our April 2011 report, we recommended that NTIA (1) develop an updated plan that includes key elements of a strategic plan, as well as information on how spectrum is being used across the federal government, opportunities to increase efficient use of federally allocated spectrum and infrastructure, an assessment of future spectrum needs, and plans to incorporate these needs in the frequency assignment, equipment certification, and review processes; (2) examine the assignment review processes and consider best practices to determine if the current approach for collecting and validating data from federal agencies can be streamlined or improved; and (3) establish internal controls for management oversight of the accuracy and completeness of currently reported agency data. With respect to our first recommendation, NTIA has not developed an updated strategic plan and previously noted that the Presidential Memorandum of June 28, 2010, and the Wireless Innovation Initiative provide significant strategic direction for NTIA and the other federal agencies. In September 2012, NTIA officials told us that NTIA intends to update its strategic plan by October 2013. NTIA concurred with our other two recommendations and is taking action to address them. For example, NTIA has proposed approaches to implement new measures to better ensure the accuracy of agency- reported data, and is taking steps to implement internal controls for its data management system in a cost efficient manner. With respect to spectrum sharing, there are currently insufficient incentives to encourage more sharing, and even if incentives were created, several barriers to sharing will continue. Options to address these issues in turn create new challenges, and may require further study. Chairman Walden, Ranking Member Eshoo, and Members of the Subcommittee, this concludes my prepared statement. I will be happy to respond to any questions you may have at this time. For further information on this testimony, please contact me at (202) 512- 2834, 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 statement. Individuals making key contributions to this testimony include Sally Moino and Andrew Von Ah, Assistant Directors; Amy Abramowitz; Colin Fallon; Bert Japikse; Elke Kolodinski; Maria Mercado; Erica Miles; and Hai Tran. 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. 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Demand for spectrum is increasing rapidly with the widespread use of wireless broadband devices and services. However, nearly all usable spectrum has been allocated either by NTIA for federal use or by the Federal Communications Commission (FCC) for commercial and nonfederal use. Federal initiatives are under way to identify federal spectrum that could be repurposed or possibly shared by federal users or wireless broadband providers and other nonfederal users. This statement discusses how NTIA manages spectrum to address governmentwide spectrum needs and the steps NTIA has taken to repurpose spectrum for broadband. As part of an ongoing review, the statement also discusses preliminary information on the factors that prevent spectrum sharing and actions that can encourage sharing and efficient spectrum use. This testimony is based on GAO's prior work on federal spectrum management and ongoing work on spectrum sharing. GAO analyzed NTIA processes, policies and procedures, and interviewed relevant government officials, experts, and industry stakeholders. The National Telecommunications and Information Administration (NTIA) is responsible for governmentwide federal spectrum management, but GAO reported in 2011 that NTIA’s efforts in this area had been limited. In 2003, the President directed NTIA to develop plans identifying federal and nonfederal spectrum needs, and in 2008, NTIA issued the federal plan. GAO found it did not identify governmentwide spectrum needs and did not contain key elements and conform to best practices for strategic planning. Furthermore, NTIA’s primary spectrum management operations do not focus on governmentwide needs. Instead, NTIA depends on agency self-evaluation of spectrum needs and focuses on mitigating interference among spectrum users, with limited emphasis on overall spectrum management. Additionally, NTIA’s data management system is antiquated and lacks internal controls to ensure the accuracy of agency-reported data, making it unclear if reliable data inform decisions about federal spectrum use. NTIA is developing a new data management system, but implementation is years away. Despite these limitations, NTIA has taken steps to identify spectrum that could potentially be made available for broadband use. For example, in 2010 NTIA evaluated various spectrum bands and identified 115 megahertz of spectrum that could be repurposed within the next 5 years. In doing so, NTIA worked with a special steering group consisting of the Assistant Secretaries with spectrum management oversight in agencies that were the major stakeholders in the spectrum bands under consideration. For each of the identified bands, NTIA reviewed the number of federal frequency assignments within the band, the types of federal operations and functions that the assignments support, and the geographic location of federal use. In addition to efforts to repurpose spectrum, industry stakeholders have also suggested that sharing spectrum between federal and nonfederal users be considered to help make spectrum available for broadband. Our ongoing work has identified several barriers that limit sharing. Primarily, many users may lack incentives to share assigned spectrum. Typically, paying the market price for a good or service helps to inform users of the value of the good and provides an incentive for efficient use. But federal agencies pay only a small fee to NTIA for spectrum assignments, and may, in some contexts, have little incentive to conserve or share it. Federal agencies may also have limited budgets to upgrade to more spectrally-efficient equipment that would better enable sharing. Nonfederal users are also reluctant to share spectrum. For instance, license holders may be reluctant because of concerns that spectrum sharing could encourage competition. A lack of information on federal spectrum use may limit users’ ability to easily identify spectrum suitable for sharing. GAO’s ongoing work suggests that some actions might provide greater incentives and opportunities for more efficient spectrum use and sharing. These actions could include assessing spectrum usage fees to provide economic incentive for more efficient use and sharing, expanding the availability of unlicensed spectrum, and increasing the federal focus on research and development of technologies that can enable spectrum sharing and improve spectral efficiency. However, all of these actions also involve challenges and may require further study.

You are an expert at summarizing long articles. Proceed to summarize the following text: DOD and VA offer health care benefits to active duty servicemembers and veterans, among others. Under DOD’s health care system, eligible beneficiaries may receive care from military treatment facilities or from civilian providers. Military treatment facilities are individually managed by each of the military services—the Army, the Navy, and the Air Force. Under VA, eligible beneficiaries may obtain care through VA’s integrated health care system of hospitals, ambulatory clinics, nursing homes, residential rehabilitation treatment programs, and readjustment counseling centers. VA has organized its health care facilities into a polytrauma system of care that helps address the medical needs of returning servicemembers and veterans, in particular those who have an injury to more than one part of the body or organ system that results in functional disability and physical, cognitive, psychosocial, or psychological impairment. Persons with polytraumatic injuries may have injuries or conditions such as TBI, amputations, fractures, and burns. Over the past 6 years, DOD has designated over 29,000 servicemembers involved in Operation Iraqi Freedom and Operation Enduring Freedom as wounded in action, and almost 70 percent of these servicemembers are from the Army active, reserve, and national guard components. Servicemembers injured in these conflicts are surviving injuries that would have been fatal in past conflicts, due, in part, to advanced protective equipment and medical treatment. The severity of their injuries can result in a lengthy transition from patient back to duty, or to veterans’ status. Initially, most seriously injured servicemembers from these conflicts, including activated National Guard and Reserve members, are evacuated to Landstuhl Regional Medical Center in Germany for treatment. From there, they are usually transported to military treatment facilities in the United States, with most of the seriously injured admitted to Walter Reed Army Medical Center or the National Naval Medical Center. According to DOD officials, once they are stabilized and discharged from the hospital, servicemembers may relocate closer to their homes or military bases and are treated as outpatients by the closest military or VA facility. Returning injured servicemembers must potentially navigate two different disability evaluation systems that generally rely on the same criteria but for different purposes. DOD’s system serves a personnel management purpose by identifying servicemembers who are no longer medically fit for duty. The military’s process starts with identification of a medical condition that could render the servicemember unfit for duty, a process that could take months to complete. The servicemember goes through a medical evaluation board proceeding, where medical evidence is evaluated, and potentially unfit conditions are identified. The member then goes through a physical evaluation board process, where a determination of fitness or unfitness for duty is made and, if found unfit for duty, a combined percentage rating is assigned for all unfit conditions and the servicemember is discharged from duty. The injured servicemember then receives monthly disability retirement payments if he or she meets the minimum rating and years of duty thresholds or, if not, a lump-sum severance payment. VA provides veterans compensation for lost earning capacity due to service-connected disabilities. Although a servicemember may file a VA claim while still in the military, he or she can only obtain disability compensation from VA as a veteran. VA will evaluate all claimed conditions, whether they were evaluated by the military service or not. If the veteran is found to have one or more service-connected disabilities with a combined rating of at least 10 percent, VA will pay monthly compensation. The veteran can claim additional benefits, for example, if a service-connected disability worsens. While the Army took near-term actions to respond to reported deficiencies in care for its returning servicemembers, and the Senior Oversight Committee is undertaking efforts to address more systemic problems, challenges remain to overcome long-standing problems and ensure sustainable progress. In particular, efforts were made to respond to problems in four key areas: (1) case management, (2) disability evaluation systems, (3) TBI and PTSD, and (4) data sharing between DOD and VA. The three review groups identified several problems in these four areas including: a need to develop more comprehensive and coordinated care and services; a need to make the disability systems more efficient; more collaboration of research and establishment of practice guidelines for TBI and PTSD; and more data sharing between DOD and VA. While efforts have been made in all four areas, challenges have emerged including staffing for the case management initiatives and transforming the disability evaluation system. The three review groups reporting earlier this year identified numerous problems with DOD’s and VA’s case management of servicemembers, including a lack of comprehensive and well-coordinated care, treatment, and services. Case management—a process intended to assist returning servicemembers with management of their clinical and nonclinical care throughout recovery, rehabilitation, and community reintegration—is important because servicemembers often receive services from numerous therapists, providers, and specialists, resulting in differing treatment plans as well as receiving prescriptions for multiple medications. One of the review groups reported that the complexity of injuries in some patients requires a coordinated method of case management to keep the care of the returning servicemember focused and goal directed, and that this type of care was not evident at Walter Reed. The Dole-Shalala Commission recommended that recovery coordinators be appointed to craft and manage individualized recovery plans that would be used to guide the servicemembers’ care. The Dole-Shalala Commission further recommended that these recovery coordinators come from outside DOD or VA, possibly from the Public Health Service, and be highly skilled and have considerable authority to be able to access resources necessary to implement the recovery plans. The Army and the Senior Oversight Committee’s workgroup on case management have initiated efforts to develop case management approaches that are intended to improve the management of servicemembers’ recovery process. See table 1 for selected efforts by the Army and Senior Oversight Committee to improve case management services. The Army’s approach includes developing a new organizational structure for providing care to returning active duty and reserve servicemembers who are unable to perform their duties and are in need of health care—this structure is referred to as a Warrior Transition Unit. Within each unit, the servicemember is assigned to a team of three key staff and this team is responsible for overseeing the continuum of care for the servicemember. The Army refers to this team as a “triad,” and it consists of a (1) primary care manager—usually a physician who provides primary oversight and continuity of health care and ensures the quality of the servicemember’s care; (2) nurse case manager—usually a registered nurse who plans, implements, coordinates, monitors, and evaluates options and services to meet the servicemember’s needs; and (3) squad leader—a noncommissioned officer who links the servicemember to the chain of command, builds a relationship with the servicemember, and works along side the other parts of the triad to ensure the needs of the servicemember and his or her family are met. As part of the Army’s Medical Action Plan, the Army established 32 Warrior Transition Units, to provide a unit in every medical treatment facility that has 35 or more eligible servicemembers. The Army’s goal is to fill the triad positions according to the following ratios: 1:200 for primary care managers; 1:18 for nurse case managers; and 1:12 for squad leaders. This approach is a marked departure for the Army. Prior to the creation of the Warrior Transition Units, the Army separated active and reserve component soldiers into different units. One review group reported that this approach contributed to discontent about which group received better treatment. Moreover, the Army did not have formalized staffing structures nor did it routinely track patient-care ratios, which the Independent Review Group reported contributed to the Army’s inability to adequately oversee its program or identify gaps. As the Army has sought to fill its Warrior Transition Units, challenges to staffing key positions are emerging. For example, many locations have significant shortfalls in registered nurse case managers and non- commissioned officer squad leaders. As shown in figure 1, about half of the total required staffing needs of the Warrior Transition Units had been met across the Army by mid-September 2007. However, the Army had filled many of these slots thus far by temporarily borrowing staff from other positions. Permanently assigned (832) Temporarily borrowed (451) Unfilled (1,127) The Warrior Transition Unit staffing shortages are significant at many locations. As of mid-September, 17 of the 32 units had less than 50 percent of staff in place in one or more critical positions. (See table 2.) Consequently, 46 percent of the Army’s returning servicemembers who were eligible to be assigned to a unit had not been assigned, due in part to these staffing shortages. As a result, these servicemembers’ care was not being coordinated through the triad. Army officials reported that their goal is to have all Warrior Transition Units in place and fully staffed by January 2008. The Senior Oversight Committee’s approach for providing a continuum of care includes establishment of recovery coordinators and recovery plans, as recommended by the Dole-Shalala Commission. This approach is intended to complement the military services’ existing case management approaches and place the recovery coordinators at a level above case managers, with emphasis on ensuring a seamless transition between DOD and VA. The recovery coordinator is expected to be the patient’s and family’s single point of contact for making sure each servicemember receives the care outlined in the servicemember’s recovery plan—a plan to guide and support the servicemember through the phases of medical care, rehabilitation, and disability evaluation to community reintegration. The Senior Oversight Committee has indicated that DOD and VA will establish a joint Recovery Coordinator Program no later than October 15, 2007. At the time of our review, the committee was determining the details of the program. For example, the Dole-Shalala Commission recommended this approach for every seriously injured servicemember, and the Senior Oversight Committee workgroup on case management was developing criteria for determining who is “seriously injured.” The workgroup was also determining the role of the recovery coordinators—how they will be assigned to servicemembers and how many are needed, which will ultimately determine what the workload for each will be. The Senior Oversight Committee has, however, indicated that the positions will be filled with VA staff. A representative of the Senior Oversight Committee told us that the recovery coordinators would not be staffed from the U.S. Public Health Service Commissioned Corps, as recommended by the Dole- Shalala Commission. The official told us that it is appropriate for VA to staff these positions because VA ultimately provides the most care for servicemembers over their lifetime. Moreover, Senior Oversight Committee officials told us that depending on how many recovery coordinators are ultimately needed, VA may face significant human capital challenges in identifying and training individuals for these positions, which are anticipated to be complex and demanding. As we have previously reported, providing timely and consistent disability decisions is a challenge for both DOD and VA. In a March 2006 report about the military disability evaluation system, we found that the services were not meeting DOD timeliness goals for processing disability cases; used different policy, guidance and processes for aspects of the system; and that neither DOD nor the services systematically evaluated the consistency of disability decisions. On multiple occasions, we have also identified long-standing challenges for VA in reducing its backlog of claims and improving the accuracy and consistency of its decisions. The controversy over conditions at Walter Reed and the release of subsequent reports raised the visibility of problems in the military services’ disability evaluation system. In a March 2007 report, the Army Inspector General identified numerous issues with the Army Physical Disability Evaluation System. These findings included a failure to meet timeliness standards for determinations, inadequate training of staff involved in the process, and servicemember confusion about the disability rating system. Similarly, in recently-issued reports, the Task Force on Returning Global War on Terror Heroes, the Independent Review Group, and the Dole-Shalala Commission found that DOD’s disability evaluation system often generates long delays in disability determinations and creates confusion among servicemembers and their families. Also, they noted significant disparities in the implementation of the disability evaluation system among the services, and in the purpose and outcome of disability evaluations between DOD and VA. Two reports also noted the adversarial nature of DOD’s disability evaluation system, as servicemembers endeavor to reach a rating threshold that entitles them to lifetime benefits. In addition to these findings about current processes, the Dole-Shalala Commission questioned DOD’s basic role in making disability payments to veterans and recommended that VA assume sole responsibility for disability compensation for veterans. In response to the Army Inspector General’s findings, the Army made near- term operational improvements. For example, the Army developed several initiatives to streamline its disability evaluation system and address bottlenecks. These initiatives include reducing the caseloads of evaluation board liaisons who help servicemembers navigate the disability evaluation system. In addition, the Army developed and conducted the first certification training for evaluation board liaisons. Furthermore, the Army increased outreach to servicemembers to address confusion about the process. For example, it initiated briefings conducted by evaluation board liaisons and soldiers’ counsels to educate servicemembers about the process and their rights. The Army also initiated an online tool that enables servicemembers to check the status of their case during the evaluation process. We were not able to fully assess the implementation and effectiveness of these initiatives because some changes are still in process and complete data are not available. To address more systemic concerns about the timeliness and consistency of DOD’s and VA’s disability evaluation systems, DOD and VA are planning to pilot a joint disability evaluation system. DOD and VA are reviewing multiple options that incorporate variations of the following three elements: (1) a single, comprehensive medical examination to be used by both DOD and VA in their disability evaluations; (2) a single disability rating performed by VA; and (3) incorporating a DOD-level evaluation board for adjudicating servicemembers’ fitness for duty. For example, in one option, the DOD-level evaluation board makes fitness for duty determinations for all of the military services; whereas in another option, the services make fitness for duty determinations, and the DOD-level board adjudicates appeals of these determinations. Another open question is whether DOD or VA would conduct the comprehensive medical examination. Table 3 summarizes four pilot options under consideration by DOD and VA. As recent pilot planning exercises verified, in addition to agreeing on which pilot option to implement, DOD and VA must address several key design issues before the pilot can begin. For example, it has not been decided how DOD will use VA’s disability rating to determine military disability benefits for servicemembers in the pilot. In addition, DOD and VA have not finalized a set of performance metrics to assess the effect of the piloted changes. DOD and VA officials had hoped to begin the pilot on August 1, 2007, but the intended start date slipped as agency officials took steps to further consider alternatives and address other important questions related to recent and expected events that may add further complexity to the pilot development process. For example, the Senior Oversight Committee may either choose or be directed by the Congress to pilot the Dole-Shalala recommendation that only VA and not DOD provide disability payments to veterans. Implementing this recommendation would require a change to current law, and could affect whether or how the agencies implement key pilot elements under consideration. In addition, the Veterans’ Disability Benefits Commission, which is scheduled to report in October 2007, may recommend changes that could also influence the pilot’s structure. Further, the Congress is considering legislation that may require DOD and VA to conduct multiple, alternative disability evaluation pilots. DOD and VA face other critical challenges in creating a new disability evaluation system. For example, DOD is challenged to overcome servicemembers’ distrust of a disability evaluation process perceived to be adversarial. Implementing a pilot without adequately considering alternatives or addressing critical policy and procedural details may feed that distrust because DOD and VA plan to pilot the new system with actual servicemembers. The agencies also face staffing and training challenges to conduct timely and consistent medical examinations and disability evaluations. Both the Independent Review Group and the Dole-Shalala Commission recommended that only VA establish disability ratings. However, as we noted above, VA is dealing with its own long-standing challenges in providing veterans with timely and consistent decisions. Similarly, if VA becomes responsible for servicemembers’ comprehensive physical examinations, it would face additional staffing and training challenges, at a time when it is already addressing concerns about the timeliness and quality of its examinations. Further, while having a single disability evaluation could ensure more consistent disability ratings, VA’s Schedule for Rating Disabilities is outdated because it does not adequately reflect changes in factors such as labor market conditions and assistive technologies on disabled veterans’ ability to work. As we have reported, the nature of work has changed in recent decades as the national economy has moved away from manufacturing-based jobs to service- and knowledge-based employment. Yet VA’s disability program remains mired in concepts from the past, particularly the concept that impairment equates to an inability to work. The three independent review groups examining the deficiencies found at Walter Reed identified a range of complex problems associated with DOD and VA’s screening, diagnosis, and treatment of TBI and PTSD, signature injuries of recent conflicts. Both conditions are sometimes referred to as “invisible injuries” because outwardly the individual’s appearance is just as it was before the injury or onset of symptoms. In terms of mild TBI, there may be no observable head injury and symptoms may overlap with those associated with PTSD. With respect to PTSD, there is no objective diagnostic test and its symptoms can sometimes be associated with other psychological conditions (e.g., depression). Recommendations from the review groups examining these areas included better coordination of DOD and VA research and practice guidelines and hiring and retaining qualified health professionals. However, according to Army officials and the Independent Review Group report, obtaining qualified health professionals, such as clinical psychologists, is a challenge, which is due to competition with private sector salaries and difficulty recruiting for certain geographical locations. The Dole-Shalala Commission noted that while VA is considered a leader in PTSD research and treatment, knowledge generated through research and clinical experience is not systematically disseminated to all DOD and VA providers of care. Both the Army and the Senior Oversight Committee are working to address this broad range of issues. (See table 4.) The Army, through its Medical Action Plan, has policies in place requiring all servicemembers sent overseas to a war zone to receive training on recognizing the symptoms of mild TBI and PTSD. The Army is also exploring ways to track events on the battlefield, such as blasts, that may result in TBI or PTSD. In addition, the Army recently developed policies to provide mild TBI and PTSD training to all social workers, nurse case managers, psychiatric nurses, and psychiatric nurse practitioners to better identify these conditions. As of September 13, 2007, 6 of the Army’s 32 Warrior Transition Units had completed training for all of these staff. A Senior Oversight Committee workgroup on TBI and PTSD is working to ensure health care providers have education and training on screening, diagnosing, and treating both mild TBI and PTSD, mainly by developing a national Center of Excellence as recommended by the three review groups. This Center of Excellence is expected to combine experts and resources from all military services and VA to promote research, awareness, and best practices on mild TBI as well as PTSD and other psychological health issues. A representative of the Senior Oversight Committee workgroup on TBI and psychological health told us that the Center of Excellence would include the existing Defense and Veterans Brain Injury Center—a collaboration among DOD, VA, and two civilian partners that focuses on TBI treatment, research, and education. DOD and VA have been working for almost 10 years to facilitate the exchange of medical information. However, the three independent review groups identified the need for DOD and VA to further improve and accelerate efforts to share data across the departments. Specifically, the Dole-Shalala Commission indicated that DOD and VA must move quickly to get clinical and benefit data to users, including making patient data immediately viewable by any provider, allied health professional, or program administrator who needs the data. Furthermore, in July 2007, we reported that although DOD and VA have made progress in both their long- term and short-term initiatives to share health information, much work remains to achieve the goal of a seamless transition between the two departments. While pursuing their long-term initiative to develop a common health information system that would allow the two-way exchange of computable health data, the two departments have also been working to share data in their existing systems. See table 5 for selected efforts under way by the Army and Senior Oversight Committee to improve data sharing between DOD and VA. As part of the Army Medical Action Plan, the Army has taken steps to facilitate the exchange of data between its military treatment facilities and VA. For example, the Army Medical Department is developing a memorandum of understanding between the Army and VA that would allow VA access to data on severely injured servicemembers who are being transferred to a VA polytrauma center. The memorandum of understanding would also allow VA’s Veterans Health Administration and Veterans Benefits Administration access to data in a servicemember’s medical record that are related to a disability claim the servicemember has filed with VA. Army officials told us that the Army’s medical records are part paper (hard copy) and part electronic, and this effort would provide the VA access to the paper data until the capability to share the data electronically is available at all sites. Given that DOD and VA already have a number of efforts under way to improve data sharing between the two departments, the Senior Oversight Committee, through its data sharing workgroup, has been looking for opportunities to accelerate the departments’ sharing initiatives that are already planned or in process and to identify additional data sharing requirements that have not been clearly articulated. For example, the Senior Oversight Committee has approved several policy changes in response to the Dole-Shalala Commission, one of which requires DOD and VA to ensure that all essential health and administrative data are made available and viewable to both agencies, and that progress is reported by a scorecard, by October 31, 2008. A representative of the data sharing workgroup told us that the departments are achieving incremental increases to data sharing capabilities and plan to have all essential health data—such as outpatient pharmacy, allergy, laboratory results, radiology reports, and provider notes—viewable by all DOD and VA facilities by the end of December 2007. Although the agencies have recently experienced delays in efforts to exchange data, the representative said that the departments are on track to meet all the timelines established by the Senior Oversight Committee. A Senior Oversight Committee workgroup on data sharing has also been coordinating with other committee workgroups on their information technology needs. Although workgroup officials told us that they have met numerous times with the case management and disability evaluation systems workgroups to discuss their data sharing needs, they have not begun implementing necessary systems because they are dependent on the other workgroups to finalize their information technology needs. For example, the Senior Oversight Committee has required DOD and VA to establish a plan for information technology support of the recovery plan to be used by recovery coordinators, which integrates essential clinical (e.g., medical care) and nonclinical aspects (e.g., education, employment, disability benefits) of recovery, no later than November 1, 2007. However, this cannot be done until the case management workgroup has identified the components and information technology needs of these clinical and nonclinical aspects, and as of early September this had not been done. Data sharing workgroup representatives indicated that the departments’ data sharing initiatives will be ongoing because medications, diagnoses, procedures, standards, business practices, and technology are constantly changing, but the departments expect to meet most of the data sharing needs of patients and providers by end of fiscal year 2008. Our preliminary observations are that fixing the long-standing and complex problems spotlighted in the wake of Walter Reed media accounts as expeditiously as possible is critical to ensuring high-quality care for our returning servicemembers, and success will ultimately depend on sustained attention, systematic oversight by DOD and VA, and sufficient resources. Efforts thus far have been on separate but related tracks, with the Army seeking to address service-specific issues while DOD and VA are working together to address systemic problems. Many challenges remain, and critical questions remain unanswered. Among the challenges is how the efforts of the Army—which has the bulk of the returning servicemembers needing medical care—will be coordinated with the broader efforts being undertaken by DOD and VA. The centerpiece of the Army’s effort is its Medical Action Plan, and the success of the plan hinges on staffing the newly-created Warrior Transition Units. Permanently filling these slots may prove difficult, and borrowing personnel from other units has been a temporary fix but it is not a long- term solution. The Army can look to the private sector for some skills, but it must compete for personnel in a civilian market that is vying for medical professionals with similar skills and training. Perhaps one of the most complex efforts under way is that of redesigning DOD’s disability evaluation system. Delayed decisions, confusing policies, and the perception that DOD and VA disability ratings result in inequitable outcomes have eroded the credibility of the system. Thus, it is imperative that DOD and VA take prompt steps to address fundamental system weaknesses. However, as we have noted, key program design and operational policy questions must be addressed to ensure that any proposed system redesign has the best chance for success and that servicemembers and veterans receive timely, accurate, and consistent decisions. This will require careful study of potential options, a comprehensive assessment of outcome data associated with the pilot, proper metrics to gauge success, and an evaluation mechanism to ensure needed adjustments are made to the process along the way. Failure to properly consider alternatives or address critical policy and procedural details could exacerbate delays and confusion for servicemembers, and potentially jeopardize the system’s successful transformation. Mr. Chairman, this completes my prepared remarks. We would be happy to respond to any questions you or other members of the subcommittee may have at this time. For further information about this testimony, please contact John H. Pendleton at (202) 512-7114 or [email protected] or Daniel Bertoni 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 statement. GAO staff who made major contributions to this report are listed in appendix II. In the aftermath of deficiencies identified at Walter Reed Medical Center, three separate review groups—the President’s Commission on Care for America’s Returning Wounded Warriors, commonly referred to as the Dole-Shalala Commission; the Independent Review Group, established by the Secretary of Defense; and the President’s Task Force on Returning Global War on Terror Heroes—investigated the factors that may have led to these problems. Selected findings of each report are summarized in table 6. In addition to the contact named above, Bonnie Anderson, Assistant Director; Michele Grgich, Assistant Director; Jennie Apter; Janina Austin; Joel Green; Christopher Langford; Chan My Sondhelm; Barbara Steel- Lowney; and Greg Whitney, made key contributions to this statement. DOD Civilian Personnel: Medical Policies for Deployed DOD Federal Civilians and Associated Compensation for Those Deployed. GAO-07-1235T. Washington, D.C.: September 18, 2007. Global War on Terrorism: Reported Obligations for the Department of Defense. GAO-07-1056R. Washington, D.C.: July 26, 2007. Information Technology: VA and DOD Are Making Progress in Sharing Medical Information, but Remain Far from Having Comprehensive Electronic Medical Records. GAO-07-1108T. Washington, D.C.: July 18, 2007. Defense Health Care: Comprehensive Oversight Framework Needed to Help Ensure Effective Implementation of a Deployment Health Quality Assurance Program. GAO-07-831. Washington, D.C.: June 22, 2007. DOD’s 21st Century Health Care Spending Challenges, Presentation for the Task Force on the Future of Military Health Care. Statement delivered by David M. Walker, Comptroller General of the United States. GAO-07-766-CG. Washington, D.C.: April 18, 2007. Veterans’ Disability Benefits: Long-Standing Claims Processing Challenges Persist. GAO-07-512T. Washington, D.C.: March 7, 2007. DOD and VA Health Care: Challenges Encountered by Injured Servicemembers during Their Recovery Process. GAO-07-589T. Washington, D.C.: March 5, 2007. VA Health Care: Spending for Mental Health Strategic Plan Initiatives Was Substantially Less Than Planned. GAO-07-66. Washington, D.C.: November 21, 2006. VA and DOD Health Care: Efforts to Provide Seamless Transition of Care for OEF and OIF Servicemembers and Veterans. GAO-06-794R. Washington, D.C.: June 30, 2006. Post-Traumatic Stress Disorder: DOD Needs to Identify the Factors Its Providers Use to Make Mental Health Evaluation Referrals for Servicemembers. GAO-06-397. Washington, D.C.: May 11, 2006. Military Disability System: Improved Oversight Needed to Ensure Consistent and Timely Outcomes for Reserve and Active Duty Service Members. GAO-06-362. Washington, D.C.: March 31, 2006. VA and DOD Health Care: Opportunities to Maximize Resource Sharing Remain. GAO-06-315. Washington, D.C.: March 20, 2006. VA and DOD Health Care: VA Has Policies and Outreach Efforts to Smooth Transition from DOD Health Care, but Sharing of Health Information Remains Limited. GAO-05-1052T. Washington, D.C.: September 28, 2005. Federal Disability Assistance: Wide Array of Programs Needs to be Examined in Light of 21st Century Challenges. GAO-05-626. Washington, D.C.: June 2, 2005. Veterans’ Disability Benefits: Claims Processing Problems Persist and Major Performance Improvements May Be Difficult. GAO-05-749T. Washington, D.C.: May 26, 2005. DOD and VA: Systematic Data Sharing Would Help Expedite Servicemembers’ Transition to VA Services. GAO-05-722T. Washington, D.C.: May 19, 2005. VA Health Care: VA Should Expedite the Implementation of Recommendations Needed to Improve Post-Traumatic Stress Disorder Services. GAO-05-287. Washington, D.C.: February 14, 2005. VA and Defense Health Care: More Information Needed to Determine If VA Can Meet an Increase in Demand for Post-Traumatic Stress Disorder Services. GAO-04-1069. Washington, D.C.: September 20, 2004. 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.

In February 2007, a series of Washington Post articles disclosed troublesome deficiencies in the provision of outpatient services at Walter Reed Army Medical Center, raising concerns about the care for returning servicemembers. These deficiencies included a confusing disability evaluation system and servicemembers in outpatient status for months and sometimes years without a clear understanding about their plan of care. The reported problems at Walter Reed prompted broader questions about whether the Department of Defense (DOD) as well as the Department of Veterans Affairs (VA) are fully prepared to meet the needs of returning servicemembers. In response to the deficiencies reported at Walter Reed, the Army took a number of actions and DOD formed a joint DOD-VA Senior Oversight Committee. This statement provides information on the near-term actions being taken by the Army and the broader efforts of the Senior Oversight Committee to address longer-term systemic problems that impact health care and disability evaluations for returning servicemembers. Preliminary observations in this testimony are based largely on documents obtained from and interviews with Army officials, and DOD and VA representatives of the Senior Oversight Committee, as well as on GAO's extensive past work. We discussed the facts contained in this statement with DOD and VA. While efforts are under way to respond to both Army-specific and systemic problems, challenges are emerging such as staffing new initiatives. The Army and the Senior Oversight Committee have efforts under way to improve case management--a process intended to assist returning servicemembers with management of their care from initial injury through recovery. Case management is especially important for returning servicemembers who must often visit numerous therapists, providers, and specialists, resulting in differing treatment plans. The Army's approach for improving case management for its servicemembers includes developing a new organizational structure--a Warrior Transition Unit, in which each servicemember would be assigned to a team of three key staff--a physician care manager, a nurse case manager, and a squad leader. As the Army has sought to staff its Warrior Transition Units, challenges to staffing critical positions are emerging. For example, as of mid-September 2007, over half the U.S. Warrior Transition Units had significant shortfalls in one or more of these critical positions. The Senior Oversight Committee's plan to provide a continuum of care focuses on establishing recovery coordinators, which would be the main contact for a returning servicemember and his or her family. This approach is intended to complement the military services' existing case management approaches and place the recovery coordinators at a level above case managers, with emphasis on ensuring a seamless transition between DOD and VA. At the time of GAO's review, the committee was still determining how many recovery coordinators would be necessary and the population of seriously injured servicemembers they would serve. As GAO and others have previously reported, providing timely and consistent disability decisions is a challenge for both DOD and VA. To address identified concerns, the Army has taken steps to streamline its disability evaluation process and reduce bottlenecks. The Army has also developed and conducted the first certification training for evaluation board liaisons who help servicemembers navigate the system. To address more systemic concerns, the Senior Oversight Committee is planning to pilot a joint disability evaluation system. Pilot options may incorporate variations of three key elements: (1) a single, comprehensive medical examination; (2) a single disability rating done by VA; and (3) a DOD-level evaluation board for adjudicating servicemembers' fitness for duty. DOD and VA officials hoped to begin the pilot in August 2007, but postponed implementation in order to further review options and address open questions, including those related to proposed legislation. Fixing these long-standing and complex problems as expeditiously as possible is critical to ensuring high-quality care for returning servicemembers, and success will ultimately depend on sustained attention, systematic oversight by DOD and VA, and sufficient resources.

You are an expert at summarizing long articles. Proceed to summarize the following text: To help fulfill its role as the nation’s health protection agency, HHS’s CDC conducts and supports research, including prevention research. Prevention research includes applied public health research that develops and evaluates health promotion and disease prevention and control strategies that are community- and population-based. Through legislation enacted in 1984, Congress authorized, and CDC later established, the PRC program to fund health promotion and disease- prevention research. The legislation mandated that the PRCs to be funded be located at academic health centers capable of providing a multidisciplinary faculty with expertise in public health, relationships with professionals in other relevant fields, graduate training and demonstrated curricula in disease prevention, and a capability for residency training in public health or preventive medicine. The PRCs, the first of which were funded in 1986, also serve as demonstration sites for the use of new and innovative applied public health research and activities for disease prevention and health promotion. The PRC program is administered by CDC’s NCCDPHP. CDC makes its PRC awards through a competitive process; there are currently 26 PRCs, located in 24 states, funded for fiscal years 2014 through 2019. Funded PRCs are able to compete for SIPs, which were created by CDC in 1993 to provide supplemental funding to the PRCs to design, test, and disseminate effective applied public health prevention research strategies. According to CDC, eligibility for SIPs is limited to PRCs because the centers are “uniquely positioned to oversee, coordinate, and perform applied public health research that promotes the field of health promotion and disease prevention research due to their established relationships with multidisciplinary faculty and community partners.” Subject matter experts (SME) within CDC sponsoring units propose potential SIPs each year, depending on unit needs—e.g., particular research gaps that have been identified—and available funding. After being approved by the leadership of the sponsoring unit, the sponsoring units’ proposals are reviewed internally by NCCDPHP and others before being included in a SIP FOA. The SIP FOA is assembled by NCCDPHP’s extramural research group, and when complete, is posted publicly on the grants.gov website. SIP applications are subject to an external peer review process, as well as a secondary internal review by CDC officials. SIP awards are generally made on the last day of the fiscal year. Sponsoring units fund both individual SIPs, which are awarded to one or more PRCs to work independently on a particular research topic, and thematic network SIPs, which are awarded to multiple PRCs to work collaboratively on a research agenda related to a specific health issue, such as cancer prevention or brain health. In fiscal years 2014, 2015, and 2016, CDC announced the availability of 51 SIPs—of which 43 were funded. The 43 funded SIPs resulted in a total of 76 awards to 22 of the 26 PRCs. (See appendix 1 for detailed information on the SIPs awarded in fiscal years 2014 through 2016, including information on SIPs awarded by sponsoring unit, SIP funding by PRC, and a complete listing of all SIPs awarded during this period.) CDC publicly discloses information on SIP awards on its website. Specifically, CDC has a PRC project database on its website that, as of July 2017, included information on SIPs from fiscal years1999 through 2015, as well as other information related to the PRCs. The project database includes the SIP number, project title, principal investigator, PRC funded, and the CDC sponsoring unit. It does not include the amount of the funding. In general, CDC officials we spoke with told us they will choose the SIP mechanism when seeking to fund prevention research that is community- based and would benefit from having access to a multidisciplinary group of researchers. Specifically, CDC officials from most of the sponsoring units we spoke to told us that they use the SIP mechanism when community participation is important to the research. For example, one sponsoring unit used a SIP for the development and testing of an integrated comprehensive communication strategy to promote vaccination for the human papilloma virus in the United States. The SIP was focused on developing strategies that engaged local or regional health systems, community-based organizations, and state health departments as key community partners, in order to enhance the acceptability of the vaccination among parents with vaccine-eligible children and to increase the likelihood that a provider would recommend the vaccination. CDC officials from one sponsoring unit also told us they use the SIP mechanism when they need to engage community leaders and members of the public in order to answer the research questions. For example, CDC used the SIP mechanism to fund a research project focused on enhancing the knowledge, skills, and capacity of community health advocates and leaders from community-based organizations, with the goal to provide participants with the skills necessary to assess local community health needs in order to improve community health. According to CDC, an important aspect of the research was the evaluation of whether there was an increase in the skills and leadership capacities of participants and their influence on local improvements in their communities. In addition, CDC officials told us that they choose the SIP mechanism to conduct research when seeking to access researchers who have established partnerships with diverse population groups across the country. PRCs are located across the United States and are expected to have cultivated relationships with their local communities. For example, one sponsoring unit used a SIP to fund research on the barriers to colorectal cancer screening among South Central Asian immigrants, primarily Indians and Pakistanis, who have been shown to have low screening rates. The purpose of the research was to inform the development of culturally relevant strategies to increase colorectal screening. As such, to be awarded the SIP, a PRC had to demonstrate that it had established relationships within the South Central Asian community and an ability to recruit from these populations. In contrast, CDC officials explained that they would not choose the SIP mechanism if the desired research would be better suited for an entity other than an academic health center. For example: Officials from one sponsoring unit told us that a different mechanism was used for a project testing obesity prevention and management strategies because the project required working directly with health care service providers in the community, such as federally qualified health centers. Officials from another sponsoring unit chose not to use a SIP for a project to evaluate vaccine impact on recurrent respiratory papillomatosis (a disease in which tumors grow in the respiratory tract). This research was being conducted by the providers who care for the patients, as opposed to academic researchers. CDC officials provided examples of other instances when they would not use a SIP, and instead choose another mechanism to support the desired research. Specifically, officials from one sponsoring unit told us that when conducting a research project related to cervical cancer, they did the work through a contract in order to allow the SME to direct the research protocol, which included collaboration with organizations that maintained cancer data, as well as the deliverables and timeline for completion of the work. Sponsoring unit officials also told us that they will not choose the SIP mechanism when the research they want to fund is not focused on public health prevention, such as when the research is clinical or laboratory based, or when the timing of the research does not align with the PRC funding cycle (e.g., a longitudinal study or a study that would cross two PRC funding cycles). CDC officials told us that CDC SMEs’ relationships and collaboration with experts in the field—including federal and nonfederal experts—help inform the development of the research funding opportunities made available through SIPs, as well as other mechanisms. In our prior work, we found that interagency collaboration, which can include information sharing and communication among federal experts, may reduce the likelihood of unnecessary duplication. According to officials from all of the sponsoring units we spoke with, SMEs have developed collaborative relationships with federal and nonfederal experts in their fields; these relationships develop through SMEs’ participation in workgroups, advisory committees, and joint projects, as well as through informal interactions at in-person meetings and conferences. (See table 1 for examples of the workgroups and advisory committees in which CDC SMEs participate.) These interactions, as well as the SME’s review of the scientific and nonscientific literature, are used to determine gaps in knowledge and inform the research proposed to be funded through SIPs or other mechanisms. CDC SMEs’ collaboration with federal and nonfederal experts may lead to the development of specific research projects that are funded through a SIP. For example: SMEs from one sponsoring unit identified a series of research gaps that existed within skin cancer prevention while working on the Surgeon General’s Call to Action to Prevent Skin Cancer Report with multiple federal agencies, including the Food and Drug Administration, the National Institutes of Health’s (NIH) National Cancer Institute, the Environmental Protection Agency and the Office of the Surgeon General. CDC developed a SIP to address one of these gaps— assessing the knowledge, attitudes and beliefs about skin cancer in order to develop and test communication strategies for skin cancer prevention, specifically for adults aged 18 to 49. SMEs from another sponsoring unit participate in the Interagency Coordinating Committee on the Prevention of Underage Drinking with 15 federal partners, including the Substance Abuse and Mental Health Services Administration, Federal Trade Commission, Department of Justice, and NIH’s National Institute on Alcohol Abuse and Alcoholism. According to CDC, this group meets regularly to discuss their work and efforts to address prevention of underage drinking. Based on this collaboration and the review of other resources, including research projects and reports by committee members, CDC SMEs determined there was a gap in knowledge related to monitoring youth exposure to alcohol marketing on the Internet, and developed and awarded a SIP in 2014 to address this issue. In 2011, CDC SMEs hosted an expert conference—including federal and nonfederal researchers, health care providers, and representatives from advocacy groups—to discuss how patients and health care providers can communicate effectively before, during, and after prostate cancer screenings. Recommendations from this conference resulted in a 2014 SIP focused on the development of a multimedia decision aid to help patients and their family members understand treatment options after a positive prostate cancer diagnosis. Collaboration with experts may also increase the resources available for a specific research project. For example, officials from the CDC unit that sponsors the National Cancer Prevention and Control Research Network SIP told us that the network is jointly funded with NIH’s National Cancer Institute. This joint funding allows for an expanded pool of resources, and officials stated that the network is able to achieve more than any individual PRC could achieve on its own. CDC officials told us that the knowledge gained through coordination and information sharing also mitigates the potential for duplication of research efforts. For example, officials from one sponsoring unit told us that as a part of their ongoing discussions with NIH on sexually transmitted disease prevention, they learned of research NIH was conducting that was related to a SIP that CDC planned to fund. CDC decided not to fund the SIP and instead entered into a joint funding arrangement with NIH to address its research needs. The joint funding arrangement allowed CDC and NIH to expand the number of sites involved in the research NIH already had underway. The main advantage of limiting eligibility for SIPs to the PRCs is the ability to rapidly initiate high-quality research, due to the infrastructure and relationships the PRCs have in place, according to officials from CDC, outside organizations, and PRCs. For example, officials we spoke with from one PRC told us that they typically learn from CDC if their application for a SIP has been successful in August of a given year, and awards are made at the end of September, with the expectation that the research should begin shortly thereafter. These officials added that because many SIPs are only providing funds for one or two years, there is no time to waste in getting the research up and running. Officials from one outside organization noted that this faster turnaround in getting the research started can result in faster publication of results. Officials from CDC and others told us that PRCs have infrastructure in place to do multidisciplinary research, which an official from one outside organization told us includes the ability to manage federal funds and recruit study participants. This infrastructure contributes to the speed with which PRCs can start a SIP. For example, officials from one CDC sponsoring unit told us that a PRC’s existing infrastructure means that it is not starting from scratch when it conducts research through a SIP. In addition, a representative from one outside organization said that it is a good use of federal resources to continue to invest in federally supported infrastructure—as in the case of offering supplemental funding to PRCs in the form of SIP awards. In addition to research infrastructure, officials also told us that PRCs have established relationships with community partners. One outside organization told us that these relationships are particularly important for prevention research, which often involves working with populations who may be reluctant to participate in research. Research has confirmed the need for community engagement when studies include disadvantaged groups. Specifically, a systematic review of the literature on strategies for increasing participation of disadvantaged groups in research concluded that researchers need to operate via community partnerships, because they can increase trust among the study population. Similarly, one sponsoring unit told us about the importance of the PRCs’ credibility in the neighborhoods where the research is being done. Given this, for some SIPs, the FOA explicitly requires PRCs to outline their partnerships with community organizations in their applications or notes that descriptions of these relationships will be considered when applications are scored by reviewers. For example, the fiscal year 2015 FOA for a SIP that was to identify means for increasing screening rates for breast and cervical cancer in Muslim women asked that applicants “describe and provide evidence (such as supporting letters and publications) of sufficient institutional, community and other necessary support for carrying out this project.” In addition, officials from CDC and outside organizations noted that there are benefits of having eligibility limited to entities that have already been vetted, such as an increased likelihood of the research being successful. To become a PRC, the eligible academic institutions must go through a competitive peer review process, through which they are evaluated based on their ability to contribute to improved community and population health, impact public health programs and practice, and advance the field of public health promotion and disease prevention, among other things. Because of this vetting, an official from one outside organization told us that PRCs are likely to be successful in their work—mitigating the risk faced were an award to be made to an unknown entity. An official from another outside organization noted that CDC sponsoring units work closely with the PRCs on implementing the SIPs, and it is beneficial that the PRCs are “known entities” who have established relationships with CDC. Officials from CDC and outside organizations identified a few potential disadvantages to limiting eligibility for SIPs, including the potential for reduced access to expertise outside of the PRCs and the risk of being unable to conduct desired research at the desired time. Specifically, officials from outside organizations told us that there may be reduced access to the expertise of researchers from other universities or other entities. CDC officials and officials from PRCs said that PRCs have the ability to bring in the expertise from outside the PRC institution through subcontracts with other entities, which could help alleviate this concern. For example, for a SIP on skin cancer prevention messaging, the PRC officials at the University of Pennsylvania told us they had multiple subcontracts, including one with a researcher at another university with expertise on indoor tanning. Officials from two outside organizations stated that there is a missed potential for innovation and new approaches if new entities are not eligible for SIPs or added to the pool of PRCs. Although there is a competition for PRCs every 5 years, the PRCs have been fairly stable in recent years—2 new PRCs were added in fiscal year 2014, while more than half (15 of 26) of the current PRCs have been continuously funded by CDC for at least 15 years. Because SIPs are only announced once per year and are awarded at the end of the fiscal year, one other potential disadvantage of SIPs’ limited eligibility is the risk that CDC’s desired research may not be conducted, or may not be able to be conducted at the desired time. If the research project is ultimately not funded through the SIP, there is not sufficient time within the fiscal year to pursue an alternative mechanism. CDC sponsoring unit officials described instances where they did not receive any applicants or did not receive enough qualified applicants for individual SIPs and thus were not able to fund a SIP or made fewer awards than planned. In fiscal years 2014 through 2016, 5 of 51 SIPs included in the FOAs were ultimately not funded because they received no applications or the applications received were not a good fit for the desired project. For an additional 2 SIPs, the sponsoring units funded fewer awards than planned because they did not receive enough quality applications. We provided a draft of this report to HHS for review. HHS provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Secretary of the Department of Health and Human Services, the Director of the Centers for Disease Control and Prevention, 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 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 made key contributions to this report are listed in appendix II. Appendix I: Information on Centers for Disease Control and Prevention (CDC) Special Interest Projects (SIPs) Tables 2, 3, and 4 below present data on SIPs awarded in fiscal years 2014 through 2016. In addition to the contact named above, Michelle B. Rosenberg (Assistant Director), Julie T. Stewart (Analyst-in-Charge), and Romonda McKinney Bumpus made key contributions to this report. Also contributing were Sam Amrhein and Jacquelyn Hamilton.

CDC, an agency within HHS, created the SIP program in 1993 as a supplemental funding mechanism to support health promotion and disease-prevention research being done at its PRCs. Currently, there are 26 PRCs. In fiscal years 2014 through 2016, CDC awarded more than $40 million for SIPs. SIP topics vary from year to year but are to be aligned with public health priorities, such as the Healthy People 2020 Objectives—HHS's 10-year national objectives for improving Americans' health. SIPs are sponsored and primarily funded by CDC organizational units, referred to as sponsoring units. House Report 114-195 included a provision for GAO to review the SIP program. This report describes (1) what research CDC chooses to fund through the SIP mechanism, and (2) what have been identified as advantages and disadvantages of SIP eligibility being limited to PRCs. GAO reviewed documents from CDC and analyzed CDC data on SIPs awarded in fiscal years 2014 through 2016. GAO also interviewed CDC officials, including officials from 5 of the 10 sponsoring units that together accounted for over 90 percent of SIP funding during this time period, officials from 4 PRCs with varying experience with SIPs, and 4 organizations with knowledge of prevention research. The Centers for Disease Control and Prevention (CDC) uses the Special Interest Project (SIP) mechanism to fund community-based prevention research that would benefit from a multidisciplinary group of researchers. SIPs are supplemental funding awards that focus on topics of interest or gaps in knowledge or research and can also support the development of state and local public health interventions and policies. SIPs are only available to CDC's Prevention Research Centers (PRC)—selected academic health centers at universities with schools of public health or medical schools with residency programs in preventive medicine. CDC officials said that they would choose the SIP mechanism when the research they want to fund is intended to involve community-based organizations or members of the community. They also use SIPs when they seek access to researchers who have established partnerships with diverse population groups across the country. They would not choose the SIP mechanism when the research they want to fund is not focused on public health prevention, including research that is clinical or laboratory-based; would be better suited for an entity other than an academic health center; or would be better funded through a contract to allow CDC to direct the research protocol. CDC's collaborations with experts in the field—including those at other federal agencies—help to inform its development of the research funding opportunities offered through SIPs. For example, CDC officials use information they learn through participation in multiagency workgroups and advisory committees to identify gaps in knowledge that SIP funding could help to address. CDC officials also stated that this collaboration can also help to avoid potential duplication of research. The key advantage of SIPs being limited to PRCs is the ability to rapidly initiate research, according to officials with whom GAO spoke—including officials from CDC, PRCs, and organizations with knowledge of prevention research. Factors cited as contributing to this ability included the research infrastructure and community relationships already established at the PRCs. Officials from CDC and outside organizations also identified a few potential disadvantages to limiting eligibility for SIPs, including the potential for reduced access to expertise from researchers or others who are not affiliated with the universities in which PRCs are located, although some noted that PRCs may bring in outside expertise through subcontracts with other entities. The Department of Health and Human Services (HHS) provided technical comments on a draft of this report, which GAO incorporated as appropriate.

You are an expert at summarizing long articles. Proceed to summarize the following text: DOD guidance requires that the services and DLA report the current and projected status of their secondary item inventories to support OSD’s oversight responsibilities and for use in its procurement and repair budget deliberations. To ensure the department has consistent data, the services and DLA are required, among other things, to group their secondary item inventories into several specific categories, according to the purpose for which they are held (see figure 1). The reporting categories include the approved acquisition objective and three inventory categories that exceed the approved acquisition objective—economic retention stock, contingency retention stock, and potential reutilization stock (i.e., on-hand excess inventory). The approved acquisition objective incorporates both materiel needed to meet the requirements objective (i.e., the sum of stock represented by the economic order quantity, the safety level, the repair-cycle level, and the authorized additive levels) and 2 years of estimated future demand. DOD purchases inventory to meet the approved acquisition objective, according to DOD officials. Secondary item inventory that exceeds the approved acquisition objective is categorized as retention stock or potential reutilization stock. Retention stock includes economic retention stock, which is materiel that has been deemed more economical to keep than to dispose of because it is likely to be needed in the future, and contingency retention stock, which is materiel retained to support specific contingencies. Potential reutilization stock has been identified for possible disposal but has potential for reutilization. Potential reutilization stock is also referred to as on-hand excess inventory. Additionally, OSD, the services, and DLA track on-order excess inventory, which are items for which a contract has been awarded or funds have been obligated, but due to subsequent changes in requirements would be categorized as potential reutilization stock upon arrival. Figure 1 summarizes how DOD inventory categories are aggregated for reporting. Appendix III provides a printer-friendly version of figure 1. Additionally, see the glossary for key inventory management terms. The objective of DOD’s Plan is to achieve a prudent reduction in current inventory excesses as well as a reduction in the potential for future excesses without degrading materiel support to the customer. The Plan has two overarching goals, which are to reduce (1) total on-order excess inventory from 8.5 percent of total obligated on-order dollars in fiscal year 2009 to a target of 6 percent by the end of fiscal year 2014 and 4 percent by the end of fiscal year 2016 and (2) on-hand excess inventory from 11.3 percent of the total value of inventory in fiscal year 2009 to a target of 10 percent by the end of fiscal year 2012. DOD developed nine sub-plans, which are designed to assist in reducing excess inventory and improve inventory management practices across DOD. Each of the nine sub-plans focuses on a particular inventory management area and includes an objective, as identified in table 1. Additionally, see appendix IV through XII for detailed information for each sub-plan. Each of these nine sub-plans include actions, milestones, and implementation steps. See figure 2 for a depiction of the Plan’s implementation structure. OSD, the services, and DLA use a plan of action and milestones to manage the Plan’s implementation, which includes steps for each of the nine sub-plans and tracks the status of the implementation. The Plan outlines the roles and responsibilities of key stakeholders, including those of the Deputy Assistant Secretary of Defense for Supply Chain Integration, the Supply Chain Executive Steering Committee, the services, and DLA. The Deputy Assistant Secretary of Defense for Supply Chain Integration oversees the Plan’s implementation through progress review meetings held about every month. The Supply Chain Executive Steering Committee, which is comprised of executive-level members from the services and DLA, advises the Deputy Assistant Secretary of Defense for Supply Chain Integration on matters related to supply chain management, including the implementation of the Plan, and typically receives a briefing on the Plan’s implementation every three months. Also, the Supply Chain Executive Steering Committee is used to resolve issues encountered in implementation that cannot be resolved at a lower level. Any unresolved issues are discussed and resolved at the Joint Logistics Board, which is comprised of senior-level participants from the services, combatant commands, and DLA, and is responsible for reviewing the status of the logistics portfolio and the effectiveness of the defense-wide logistics chain in supporting to the warfighter. Three groups—forecasting and demand planning, inventory and retention, and supply chain metrics—are responsible for managing the day-to-day actions in the Plan. Representatives from OSD, the services, and DLA comprise the groups. Each group has responsibility for particular sub-plans as follows: Forecasting and demand planning group: Responsible for the sub- plans on demand forecasting and total asset visibility and multi- echelon modeling and a section of the sub-plan on other inventory improvement actions, specifically actions associated with reducing acquisition lead times for spare parts. Inventory and retention group: Responsible for the sub-plans on on-order excess inventory, economic retention, contingency retention, storage and direct vendor delivery, no-demand items, and disposition of potential reutilization stock and the section of the sub-plan on other inventory improvement actions associated with inventory segmentation, inventory systems modernization, and efficiency metrics. Supply chain metrics group: Responsible for leading efforts to standardize the definitions and computation of metrics across DOD, validating the effectiveness of measures as indicators of progress, translating metrics to inform future decisions, and integrating the metrics in the Plan into the DOD performance measurement framework. DOD may find that the two targets for reducing on-order and on-hand excess inventory that it established when developing the Plan in fiscal year 2010 are ineffective in guiding future inventory management improvement efforts. DOD set measurable targets for each of its goals based on the best data available according to DOD officials, but since that time more recent data revealed that the on-order excess inventory target was met 4 years early and prior to the Plan’s implementation efforts’ beginning. Additionally, the on-hand excess inventory target was surpassed because DOD revised the definition and calculation of on-hand excess inventory. DOD’s target for the on-order excess inventory goal is to reduce, collectively among the services and DLA, the percentage of total obligated on-order dollars to 6 percent by end of fiscal year 2014 and 4 percent by the end of fiscal year 2016. Reducing the percentage of on- order excess inventory would result in less economic or contingency retention stock being held by the department and/or less potential on- hand excess inventory that must be disposed of by the department since there is not a need for the item. DOD reduced its percentage of on-order excess inventory from 8.5 percent, or approximately $1.15 billion, in fiscal year 2009 to 5.5 percent, or about $940 million, at the end of fiscal year 2010, thereby achieving its 2014 target 4 years early. The Air Force and Navy (including the Marine Corps), as of fiscal year 2010, were below the 6 percent on-order excess inventory target for fiscal year 2014, whereas the Army and DLA were above the target. (See figure 3 for the percentage of on-order excess inventory for fiscal years 2008 to 2010 across DOD.) DOD achieved its fiscal year 2014 target for on-order excess inventory prior to the implementation of the Plan, which began in fiscal year 2011. DOD’s target for the on-hand excess inventory goal is to reduce, collectively among the services and DLA, the percentage of the total value of secondary item inventory designated as excess to 10 percent by the end of fiscal year 2012. Reducing the percentage of on-hand excess inventory is an indicator of a more effective and efficient inventory management system, according to DOD officials. In fiscal year 2011, based on further analysis of the inventory data, DOD revised the definition of on-hand excess inventory, which resulted in a reduction in its percentage of on-hand excess from 9.4 percent, or $8.9 billion, in fiscal year 2009 to 8.3 percent, or $8.4 billion, in fiscal year 2010, which is well below its fiscal year 2012 target of 10 percent. DOD revised the definition of on-hand excess inventory to exclude the projected number of condemned items, which are unserviceable assets that are determined to be beyond the point of economic repair during the repair process. OSD officials stated they, in collaboration with the services and DLA, decided that the projected number of condemnations would not be included in the on-hand excess inventory calculation because the services and DLA have no way to dispose of future condemned items, and therefore these items should not be counted as on-hand excess inventory. In addition, they stated inclusion of the condemned items would inflate the amount of on- hand excess inventory, thus DOD plans to report projected condemned items as a separate inventory category in the future. The Army, Air Force, and DLA are below the 10 percent on-hand excess inventory target for fiscal year 2012, whereas the Navy (including the Marine Corps) is slightly above the target. (See figure 4 for the percentage of on-hand excess inventory for fiscal years 2008 to 2010 across DOD.) The Standards for Internal Control in the Federal Government and results-oriented management practices emphasize the importance of reviewing and validating performance measures to ensure these measures remain appropriate. Specifically, we have reported that without sufficiently ambitious goals or targets, managers may not have incentives to use performance information to identify opportunities for significant improvement. A critical factor in the success of goal-setting is developing ambitious, but realistic “stretch” goals that challenge the organization to achieve performance improvements. DOD inventory management guidance states that the Assistant Secretary of Defense for Logistics and Materiel Readiness is responsible for monitoring the overall effectiveness and efficiency of DOD’s materiel management systems and continually developing improvements. It also notes that it is DOD policy to periodically conduct performance evaluations of its supply chain operations and inventory. Officials stated that prior to developing the Plan in fiscal year 2010, DOD had not established departmentwide targets for on-hand and on-order excess inventory, therefore establishing these targets was a new endeavor for DOD. According to DOD officials, establishing optimal targets for excess inventory is challenging and must consider on-going operational challenges, such as the potential impact of the reset of military equipment returning from Iraq and Afghanistan as well as the need to meet service readiness rates. DOD’s targets in the Plan were set based on an analysis of trends in the inventory data prior to and including fiscal year 2009. OSD officials described the process used to establish the targets as one in which OSD, service, and DLA senior officials reviewed inventory data trends and exercised professional judgment to select challenging, yet achievable targets to focus the reduction of excess inventory. When developing the Plan DOD did not know that its on-order excess inventory target had already been met because departmentwide inventory data is not available until approximately 6 months after the end of the fiscal year, which meant the fiscal year 2010 data was not available until approximately 6 months into the Plan’s implementation. Furthermore, additional analysis of the inventory data led DOD officials to make adjustments to the definition and calculation of on-hand excess inventory, which made the targets for on-hand excess inventory less meaningful. DOD officials attribute the reduction in excess inventory to increased management oversight on the part of OSD, the services, and DLA leadership, which was prompted by increased congressional oversight through GAO reviews and the congressional mandate to develop a comprehensive plan to improve inventory management. OSD officials stated they intend to review the on-order excess inventory target for fiscal year 2014 and the on-hand excess inventory for future years after the fiscal year 2011 data is available. Through such a review, DOD may find the Plan’s existing targets for its two goals—reducing on-order and on- hand excess—are no longer effective in guiding and monitoring continuous improvement for the remainder of the Plan’s implementation given DOD’s progress in these areas. In addition to making progress toward achieving the targets discussed above, DOD has made progress implementing the Plan’s actions for improving inventory management, which began in late fiscal year 2010. However, DOD is only 18 months into a 4-year implementation effort and has experienced some delays and faces continued challenges during the remainder of implementation. Specifically, DOD is implementing a series of actions focused at improving policies, procedures, and processes for inventory management that require collaboration among OSD, the services, and DLA and a coordinated implementation approach. DOD’s progress included reviewing department, service, and DLA inventory management guidance, and drafting revisions scheduled to be issued by the end of fiscal year 2012. The Plan’s overall implementation schedule has slipped only 1 month since the effort began; however, as of January 1, 2012, a number of the Plan’s actions and milestones were delayed based on original estimated completion dates. Over the next 3 years of implementation efforts, OSD, the services, and DLA will confront several key challenges in their efforts to implement the remainder of the Plan, such as improving demand forecasting, accelerating multi-echelon modeling, and ensuring effective execution of DOD guidance by the services and DLA for the management of on-order excess, retention stocks, and potential reutilization stocks. During the initial implementation effort, OSD, the services, and DLA have made progress in implementing the actions associated with the Plan. Much of the progress thus far has involved OSD, the services, and DLA gathering and analyzing data, such as reviewing DOD, service, and DLA inventory management guidance and practices and making revisions where appropriate. For example, in collaboration with the services and DLA, OSD is in the process of revising DOD guidance to standardize and strengthen inventory management practices. To inform those changes, OSD, the services, and DLA have conducted reviews of guidance and practices for demand forecasting, on on-order excess inventory, economic retention stock, contingency retention stock, potential reutilization stock, and storage and direct vendor delivery in the Plan’s first 18 months of implementation. According to OSD officials, this revision is scheduled to be finalized and issued by the end of fiscal year 2012. They also stated that once the revised DOD guidance is finalized and issued the process of implementing the guidance at the service and DLA level will require time and sustained leadership focus. According to DOD officials, in some areas, the services and DLA already have service or agency-specific guidance that addresses some of the proposed requirements of the revised departmentwide draft guidance, but in other areas work remains for the services and DLA to ensure that the draft DOD guidance is reflected, as needed, in organizational guidance and implemented consistently. Furthermore, according to service and DLA officials, the services and DLA have been proactively updating or revising their procedures and practices based on the proposed revisions to DOD inventory management guidance in some cases. For example, the U.S. Army Materiel Command has implemented changes to its automated business system for managing inventory, commonly referred to as an enterprise resource planning system, to be able to categorize contingency retention stock according to the categories agreed upon by OSD, the services, and DLA as part of the contingency retention stock sub-plan implementation efforts. The U.S. Army Materiel Command also required contingency retention stock to be justified and documented on an annual basis. The Navy Supply System Command has developed guidance for the management of its on-order excess inventory and DLA is in the process of making changes to its procedures for on-order excess management. In addition to revising guidance and procedures, OSD, the services, and DLA are also developing and implementing metrics associated with each sub-plan to assist in monitoring the status of DOD’s inventory in conjunction with the Plan’s implementation. Many of the metrics are established, but a few of the metrics, such as forecasting error, are under development and OSD, the services, and DLA are working to agree on the methodology for calculating these particular metrics. See appendix IV through XII for detailed information for each sub-plan. OSD, the services, and DLA have demonstrated progress in other areas of the Plan’s implementation as well. These areas include, but are not limited to, the following: Automated access to inventory. OSD, the services, and DLA determined that 95 percent of DOD’s inventory is accessible by automated means to the services and DLA, which exceeded the Plan’s goal of achieving automated accessibility to 90 percent of its inventory within 5 years. DLA’s in-storage visibility program. OSD, the services, and DLA have increased participation in the in-storage visibility program, which allows services and DLA to obtain consumable items from another service or DLA through established business rules. For example, the Air Force had 145 sites participating in fiscal year 2010 and increased the number to 190 sites. The Army and Navy increased the number of sites also. The program conducted $73.8 million lateral redistributions and procurement offsets in fiscal year 2010 and $68.3 million in fiscal year 2011. No demand items. OSD, the services, and DLA have begun reviewing their inventories for items that have not had any orders for 5 or more years to reevaluate the justification for retaining these items, even if the items are within the approved acquisition objective. For example, the Army has been reviewing no demand items since 2006 and has been successful at reducing storage space and storage costs associated with these items. Inventory categorization. OSD, the services, and DLA have reviewed existing categories of inventory (i.e., the approved acquisition objective, economic retention stock, contingency retention stock, and potential reutilization stock) and developed tentative sub- categories that provide further clarification as to the make-up of each category. DOD’s Plan includes steps to incorporate this information into its guidance on inventory management, specifically a revision of DOD 4140.64-M Secondary Item Stratification Manual (August 24, 2009). After 18 months, DOD’s implementation of its Plan is generally on schedule, having slipped 1 month, although a number of actions and milestones have experienced delays. Each of the nine sub-plans includes actions, which are each supported by a number of milestones. OSD, the services, and DLA have begun implementing all 29 actions in the Plan and completed 3 of these actions, as of January 1, 2012. Our analysis shows that about half of the remaining actions are on schedule, while half are delayed. Our analysis also shows that of the 82 milestones that support the actions, OSD, the services, and DLA have completed 28, started 39, and have not yet started 15. About a third of the milestones are delayed. Implementation of all actions and milestones are scheduled to be complete the first month of fiscal year 2015, rather than the end fiscal year 2014 as originally scheduled. Tables 2 and 3 provide the status, by sub-plan, of actions and milestones, respectively. Additionally, see appendix IV through XII, for detailed information on the status of individual actions and milestones for each sub-plan. OSD, the services, and DLA regularly review the status of the actions and milestones and make adjustments as needed, and we found the reasons for delays in completing the Plan’s actions and milestones are varied and do not appear to involve a systemic problem. Several milestones across several sub-plans are delayed pending the issuance of revised inventory management guidance, which according to OSD officials is now scheduled for the end of fiscal year 2012. Other milestones have been delayed due to funding and contract issues. For example, one milestone was postponed due to delays in awarding a contract to evaluate improved demand forecasting methods and techniques for spare parts by taking into consideration the life cycle—initial provisioning, sustainment, and end-of-life—of a weapon system. In other cases, additional implementation steps were added to milestones to better focus and address an effort, lengthening the original planned time frame. For example, a milestone in the contingency retention stock sub-plan focused on assessing results of an independent review of contingency retention stock, making necessary policy changes, and implementing those changes, but after analyzing the results of the review, OSD, the services and DLA determined additional steps were needed to guide the implementation of the approved recommendations. Since we believe these delays do not indicate an underlying issue and DOD is making adjustments to the Plan based on its experience to date, we are not making recommendations. Over the next 3 years, OSD, the services, and DLA will confront four key challenges in their efforts to implement the remainder of its Plan. First, the drawdown of forces and equipment from Afghanistan over the coming years as well as the reset of the forces and equipment returning from Iraq and Afghanistan will make inventory management more difficult. DOD will need to effectively adjust demand planning to reflect changes in operational tempo associated with the drawdown as well as account for spare part needs associated with the reset of equipment to avoid the creation of inventory excesses. Additionally, the return of materiel from Afghanistan will require effective planning and may result in excess inventory. Second, the services and DLA are in varying stages of implementing their respective automated business systems for managing inventory, which are referred to as enterprise resource planning systems, which may make consistent data collection difficult and pose continuing challenges to implementing some areas of the Plan. While DLA has completely implemented its system, the services are at varying stages of implementing their systems. As part of the Plan, OSD, the services, and DLA are working together to monitor potential impacts on the Plan’s implementation. Third, several areas of the Plan moving forward present considerable implementation challenges due to the complexity of the issues. Some examples of complex issues in the Plan that pose implementation challenges include: Improving demand forecasting. Improving demand forecasting is difficult because it involves materiel managers having the most up-to- date operational planning information to adequately plan the stocking of materiel for the customer. The demand forecasting sub-plan focuses on putting in place more automated methods for exchanging information that can be used to improve forecasts between inventory managers and customers, but these efforts are only in the initial stages. Accelerating the use of multi-echelon modeling. DOD set a target to use multi-echelon modeling on 90 percent of targeted inventories by the end of fiscal year 2015. As part of its analysis, OSD, the services, and DLA determined that its targeted inventory is defined as that portion of the total inventory that includes inventory levels already set using multi-echelon modeling plus opportunities for additional application. The targeted inventory is approximately 65 percent of DOD’s inventory, or $61 billion of DOD’s approximately $95 billion in inventory for fiscal year 2010. OSD, the services, and DLA are currently working to identify criteria and business rules for the targeted inventory that currently uses multi-echelon modeling to be able to develop opportunities for additional application to accelerate the use of multi-echelon modeling. Implementing revised DOD guidance on retention management. OSD, the services, and DLA have reviewed existing DOD and service guidance for the management of on-order excess, economic retention stock, contingency retention stock, and potential reutilization stock and are in the process of finalizing revisions to the guidance to be issued by the end of fiscal year 2012. However, the full implementation of the revised guidance will occur largely within the materiel and logistics commands of the services and at DLA. As reported in our previous reports, existing policies and procedures to justify and review retention decisions were not implemented appropriately and consistently within the services and DLA. While the collaborative review and revision of DOD guidance by OSD, the services, and DLA was an important first step, the standardized and effective implementation of these revised policies, once issued, in the services and DLA will be key to achieving the desired outcomes of the Plan. Fourth, sustaining senior OSD, service, and DLA leadership and management attention through fiscal year 2015 will be important to effectively implement the remainder of the Plan. As we noted above, service and DLA officials told us that sustained leadership focus has been important thus far in DOD’s implementation efforts. As implementation moves forward, addressing complex issues such as improving demand forecasting, accelerating multi-echelon modeling, and ensuring consistent implementation of DOD inventory management guidance will require continued management attention and focus. Furthermore, since implementation efforts are in the initial stages, sustaining leadership and management focus will be critical to guide improvement efforts for the remainder of the Plan’s implementation. As part of the Plan, DOD is developing a set of metrics to assess the effectiveness and efficiency of its inventory management beyond the percentage targets for on-order and on-hand excess inventory identified in the Plan, but it has not determined if it will incorporate the set of metrics into guidance. This may hamper its ability to assess inventory management performance and sustain management attention on improvement beyond the Plan’s implementation. OSD is leading the development of a supply chain enterprise metrics strategy designed to identify key departmentwide metrics to monitor the performance of the supply chain, along with inventory management, and serve as a basis for making supply chain guidance and resource decisions. However, DOD has not made final decisions and the effort is a work in progress. DOD officials told us that a set of comprehensive, standardized metrics will allow OSD, the services, and DLA to assess and balance the effectiveness and efficiency of inventory management operations within the broader construct of the supply chain. They added that assessing the effectiveness and efficiency of inventory operations in isolation from the rest of the supply chain would not be prudent. Rather, the DOD officials believe an assessment of the effectiveness and efficiency of inventory management must be conducted more broadly and take into account additional supply chain metrics, such as the ability of the supply chain to support the readiness of the force in a timely manner. Thus, OSD, the services, and DLA are working collaboratively to identify or develop the appropriate metrics, including the data source and methodology for producing the metrics. OSD, the services, and DLA are currently developing possible departmentwide supply chain metrics, including inventory management metrics, to monitor the performance of the supply chain. Specifically, the development of the departmentwide metrics is based on one outcome— readiness—and four attributes—responsiveness, reliability, cost, and planning and precision—of the supply chain. To support the measurement of the outcome and attributes, the supply chain metrics group identified potential departmentwide metrics to be collected and assessed. The potential metrics include, but are not limited to, metrics associated with inventory management. OSD, the services, and DLA have not made a final decision on which metrics to monitor. The attributes and associated examples of metrics are shown in table 4. Some of the potential metrics are currently reported by OSD, while others would be new metrics that would require establishing a data source and methodology. For example, customer wait time, on-order excess inventory, and on-hand excess inventory are metrics that are currently reported to the DOD Deputy Chief Management Officer by the Deputy Assistant Secretary of Defense for Supply Chain Integration. Other potential metrics, such as the “not mission capable rate for maintenance or supply” related to the readiness attribute, are reported within DOD by other entities. On the other hand, there are metrics, such as the “tiered inventory turns” metric related to the cost attribute and “demand forecast error”, for which business rules are being established for the computation and collection of the data for the metric. As we recently reported, DOD has been challenged by developing departmentwide performance measures for supply chain management, including inventory operations. We have also noted that developing sets of performance goals and measures could provide a balanced perspective of the intended performance of a program’s multiple priorities, such as timeliness, service quality, customer satisfaction, and program cost.management performance within the broader construct of supply chain management through a set of departmentwide, comprehensive, and standardized metrics is appropriate and critical, but the Plan and its Thus, the development of metrics to assess inventory implementation actions do not include steps to incorporate the inventory management metrics, including the methodologies, into DOD guidance. When we spoke with DOD officials they told us they agree that the Plan and its implementation actions do not address implementing the comprehensive set of metrics in guidance and added that they agree it would be a good idea to do so. DOD inventory management policy states that performance and cost evaluations of supply chain operations and inventory shall be conducted periodically. The policy also states that the Assistant Secretary of Defense for Logistics and Materiel Readiness is responsible for monitoring the overall effectiveness and efficiency of its materiel management systems and continually developing improvements and that materiel managers should evaluate and be capable of reporting on the performance of inventory management, and more broadly supply chain operations. Based on our previous reporting, we have found that such metrics should be reportable in a consistent fashion and used to evaluate performance. Further, we have found establishing metrics, and monitoring and evaluating program performance are key practices in results-oriented-management. A key part of metrics being reportable in a consistent fashion is ensuring that standardized definitions, methodologies, and procedures will be used. The services and DLA will be relied upon to generate the data for some of the departmentwide inventory management metrics; thus, efforts to monitor and evaluate inventory management performance may be hampered without standardized definitions, methodologies, and procedures for the consistent collection of data for the metrics. In the past, DOD has institutionalized supply chain metrics through guidance. For example, OSD issued guidance to the services and DLA that provided a standardized definition and procedures for measuring and reporting the “customer wait time” metric to OSD.ensure that the services and DLA collect the data needed on a standardized basis for the departmentwide metric so that decision makers can evaluate performance across the department. Furthermore, incorporating the inventory management metrics into the department’s guidance and procedures would result in the institutionalization of the metrics and assist in sustaining a results-oriented management framework for inventory management beyond the Plan’s implementation. Without the institutionalization of the metrics, DOD may be hampered in its ability to assess the performance of inventory management and sustain management attention on continuously improving its inventory management beyond the Plan’s implementation. DOD officials emphasized that the reductions achieved in the amount of on-order and on-hand excess inventory represent about $710 million in cost avoidances on the part of the department. Additionally, as part of the Plan’s implementation, DOD reduced the resources available to its working capital funds to purchase secondary inventory items.Specifically, DOD reduced the departmentwide dollar value of on-order excess inventory from fiscal years 2009 to 2010, by approximately $210 million—a reduction from $1.15 billion, or 8.5 percent of total on-order dollars, to $940 million, or 5.5 percent. With respect to on-hand excess inventory, DOD reduced the departmentwide dollar value of on-hand excess inventory from fiscal years 2009 to 2010, by approximately $500 million—a reduction from $8.9 billion, or 9.4 percent of the total value of the inventory, to $8.4 billion, or 8.3 percent. According to OSD officials, reducing the percentage of on-order and on-hand excess inventory from fiscal year 2009 to 2010 indicates that the department’s focused management efforts have started to yield cost avoidances and more effective inventory management operations. Lower levels of on-order excess mean that DOD is purchasing items that are needed to meet the approved acquisition objective rather than items that will be classified as potential reutilization stock, or on-hand excess, upon arrival. Reducing the level of on-hand excess means that DOD is purchasing items that are needed, retaining items as economic or contingency retention stock, and/or disposing of items more efficiently that are no longer needed by the department. Additionally, OSD, the services, and DLA have increased participation in the in-storage visibility program, which allows services and DLA to obtain consumable items from another service or DLA to prevent the procurement of additional items. The program completed $73.8 million lateral redistributions and procurement offsets in fiscal year 2010 and $68.3 million in fiscal year 2011, which prevented the acquisition of additional items. DOD also plans to reduce the resources available in its working capital funds to purchase secondary inventory items by about $365 million over fiscal years 2012 to 2016 as part of the Plan’s implementation. As part of the fiscal year 2012 budget deliberations, OSD implemented a management decision that reduced the obligation authority for the Army and DLA working capital funds by $39 million in fiscal year 2012. DOD has identified further reductions of obligation authority to the respective working capital funds for fiscal years 2013 to 2016, which are displayed in table 5. The reductions only impact the Army and DLA because neither met the percentage targets established for on-order excess inventory in the Plan—6 percent by fiscal year 2014 and 4 percent by fiscal year 2016. According to OSD officials, these reductions in obligation authority are intended to heighten management attention on efforts to reduce the Army and DLA’s on-order excess inventory. The Navy (including the Marine Corps) and Air Force were below these targets; thus, no reductions are currently planned for their working capital funds as part of this effort. Since the working capital funds generally rely on sales revenue (i.e., a military unit purchasing a spare part from the working capital fund with appropriated operation and maintenance funds), rather than direct annual appropriations to finance the purchase of secondary inventory items, these reductions to obligation authority are not directly reducing the expenditure of appropriated funds. Rather, the reductions to obligation authority mean that the working capital fund has reduced purchase authority for additional secondary items for the inventory, resulting in a lower inventory replenishment rate. While these reductions will not directly result in savings to direct appropriation accounts, OSD, Army, and DLA officials told us that the reduction of obligation authority will require the Army and DLA to better manage its available resources for purchasing new secondary items. Effective and efficient management of DOD’s inventory is critical to supporting the readiness of the force, and requires a balanced approach. To be effective DOD must have the correct amount of spare parts on- hand at the correct time to support the fighting force, but DOD must also manage its inventory efficiently to avoid the unnecessary and wasteful accumulation of secondary inventory that could divert resources away from defense priorities. With consistent and heightened visibility to Congress and committed leadership on the part of OSD, the services, and DLA, DOD has made progress improving its inventory management. DOD is currently 18 months into a 4-year implementation process, and is making progress towards reducing excess inventory, implementing its Plan, and establishing a departmentwide set of standardized metrics for inventory management. Moving forward, DOD’s inventory management improvement efforts would benefit from challenging, but achievable targets for reducing its on-order and on-hand excess inventory. OSD’s stated intention to review the targets would help ensure that DOD’s progress is not hampered because of a lack of meaningful targets to guide its efforts. Additionally, while DOD has begun developing a departmentwide set of standardized inventory management metrics as part of the Plan’s implementation, formalizing the set of metrics in guidance would allow DOD, services, and DLA to institutionalize the metrics in a results-oriented management framework beyond the Plan’s implementation. To continue progress, committed and sustained leadership on the part of OSD, the services, and DLA will be key as DOD implements the remainder of the Plan and institutionalizes a results- oriented management framework. To improve implementation of the Comprehensive Inventory Management Improvement Plan and ensure sustained management attention beyond the Plan’s implementation consistent with results-oriented management practices, we recommend the Secretary of Defense direct the Assistant Secretary of Defense for Logistics and Materiel Readiness to take the following three actions: conduct and document periodic re-examinations of its existing on- order and on-hand excess inventory percentage targets (such as those officials say are planned) and update the targets and associated timelines, if necessary, to guide continued improvement in its inventory management through the Plan’s implementation; develop and implement guidance that establishes a comprehensive, standardized set of departmentwide inventory management metrics, including standardized definitions and procedures for measuring and reporting the metrics; and employ these metrics in periodically monitoring the effectiveness and efficiency of its inventory management practices. We provided a draft of this report to DOD for comment. In written comments, DOD concurred with our recommendations. DOD’s comments are reprinted in their entirety in appendix XIII. DOD also provided technical comments, which we incorporated into the report as appropriate. DOD concurred with our recommendation to conduct and document periodic re-examinations of its existing on-order and on-hand excess inventory percentage targets (such as those officials say are planned) and update the targets and associated timelines, if necessary, to guide continued improvement in its inventory management through the Plan’s implementation. DOD stated that it will re-examine the on-order and on- hand excess percentage targets as part of its ongoing review of existing inventory management metrics. Furthermore, DOD stated that the on- hand excess inventory percentage target is currently being revised, taking into consideration current performance and anticipated operational conditions that may affect this target. DOD concurred with our recommendation to develop and implement guidance that establishes a comprehensive, standardized set of department-wide inventory management metrics, including standardized definitions and procedures for measuring and reporting the metrics. Specifically, DOD stated that it is continuing to identify and develop a set of department-wide inventory management metrics. We acknowledge the department’s planned actions and want to reiterate the need for standardized definitions and procedures for measuring and reporting them as a means for supporting a results-oriented management framework beyond the Plan’s implementation. Finally, DOD concurred with our recommendation to employ the metrics in periodically monitoring the effectiveness and efficiency of its inventory management practices. Specifically, DOD stated they will continue to monitor existing inventory management metrics and include additional metrics approved for its department-wide assessments of inventory management. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Secretaries of the Army, Navy, and Air Force, and the Director of DLA. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have questions about this report, please contact me at [email protected] or (202) 512-5257. 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 XIV. The objectives of our work were to determine the extent to which (1) the Department of Defense (DOD) established and achieved targets for reducing excess inventory in the Comprehensive Inventory Management Improvement Plan (Plan), (2) DOD made progress in implementing the Plan, (3) DOD has established and implemented standardized metrics to track their progress in improving inventory management, and (4) DOD has identified and realized any cost savings or cost avoidance from implementing the Plan. To gather information for these objectives, we reviewed documentation and interviewed officials from: Office of the Under Secretary of Defense (Comptroller); Office of the Deputy Assistant Secretary of Defense for Supply Chain Office of the Deputy Chief Management Officer; Headquarters Army, Office of the Deputy Chief of Staff of the Army, Headquarters Navy, Deputy Assistant Secretary of the Navy, Acquisition & Logistics Management; Headquarters Air Force, Deputy Chief of Staff for Logistics, Installations, and Mission Support, Directorate of Logistics Policy Division; Marine Corps Headquarters, Installations and Logistics Department; U.S. Army Materiel Command; Navy Supply Systems Command, Headquarters; Air Force Materiel Command, Headquarters; Marine Corps Logistics Command, Headquarters; and Defense Logistics Agency (DLA). To assess the extent to which DOD’s Plan has established and its implementation has achieved targets for reducing excess inventory, we evaluated Office of the Secretary of Defense’s (OSD), the services’, and DLA’s progress in reaching the Plan’s two main targets for reducing on- order excess and on-hand excess inventory by comparing OSD’s, the services’, and DLA’s reported progress in fiscal year 2009 and fiscal year 2010 when measured against the targets for these two main goals established in the Plan. Fiscal year 2011 data was not available by the end of our review to assess the department’s progress in fiscal year 2011, the first year of implementing the Plan. We assessed OSD’s, the services’, and DLA’s progress in reaching the targets of the Plan and the process DOD used to establish the targets by obtaining and reviewing OSD progress reports, and reviewing other supporting documentation from the services and DLA to corroborate the DOD’s reported progress. To provide context, we interviewed OSD, service, and DLA officials to discuss their interpretation of the data for the two goals. Additionally, we examined the reliability of data used for the targets by reviewing DOD policy and procedures for the collection of the data used for inventory reporting and interviewing officials about their methods for quality control and found that the data were sufficiently reliable to address our objectives. To determine the extent to which OSD, the services, and DLA have made progress in implementing the Plan, we evaluated DOD’s Plan and the plan of action and milestones, which includes actions, milestones, and implementation steps for each of the nine sub-plans and tracks the status of the implementation. Our analysis of the implementation of the Plan focused on actions and milestones that were started and underway by January 1, 2012 and we rated each action and milestone as either “completed,” “started, on schedule,” “started, completion delayed,” “not started, on schedule,” or “Not started, completion delayed.” These categories were defined as follows: Completed: Action or milestone was completed, irrespective of whether or not the task was completed on-schedule. Started, on schedule: Action or milestone can be verified as underway, but is not complete and scheduled completion date has not slipped. Started, completion delayed: Action or milestone can be verified as underway, but is not complete and the team has determined the scheduled completion date has slipped. Not started, on schedule: Action or milestone planned to begin after January 1, 2012, and the expected completion date is unchanged from the Plan. Not started, completion delayed: Action or milestone planned to begin after January 1, 2012, and the expected completion date has slipped from the Plan. Specifically, a GAO analyst reviewed and compared the schedule and content of the actions and milestones in the plan of actions and milestones with the status of implementation efforts as reported in the progress reviews conducted by OSD and briefings provided to the Supply Chain Executive Steering Committee; assessed the status of each action and milestone by the categories above; and recorded the assessment and the basis for the assessment. A second analyst then reviewed the documentation and assessment and either confirmed the assessment or proposed a different assessment. The final assessment reflects the analysts’ consensus. In addition we interviewed DOD officials as needed to clarify the status of any efforts where the documentation was unclear. To determine the extent to which DOD has established and implemented standardized metrics to track the effectiveness and efficiency of inventory management, we reviewed all documents related to the Plan, its plan of actions and milestones, and the progress reviews conducted by OSD to identify any performance metrics associated with the implementation of the Plan. We reviewed the actions and milestones associated with establishing metrics to evaluate the effectiveness and efficiency of inventory management across the department. We interviewed OSD, service, and DLA officials responsible for implementing the Plan to understand the status and maturity of the metrics DOD is considering and how the reporting of inventory management measures may change. To determine the extent to which DOD has identified and realized any cost savings or cost avoidance associated with implementation, we reviewed the Plan and associated documentation to identify any efforts related to cost savings or cost avoidance. We also assessed the nature of the potential cost savings or cost avoidances associated with the implementation of the Plan’s actions and milestones. Specifically, we determined whether the projected cost savings and cost avoidances were the result of a reduction in obligations of directly appropriated funds (e.g., an operation and maintenance appropriation), changes to the working capital fund, or other factors, and determined whether these sources impact the validity of attributing these savings or cost avoidances to the Plan’s implementation. We also interviewed OSD, service, and DLA officials to discuss the rationale, and implementation of any cost savings or cost avoidance. We conducted this performance audit between August 2011 and May 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. Over the past 6 years, we issued six reports on different aspects of the Department of Defense’s (DOD) inventory management. Table 6 summarizes the status of recommendations made in these six reports, which contained a total of 39 recommendations to improve DOD’s inventory management. Twenty-nine of the recommendations have been implemented by the Offices of the Secretary of Defense (OSD), the services, and the Defense Logistics Agency (DLA), five remain open for action, and five recommendations, related to improving acquisition lead time, were not implemented. For each of the six reports, the specific recommendations, implementation status, and the related sub-plan of the Comprehensive Inventory Management Improvement Plan (Plan) are summarized in tables 7 through 12. In our report issued in 2010, we found that DLA can enhance its efforts to manage spare parts more effectively primarily by focusing on the front end of the process when decisions are being made on what and how many items to buy in response to requirements. Our analysis of DLA data showed the agency had more spare parts secondary inventory than was needed to meet current requirements in fiscal years 2006 through 2008. Although DOD policy required DLA to minimize investment in inventory while also meeting requirements, seven factors were identified as causing DLA to order and stock parts that did not align with requirements. These seven factors were: unresolved problems with accurately estimating lead times needed to inaccurate demand forecasting for parts; acquire spare parts; challenges in meeting the military services’ special requests to DLA for future spare parts support for weapon systems; closing gaps in providing accurate, timely data to inventory managers as input into purchase decisions; modifying or canceling planned purchases that may no longer be needed to meet currently estimated requirements; reducing contingency retention stock that may no longer be needed; and not tracking the overall cost efficiency of its inventory management We made eight recommendations and as of January 1, 2012, six have been implemented and two remain open. Table 7 summarizes our recommendations and their implementation status. In our report issued in 2009, we found the Army had more inventory than was needed to support current requirements. At the same time, the Army had substantial inventory deficits. Based on Army demand forecasts, inventory that exceeded current requirements had enough parts on-hand for some items to satisfy several years, or decades, of anticipated supply needs. Also, a large proportion of items that exceeded current requirements had no projected demand. Army inventory also did not align with current requirements over this period because of a lack of cost- efficiency metrics and goals and inaccurate demand forecasting. We made four recommendations and two of these recommendations have been implemented and two remain open. Table 8 summarizes our recommendations and their implementation status. In our report issued in 2008, we found the Navy had more inventory than was needed to support current requirements and also experienced some inventory deficits, though to a far lesser extent. Based on Navy demand forecasts, inventory that exceeded current requirements was sufficient to satisfy several years, or even decades, of anticipated supply needs. Also, a large proportion of the items that exceeded current requirements had no projected demand because the Navy had not systematically evaluated the effectiveness of its demand forecasting. Navy inventory did not align with current requirements because (1) the Navy has not established the cost efficiency of its inventory management, (2) its demand forecasting effectiveness is limited and requirements for items may change frequently after purchase decisions are made, and (3) it has not adjusted certain inventory management practices in response to the unpredictability in demand. We made five recommendations and the Navy has implemented four of them and one remains open. Table 9 summarizes our recommendations and their implementation status. In our report issued in 2007, we found that the Air Force purchased unneeded inventory because its policies do not provide incentives to reduce the amount of inventory on order that is not needed to support requirements. Additionally, the Air Force continued to retain unneeded inventory with no recurring demands because it had not performed a comprehensive assessment to revalidate the need to continue to retain these items. Inventory not needed to support required inventory levels can be attributed to many long-standing problems, such as decreasing demands, retaining items used to support aging weapon systems that have diminishing sources of supply or are being phased out of service, and not terminating contracts for on-order items. We made four recommendations and the Air Force implemented all four of the recommendations. Table 10 summarizes our recommendations and their implementation status. In our report issued in 2007, we found that the military components’ estimated lead times to acquire spare parts varied considerably from the actual lead times experienced. The effect of the lead time underestimates was almost $12 billion in spare parts arriving more than 90 days later than anticipated, which could negatively affect readiness rates because units may not have needed inventory. DOD and the components strive to meet customer based materiel requirements while minimizing the investment in inventories, and accurate lead time estimates are critically important in enabling the military components to have the proper amount of inventory on-hand. DOD’s acquisition lead time estimates varied greatly from the actual lead times and contributed to inefficient use of funds and inventory shortages and excesses. To improve the accuracy in setting acquisition lead time values, we made 11 recommendations. Six of the recommendations have been implemented and five were not implemented. Table 11 summarizes our recommendations and their implementation status. In our report issued in 2006, we found some DOD inventory management centers had not followed DOD-wide policies and procedures for making contingency retention decisions. Some centers were not annually reviewing their contingency retention decisions potentially resulting in the retention of unneeded items. DOD had provided insufficient oversight of inventory retention management across the components and could not be certain that the components had the correct amount or type of items in contingency retention inventory. At the time of this 2006 report, DOD had also not made progress implementing our 2001 recommendations requiring the components to (1) establish milestones for reviewing their approaches for making economic retention inventory decisions, and (2) conduct annual reviews of these approaches, as required by DOD policy. We made seven recommendations and all of the recommendations were implemented. Table 12 summarizes our recommendations and their implementation status. Objective: Improve the prediction of future demand so that inventory requirements more accurately reflect actual needs. Actions and milestones: The sub-plan includes 5 actions, which are supported by 12 milestones. See table 13 below for a description of the actions and milestones, the original expected completion date, the actual or planned completion date, and our assessment and comments. Metrics: As part of the sub-plan, the Department of Defense (DOD) is in the process developing two metrics to measure forecasting bias accuracy and bias. The metrics are scheduled to be complete by the end of fiscal year 2012. Progress to date: The Office of the Secretary of Defense (OSD), the services, and the Defense Logistics Agency (DLA) have made progress by (1) completing a review of demand forecasting methods for one of three life cycle phases—the initial provisioning—of a weapon system, and (2) developing metrics for forecasting error and bias, and are on-schedule to implement the metrics by September 2012. Additionally, OSD, the services, and DLA determined through an analysis of several years of supply data that supply support requests forecasts were not causing DLA to procure excess inventory, which demonstrated that risk-sharing between a service and DLA would not be effective. However, the analysis did identify issues with the supply support request process, which OSD, the services, and DLA are reviewing to identify improvements. Key work remaining: Over the remaining years of implementation, DOD has a considerable amount of work remaining to improve demand forecasting. First, OSD, the services, and DLA need to review and analyze improved demand forecasting methods and techniques for the other two life cycle phases—sustainment and end-of-life—of a weapon system. Once improved demand forecasting methods and techniques are identified for all three life cycle phases, changes may need to be made to inventory management policy and practices. Second, work remains for DOD to implement the forecasting error and bias metrics. Third, OSD, the services, and DLA are working to establish a departmentwide structure for collaborative forecasting. As part of this effort, the services and DLA are in the process of validating their sales and operations planning processes and then will have to identify gaps and current constraints in existing processes, which may require changes in inventory management guidance and practices. Fourth, DOD is in the early stages of completing its plan to develop new approaches for setting inventory levels for low- demand consumable items and will also need to address forecasting methods for low-demand. Lastly, OSD, the services, and DLA plan to work on improving the supply support request process to prevent unnecessary accumulation of excess inventory. Objective: Minimize the size of purchases by considering all accessible inventories. Actions and milestones: The sub-plan includes three actions, which are supported by 12 milestones. See table 14 for a description of the actions and milestones, the original expected completion date, the actual or planned completion date, and our assessment and comments. Metrics: As part of the sub-plan, the Department of Defense (DOD) is tracking (1) the percentage of inventory dollars visible and accessible in an automated manner and (2) the total percentage of inventory dollars associated with items using multi-echelon modeling. With respect to the first metric, DOD set a target of 90 percent of the total value of its secondary inventory being visible and accessible in an automated manner. With respect to the second metric, DOD set a target for using multi-echelon modeling on 90 percent of targeted inventories by the end of fiscal year 2015, up from 47 percent in fiscal year 2009. Progress to date: The Office of the Secretary of Defense (OSD), the services, and the Defense Logistics Agency (DLA) have made progress by (1) determining that 95 percent of DOD’s inventory is accessible by automated means to the services and DLA, which exceeded the Plan’s goal of achieving automated accessibility to 90 percent of its inventory within 5 years and (2) increasing the in-storage visibility program, which allows services and DLA to obtain consumable items from another service or DLA. With respect to the in-storage visibility program, the Air Force for example had 145 sites participating in fiscal year 2010 and increased the number to 190 sites. Key work remaining: DOD set a target to use multi-echelon modeling on 90 percent of targeted inventories by the end of fiscal year 2015, which may be challenging to achieve. OSD, the services, and DLA have identified that approximately 65 percent of DOD’s inventory, or $61 billion of DOD’s approximately $95 billion in inventory for fiscal year 2010, should be targeted for multi-echelon modeling. OSD, the services, and DLA are currently working to identify the portion of the targeted inventory that currently uses multi-echelon modeling in order to be able to develop efforts to accelerate its use within the department. Objective: Reduce or terminate purchases that result in inventory excesses due to a decrease in requirements. Actions and milestones: The sub-plan includes two actions, which are supported by four milestones. See table 15 for a description of the actions and milestones, the original expected completion date, the actual or planned completion date, and our assessment and comments. Metrics: As part of the sub-plan, the Department of Defense (DOD) is tracking (1) the percentage of on-order dollars above the approved acquisition objective, and (2) the total on-order dollars above the approved acquisition objective. Progress to date: The Office of Secretary of Defense (OSD), the services, and the Defense Logistics Agency (DLA) have made progress by reviewing existing on-order excess inventory guidance and working to make revisions to ensure consistency among the services and DLA. Additionally, the services and DLA are making improvements to their on- For example, the Navy order excess inventory guidance and practices. Supply System Command has developed guidance for the management of its on-order excess inventory and DLA is in the process of making changes to its procedures for on-order excess management. Key work remaining: The actions and milestones in the sub-plan will be complete with the issuance of the inventory management guidance scheduled for September 2012. To achieve continued reductions in on- order excess inventory, the services, and DLA will need to continue monitoring their progress. On-order excess inventory are items for which a contract has been awarded or funds have been obligated, but due to subsequent changes in requirements would be classified as potential reutilization stock upon arrival. completion date GAO assessment and comments September 2012 Assessment: Started, completion delayed. Comments: This action is complete, except for publishing the guidance revisions, which is estimated to occur in September 2012 with the issuance of the new guidance. Assessment: Started, completion delayed. Comments: OSD, the services, and DLA reviewed existing review methodologies for termination and recommended revisions to current DOD guidance. Specifically, OSD, the services, and DLA established the factors that must be considered when reviewing a contract for termination. DOD is in the process of incorporating the revisions into guidance, which is expected to be published in September 2012, according to DOD officials. Assessment: Completed. Comments: The services and DLA have been working to update their respective policies and procedures based on the draft guidance revisions. OSD determined that the Air Force did not need to update its policies and procedures, while others, such as DLA, are making improvements to their on-order excess inventory processes. Assessment: Started, completion delayed. Comments: This action is complete, except for publishing the guidance revision, which is estimated to occur in September 2012 with the issuance of the new guidance. Assessment: Started, completion delayed. Comments: OSD, the services, and DLA reviewed existing levels of authority to retain materiel on- order in excess of the approved acquisition objective and recommended some revisions to current DOD guidance. Specifically, OSD, the services, and DLA have agreed on a consistent approach for reviewing on-order excess and termination decisions. DOD is in the process of incorporating the revisions into guidance, which is expected to be published in September 2012, according to DOD officials. completion date GAO assessment and comments Assessment: Completed. Comments: OSD, the services, and DLA reviewed current metrics used in assessing performance and decided that the most appropriate metrics are the percentage of on-order dollars above the approved acquisition objective and the total on-order dollars above the approved acquisition objective. Objective: Ensure economic retention decisions are based on current cost factors and economic principles. Actions and milestones: The sub-plan includes three actions, which are supported by seven milestones. See table 16 for a description of the actions and milestones, the original expected completion date, the actual or planned completion date, and our assessment and comments. Metrics: As part of the sub-plan, the Department of Defense (DOD) is tracking (1) the percentage of inventory dollars representing economic retention stock and (2) the percentage of inventory dollars representing economic retention stock by service and the Defense Logistics Agency (DLA). Progress to date: The Office of the Secretary of Defense (OSD), the services, and DLA have made progress by (1) developing metrics to assess the status of economic retention stock, (2) documenting the services’ and DLA’s current methods for calculating economic retention stock against current DOD inventory management policy, and (3) conducting the first annual review of economic retention stock. Key work remaining: OSD, the services and DLA are in the process of identifying enhancements to the methodology used in determining the allowable amount of economic retention stock for an item and may have to revise DOD inventory management guidance. Objective: Ensure the services and the Defense Logistics Agency (DLA) justify the retention of contingency stock. Actions and milestones: The sub-plan includes three actions, which are supported by eight milestones. One action was canceled. See table 17 for a description of the actions and milestones, the original expected completion date, the actual or planned completion date, and our assessment and comments. Metrics: As part of the sub-plan, the Department of Defense (DOD) is tracking (1) the percentage of inventory dollars representing contingency retention stock, and (2) the dollar value of contingency retention stock divided into six justification categories. Progress to date: The Office of the Secretary of Defense (OSD), the services, and DLA have made progress by (1) completing an independent review of contingency retention stock, (2) assessing the results of the independent review and making changes to existing practices, such as the coding of contingency retention stock to more precisely and consistently classify the stock, and (3) agreeing that all items held as contingency retention stock will be annually reviewed and validated. Key work remaining: OSD, the services, and DLA are incorporating changes to inventory management guidance for contingency retention stock, such as requiring all items held as contingency retention stock be reviewed and validated annually. Additionally, OSD, the services and DLA are also in the process of developing procedures for the documentation and review and approval of contingency retention stock decisions. Objective: Use commercial vendors to store items when use of those vendors represents the best value to the government. Actions and milestones: The sub-plan includes four actions, which are supported by nine milestones. See table 18 for a description of the actions and milestones, the original expected completion date, the actual or planned completion date, and our assessment and comments. Metrics: As part of the sub-plan, the Office of the Secretary of Defense (OSD), the services, and the Defense Logistics Agency (DLA) set out to develop a standard departmentwide metric to monitor storage reduction, but in the course of the analysis decided that a metric would not be necessary. Additionally, the Department of Defense (DOD) tracks the total storage footprint and total storage costs across the department at distribution depots. Also, DOD was tracking certain reductions of storage space related to the 2005 Base Realignment and Closure Act round. As part of its implementation of the Base Realignment and Closure Act round, DOD planned to reduce storage space by 15.1 million gross square feet and exceeded the planned amount by 0.3 million gross square feet. Progress to date: OSD, the services, and DLA have made progress by (1) examining high storage items for the potential of direct vendor delivery management resulting in few potential candidates for direct vendor delivery and determining that future reviews were not needed and existing guidance was sufficient, (2) reviewing existing factors used in business case analyses for the selection of alternative sourcing strategies, such as direct vendor delivery, and determining that storage space is used as a factor by the Army, Navy, Air Force, and DLA, and (3) reviewing departmentwide policies and procedures on shifting items to alternative sourcing strategies and determining to update DOD inventory management guidance to ensure that any inventory owned by DOD will be used prior to procuring additional inventory through an alternative sourcing strategy. OSD officials told us that they believe DOD’s efforts have sufficiently addressed storage and direct vendor delivery. According to the Deputy Assistant Secretary of Defense for Supply Chain Management, DOD will continue to pursue storage consolidation and optimization through a separate initiative outside the implementation of the Plan. Key work remaining: OSD, the services, and DLA still need to update inventory management guidance to ensure storage cost is considered as a factor in business case analyses for alternative sourcing strategies and existing on-hand inventory is used prior to procuring inventory through an alternative sourcing strategy. Objective: Eliminate items with a history of no recurring demand and a low probability of future demand, unless there is sufficient justification for the retention of the item. Actions and milestones: The sub-plan includes two actions, which are each supported by seven milestones. See table 19 for a description of the actions and milestones, the original expected completion date, the actual or planned completion date, and our assessment and comments. Metrics: As part of the sub-plan, the Department of Defense (DOD) is tracking (1) inventory value by number of years of no demand, (2) value of inventory with 5 or more years of no demand by the category of inventory, and (3) the value of no demand stock retained and disposed. Progress to date: The Office of the Secretary of Defense (OSD), the services, and the Defense Logistics Agency (DLA) have made progress by (1) identifying and tracking key metrics for items with no demand and (2) establishing rules and procedures for managing items with no demand. Key work remaining: OSD, the services, and DLA are in the process of drafting guidance for items with no demand and identifying the processes to ensure items with no demand are reviewed each year and valid justification is provided for the retention of the item. completion date December 2012 December 2012 Assessment: Started, on schedule. completion date GAO assessment and comments Comments: OSD, the services, and DLA are working to improve inventory management practices for items with no recurring demand. Assessment: Completed. Comments: Three enterprise-level metrics were identified: (1) inventory value by number of years of no demand, (2) value of inventory with five or more years of no demand by the category of inventory, and (3) the value of no demand stock retained and disposed. Assessment: Completed. Comments: A taxonomy of rules and practices was compiled for stocking and disposing of items with no demand. Assessment: Started, on schedule. Comments: None. Assessment: Started, on schedule. Comments: None. completion date September 2011 September 2012 Assessment: Started, completion delayed. completion date GAO assessment and comments Comments: None. Assessment: Completed. Comments: The services and DLA have established implementation plans for the metrics for items with no demand. Assessment: Completed. Comments: OSD, the services, and DLA established a set of rules for reviewing no demand items and the frequency of review is based on the inventory category. September 2011 September 2012 Assessment: Started, completion delayed. Comments: OSD, the services, and DLA continue to work on developing the appropriate review process for no demand items and plan on incorporating it into guidance by September 2012. Objective: Ensure timely disposition of items categorized as potential reutilization stock. Actions and milestones: The sub-plan includes three actions, which are supported by seven milestones. See table 20 for a description of the actions and milestones, the original expected completion date, the actual or planned completion date, and our assessment and comments. Metrics: As part of the sub-plan, the Department of Defense (DOD) has identified three departmentwide metrics: (1) the total dollar value of disposals for repairable and consumable items, (2) the portion of disposal dollars that are associated with condemned or unserviceable assets, (3) the percentage of items (and their associated dollar value) reviewed and released to disposal by inventory managers. Progress to date: The Office of the Secretary of Defense (OSD), the services, and the Defense Logistics Agency (DLA) have made progress by (1) identifying three departmentwide metrics to track potential reutilization stock, and (2) changing time standards for reviewing potential reutilization stock from 12 months to 3 months and disposing of potential reutilization stock from 6 months to 1 month. Key work remaining: OSD, the services, and DLA still need to incorporate the time standards for the review and disposal of potential reutilization stock into guidance, assess pre-screening procedures for items identified for disposal, and identify a best practice for the department. In addition, OSD, the services and DLA need to identify and develop standardized metrics to measure the time to conduct potential reutilization stock reviews and disposal actions. December 2012 December 2012 Assessment: Started, on schedule. Comments: OSD, the services, and DLA have agreed on new time standards for reviewing and disposing of potential reutilization stock and are in the process of incorporating these standards into guidance. Assessment: Completed. Comments: OSD, the services, and DLA have decided that the time standards will change from 12 months to 3 months for reviewing potential reutilization stock and 6 months to 1 month for disposing of potential reutilization stock. Assessment: Started, on schedule. Comments: OSD is finalizing the revisions to the guidance, which are estimated to be published in September 2012. December 2012 December 2012 Assessment: Not started, on schedule. Comments: None. Action 2: Establish a process for the services and DLA to pre- screen retail materiel returns for disposal prior to returns being shipped to a distribution depot. Milestone 2.1: Examine potential pre- screening alternatives to expedite disposal actions on excess returns. Assessment: Started, on schedule. Comments: OSD, the services, and DLA are in the process of reviewing existing pre-screening processes. December 2011 December 2011 Assessment: Started, completion delayed. Comments: Some of the services and DLA have presented disposal pre-screening procedures they employ prior to returning material to a distribution depot, but OSD, the services, and DLA have not yet assessed the results. This milestone was not complete as of December 2011, the planned completion date. Assessment: Not started, on schedule. Comments: None. GAO assessment and comments Assessment: Started, on schedule. Comments: OSD, the services, and DLA have identified three departmentwide metrics and are in the process of identifying and developing additional metrics to measure the time to conduct potential reutilization stock reviews and disposal actions. Assessment: Started, on schedule. Comments: OSD, the services, and DLA have identified three departmentwide metrics for potential reutilization stock: (1) the total dollar value of disposals for repairable and consumable items, (2) the portion of disposal dollars that are associated with condemned or unserviceable assets, (3) the percentage of items (and their associated dollar value) reviewed and released to disposal by inventory managers. OSD, the services, and DLA continue to work on identifying and developing metrics for the time to conduct potential reutilization stock reviews and time to move the materiel to disposal. Assessment: Started, on schedule. Comments: As noted above in milestone 3.1, OSD, the services, and DLA have identified three departmentwide metrics for potential reutilization and are currently working on identifying and developing standardized metrics to measure the time to conduct potential reutilization stock reviews and disposal actions. Objective: To accomplish several cross-functional improvements, including revising current inventory categories to better reflect the rationale behind retaining the inventory, improving acquisition lead times, and establishing departmentwide metrics for inventory management. Actions and milestones: The sub-plan includes 4 actions, which are supported by a total of 16 milestones. See table 21 for a description of the actions and milestones, the original expected completion date, the actual or planned completion date, and our assessment and comments. Metrics: As part of the sub-plan, the Department of Defense (DOD) is tracking (1) the percentage of the total value of inventory that is on-hand excess inventory, and (2) a metric to evaluate the improvement of acquisition lead time, which is currently under development. Progress to date: The Office of the Secretary of Defense (OSD), the services, and the Defense Logistics Agency (DLA) have made progress by reviewing existing categories of inventory (i.e., the approved acquisition objective, economic retention stock, contingency retention stock, and potential reutilization stock) and developing tentative sub- categories that provide further clarification on the make-up of each category. Additionally, OSD, the services, and DLA have begun the process of developing departmentwide metrics to evaluate inventory management. OSD, the services, and DLA will need to agree on and implement departmentwide metrics to evaluate inventory management. In addition to the individual named above, key contributors to this report were Suzanne Wren (Assistant Director); Edward W. Anderson, Jr.; John Bumgarner; Elizabeth Curda; Dave Hubbell; Charlie Perdue; Greg Pugnetti; Michael Silver; Michael Willems; and Erik Wilkins-McKee. This glossary is provided for reader convenience. It is not intended as a definitive, comprehensive glossary of inventory management terms. Acquisition lead time, also known as procurement lead time, measures the length of time between the identification of a materiel requirement and the receipt of that materiel into the supply system. Acquisition lead time is the sum of the administrative lead time and production lead time. The time interval between identifying a need to purchase an item and the award of a contract. The materiel needed to meet the requirements objective and 2 years of estimated future demand. Contains additional materiel, such as wartime reserve stock and inventory for acquisition lead times, included in the requirements objective. Unserviceable assets that are determined to be beyond the point of economic repair during the repair process. Materiel that is retained to support specific contingencies, such as to support foreign military sales, future military operations, disaster relief or civil emergencies, or to mitigate risk associated with diminished manufacturing sources or nonprocurable stock. Predicting future customer demands so inventory managers can develop inventory requirements to satisfy demands when they occur. Inaccurate forecasts lead to either excess inventory or shortfalls. A materiel acquisition and distribution method that requires supplier delivery directly to the customer, which can reduce the storage of items by the services and the Defense Logistics Agency. The quantity derived from a mathematical technique used to determine the lowest total variable costs to order and hold inventory. Materiel that has been deemed more economical to keep than to dispose of because it is likely to be needed in the future. The use of mathematical models that compute the optimal number and type of parts needed at the wholesale and retail levels to achieve readiness and cost goals. Inventory that is excess to the approved acquisition objective and is not being retained as economic or contingency retention stock. On-hand excess inventory is also referred to as potential reutilization stock. Inventory that is in the Department of Defense’s (DOD) possession. Items for which a contract has been awarded or funds have been obligated, but due to subsequent changes in requirements would be classified as potential reutilization stock upon arrival. Inventory that is not in DOD’s possession but for which a contract has been awarded or funds have been obligated is considered to be on-order. Materiel exceeding the approved acquisition objective and not being retained as economic or contingency retention stock, that has been identified for possible disposal but has potential for reutilization. Potential reutilization stock is also referred to as on-hand excess inventory. The time interval between the award of a contract and receiving the purchased materiel into the supply system. The quantity of reparable items required to sustain operations during the repair cycle that commences when a maintenance replacement takes place and ends when the unserviceable asset is returned to stock in a serviceable condition. The maximum authorized quantity of stock for an item (for wholesale inventory replenishment), which consists of the sum of stock represented by the economic order quantity, the safety level, the repair-cycle level, and the authorized additive levels. Economic and contingency retention stock, which DOD states is necessary for the military mission. The amount of stock that is to be kept on hand in case of minor interruptions in the resupply process or fluctuations in demand. Items that include reparable components, subsystems, and assemblies other than major end items (e.g., ships, aircraft, and helicopters), consumable repair parts, bulk items and materiel, subsistence, and expendable end items (e.g., clothing and other personal gear). The capability to provide all users with timely and accurate information about the location, movement, status, and identity of supplies and the capability to act on this information. Defense Logistics: DOD Needs to Take Additional Actions to Address Challenges in Supply Chain Management. GAO-11-569. Washington, D.C.: July 28, 2011. Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 2011. DOD’s 2010 Comprehensive Inventory Management Improvement Plan Addressed Statutory Requirements, But Faces Implementation Challenges. GAO-11-240R. Washington, D.C.: January 7, 2011. DOD’s High-Risk Areas: Observations on DOD’s Progress and Challenges in Strategic Planning for Supply Chain Management. GAO-10-929T. Washington, D.C.: July 27, 2010. Defense Inventory: Defense Logistics Agency Needs to Expand on Efforts to More Effectively Manage Spare Parts. GAO-10-469. Washington, D.C.: May 11, 2010. High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 2009. Defense Inventory: Army Needs to Evaluate Impact of Recent Actions to Improve Demand Forecasts for Spare Parts. GAO-09-199. Washington, D.C.: January 12, 2009. Defense Logistics: Lack of Key Information May Impede DOD’s Ability to Improve Supply Chain Management. GAO-09-150. Washington D.C.: January 12, 2009. Defense Inventory: Management Actions Needed to Improve the Cost Efficiency of the Navy’s Spare Parts Inventory. GAO-09-103. Washington, D.C.: December 12, 2008. DOD’s High-Risk Areas: Efforts to Improve Supply Chain Can Be Enhanced by Linkage to Outcomes, Progress in Transforming Business Operations, and Reexamination of Logistics Governance and Strategy. GAO-07-1064T. Washington, D.C.: July 10, 2007. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. Defense Inventory: Opportunities Exist to Improve the Management of DOD’s Acquisition Lead Times for Spare Parts. GAO-07-281. Washington, D.C.: March 2, 2007. DOD’s High-Risk Areas: Progress Made Implementing Supply Chain Management Recommendations, but Full Extent of Improvement Unknown. GAO-07-234. Washington, D.C.: January 17, 2007. Defense Inventory: Opportunities Exist to Save Billions by Reducing Air Force’s Unneeded Spare Parts Inventory. GAO-07-232. Washington, D.C.: April 27, 2007. Defense Inventory: Actions Needed to Improve Inventory Retention Management. GAO-06-512. Washington, D.C.: May 25, 2006.

GAO has identified supply chain management as a high-risk area due in part to ineffective and inefficient inventory management practices that have caused DOD to accumulate billions of dollars worth of unneeded inventory. DOD reported that as of September 2010 it had $8.4 billion worth of on-hand excess inventory, categorized for potential reuse or disposal, and $940 million worth of on-order excess inventory, already purchased but likely to be excess due to changes in requirements. Under the National Defense Authorization Act for Fiscal Year 2010, GAO is required to assess DOD’s implementation of the Comprehensive Inventory Management Improvement Plan (Plan) DOD submitted to Congress. GAO’s objectives were to determine the extent to which DOD has (1) established and achieved targets for reducing excess inventory in the Plan, (2) made progress in implementing the overall Plan, (3) metrics to track progress in improving inventory management, and (4) identified and realized any cost savings or avoidance. GAO reviewed relevant data, assessed DOD’s actions through January 1, 2012, and interviewed officials implementing the Plan. The Department of Defense (DOD) set two goals—reducing on-order and on-hand excess inventory—with percentage targets for each based on the best available data in fiscal year 2009 as part of its Comprehensive Inventory Management Improvement Plan (Plan). Sustained management oversight led to reductions in on-order and on-hand excess inventory in fiscal year 2010 prior to the Plan’s implementation, and thus DOD may find the current targets are not meaningful in guiding improvement. Specifically, at the end of fiscal year 2010, DOD had reduced its percentage of on-order excess inventory to 5.5 percent, thereby achieving its 2014 target 4 years early. It also revised the definition and calculation of on-hand excess inventory, which resulted in DOD being below the fiscal year 2012 target of 10 percent. It is DOD policy to conduct periodic evaluations of its inventory management, and results-oriented management practices emphasize validating performance measures to ensure they remain appropriate. Without challenging, yet achievable targets, DOD’s Plan will not be effective in guiding further improvement. DOD has made progress implementing its Plan since implementation began in late fiscal year 2010, but DOD is only 18 months into a 4-year implementation effort and many planned activities still remain. Most but not all of the progress to date has been in gathering and analyzing data, and reviewing guidance and practices. In addition, DOD has made progress in particular areas, such as developing tentative sub-categories to further clarify its existing inventory categories. Overall implementation is generally on schedule, but some of the Plan’s efforts have experienced delays. Moving forward, DOD faces such challenges as adjusting demand planning to changing circumstances, and enforcing consistent implementation of guidance at the military service level. As part of the Plan, DOD is developing metrics to assess the effectiveness and efficiency of its inventory management, but it has not determined if it will incorporate these metrics into guidance. This may hamper its ability to assess inventory management performance and sustain management attention on improvement. Materiel managers should evaluate and be capable of reporting on the performance of inventory management. Based on previous reporting, GAO has found that such metrics should be reportable in a consistent fashion. DOD is currently developing a portfolio of metrics that fall under five key areas: readiness, responsiveness, reliability, cost, and planning and precision. Some metrics that have been identified—such as customer wait time—are currently reported by DOD, while others would be new metrics that would require establishing a data source and methodology. However, the Plan does not include steps to incorporate the metrics, including their methodologies, into DOD guidance. Without guidance specifying standardized definitions, methodologies, and procedures for data collection procedures, DOD’s efforts to employ metrics to monitor and evaluate inventory management performance may be hampered. Finally, DOD achieved about $710 million in cost avoidances reducing excess inventory in fiscal year 2010, and plans to reduce funding for the purchase of items by $365 million between fiscal year 2012 and 2016. Additionally, DOD completed about $140 million in lateral redistributions and procurement offsets in fiscal years 2010 and 2011, which prevented the acquisition of additional items. GAO recommends that DOD periodically re-examine its targets for on-hand and on-order excess inventory; and develop guidance to establish a set of metrics including standardized definitions and calculations that are then employed to monitor its inventory management practices. DOD concurs with GAO’s recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: VA policy specifies how VAMCs can purchase expendable medical supplies and RME. VAMCs can purchase expendable medical supplies and RME through their acquisition departments or through purchase card holders, who have been granted the authority to make such purchases. Purchase cards are issued to certain VAMC staff, including staff from clinical departments, to acquire a range of goods and services, including those used to provide care to veterans. According to VA, as of the third quarter of 2010, there were about 27,000 purchase cards in use across VA’s health care system. VA has two inventory management systems, which VAMCs use to track the type and quantity of supplies and equipment in the facilities. Each VAMC is responsible for maintaining its own systems and for entering information about certain expendable medical supplies and certain RME in the facilities into the appropriate system. Specifically, the Generic Inventory Package (GIP) is used to track information about expendable medical supplies that are ordered on a recurring basis. The Automated Engineering Management System/Medical Equipment Reporting System (AEMS/MERS) is used to track information about RME that is valued at $5,000 or more and has a useful life of 2 years or more. VAMC officials told us they use information about the items in their facilities for a variety of purposes, for example, to readily determine whether they have expendable medical supplies or RME that are the subject of a manufacturer or FDA recall or a patient safety alert. VA’s purchasing and tracking policies include the following three requirements for VAMCs: 1. A designated VAMC committee must review and approve proposed purchases of any expendable medical supplies or RME that have not been previously purchased by the VAMC. The committee, which typically includes administrative staff and clinicians from various departments, reviews the proposed purchases to evaluate the cost of the purchase as well as its likely impact on veterans’ care. For example, the committee that reviews and approves proposed RME purchases often includes a representative from the department responsible for reprocessing RME, in order to determine whether the VAMC has the capability to reprocess—clean and disinfect or sterilize—the item correctly and that staff are appropriately trained to do so. Proper reprocessing of RME is important to ensure that RME is safe to use and that veterans are not exposed to infectious diseases, such as Human Immunodeficiency Virus (HIV), during treatment. 2. All approvals for purchases of expendable medical supplies or RME must be signed by two officials, the official placing the order and the official responsible for approving the purchase. 3. VAMCs must enter information on all expendable medical supplies that are ordered on a recurring basis and all RME that is valued at $5,000 or more and has a useful life of 2 years or more into the appropriate inventory management system, either GIP or AEMS/MERS. VA does not require information about RME that is valued at less than $5,000 to be entered into AEMS/MERS. At the five VAMCs we visited, our preliminary work identified examples of inconsistent compliance with the three purchasing and tracking requirements we selected for our review. In some cases, noncompliance with these requirements created potential risks to veterans’ safety. We are continuing to conduct this work. VAMC committee review and approval. Officials at two of the five VAMCs we visited stated that VAMC committees reviewed and approved all of the expendable medical supplies the VAMCs purchased for the first time. However, at the remaining three VAMCs, officials told us that VAMC committees did not conduct these reviews in all cases. Officials from these three VAMCs told us that certain expendable medical supplies—for example, new specialty supplies—were purchased without VAMC committee review and approval. Specialty supplies, such as those used in conjunction with dialysis machines, are expendable medical supplies that are only used in a limited number of clinical departments. Without obtaining that review and approval, however, the VAMCs purchased these supplies without evaluating their cost effectiveness or likely impact on veterans’ care. At one VAMC we visited, officials told us that clinical department staff were permitted to purchase certain RME—surgical and dental instruments—using purchase cards and that these purchases were not reviewed and approved by a committee. Therefore, the VAMC had no assurance that RME purchased by clinical department staff using purchase cards had been reviewed and approved by a committee before it was purchased for the first time. As a result, these purchases may have been made without assurance that they were cost effective and safe for use on veterans and that the VAMC had the capability and trained staff to reprocess these items correctly. Signatures of purchasing and approving officials. At one of the five VAMCs we visited, VAMC officials discovered that one staff member working in a dialysis department purchased specialty supplies without obtaining the required signature of an appropriate approving official. That staff member was responsible for ordering an item for use in 17 dialysis machines that was impermeable to blood and would thus prevent blood from entering the dialysis machine. However, the staff member ordered an incorrect item, which was permeable to blood, allowing blood to pass into the machine. After the item was purchased, the incorrect item was used for 83 veterans, resulting in potential cross- contamination of these veterans’ blood, which may have exposed them to infectious diseases, such as HIV, Hepatitis B, and Hepatitis C. Entry of information about items into VA’s inventory management systems. At the time of our site visits, officials from one of the five VAMCs we visited told us that information about expendable medical supplies that were ordered on a recurring basis was entered into GIP, as required. In contrast, officials at the remaining four VAMCs told us that information about certain expendable supplies that were ordered on a recurring basis, such as specialty supplies, was not always entered into GIP. Since our visit, one of the four VAMCs has reported that it has begun to enter all expendable medical supplies that are ordered on a recurring basis, including specialty supplies, into GIP. By not following VA’s policy governing GIP, VAMCs have an incomplete record of the expendable medical supplies in use at their facilities. This lack of information can pose a potential risk to veterans’ safety. For example, VAMCs may have difficulty ensuring that expired supplies are removed from patient care areas. In addition, in the event of a manufacturer or FDA recall or patient safety alert related to a specialty supply, VAMCs may have difficulty determining whether they possess the targeted expendable medical supply. Officials at one VAMC we visited told us about an issue related to tracking RME in AEMS/MERS that contributed to a patient safety incident, even though the VAMC was not out of compliance with VA’s requirement for entering information on RME into AEMS/MERS. Specifically, because VA policy does not require RME valued under $5,000 to be entered into AEMS/MERS, an auxiliary water tube, a type of RME valued under $5,000 that is used with a colonoscope, was not listed in AEMS/MERS. According to VAMC officials and the VA Office of the Inspector General, in response to a patient safety alert that was issued on the auxiliary water tube in December 2008, officials from the VAMC checked their inventory management systems and concluded—incorrectly—that the tube was not used at the facility. However, in March 2009, the VAMC discovered that the tube was in use and was not being reprocessed correctly, potentially exposing 2,526 veterans to infectious diseases, such as HIV, Hepatitis B, and Hepatitis C. In addition, officials from VA headquarters told us that when information about certain RME is entered into AEMS/MERS, it is sometimes done inconsistently. The officials explained that this is because AEMS/MERS allows users to enter different names for the same type of RME. As a result, in the case of a manufacturer or FDA recall or patient safety alert related to a specific type of RME, VAMCs may have difficulty determining whether they have that specific type of RME. During our preliminary work, we discussed with VA headquarters officials examples of steps VA plans to take to improve its oversight of VAMCs’ purchasing and tracking of expendable medical supplies and RME. For example, VA plans to change its oversight of the use of purchase cards. Specifically, VA headquarters officials told us that designated VAMC staff are currently responsible for reviewing purchase card transactions to ensure that purchases are appropriate. However, one VA headquarters official stated that these reviews are currently conducted inconsistently, with some being more rigorous than others. VA headquarters officials stated that VA plans to shift greater responsibility for these reviews from the VAMCs to the VISNs, effective October 1, 2010. In addition, VA plans to standardize the reviews by, for example, adding a checklist for reviewers. Because this change has not yet been implemented across VA, we can not evaluate the extent to which it will address the appropriateness of purchases using purchase cards. Our preliminary work also shows that VA plans to create a new inventory management system. VA headquarters officials told us that they are developing a new inventory management system—Strategic Asset Management (SAM)—which will replace GIP and AEMS/MERS and will include standardized names for expendable medical supplies and RME. According to these officials, SAM will help address inconsistencies in how information about these items is entered into the inventory management systems. VA headquarters officials stated that SAM will help improve VA’s ability to monitor information about expendable medical supplies and RME across VAMCs. VA provided us with an implementation plan for SAM, which stated that this new system would be operational in March 2011. At this time, we have not done work to determine whether this date is realistic or what challenges VA will face in implementing it. Mr. Chairman, this concludes my statement. I would be pleased to respond to any questions you or other members of the committee may have. For further information about this statement, please contact Debra A. Draper 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 testimony. Key contributors to this statement were Randall B. Williamson, Director; Mary Ann Curran, Assistant Director; David Barish; Alana Burke; Krister Friday; Melanie Krause; Lisa Motley; and Michael Zose. 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VA clinicians use expendable medical supplies--disposable items that are generally used one time--and reusable medical equipment (RME), which is designed to be reused for multiple patients. VA has policies that VA medical centers (VAMC) must follow when purchasing such supplies and equipment and tracking--that is, accounting for--these items at VAMCs. GAO was asked to evaluate VA's purchasing and tracking of expendable medical supplies and RME and their potential impact on veterans' safety. This testimony is based on GAO's ongoing work and provides preliminary observations on (1) the extent of compliance with VA's requirements for purchasing and tracking of expendable medical supplies and RME and (2) steps VA plans to take to improve its oversight of VAMCs' purchasing and tracking of expendable medical supplies and RME. GAO reviewed VA policies and selected three requirements that GAO determined to be relevant to patient safety. At each of the five VAMCs GAO visited, GAO reviewed documents used to identify issues related to the three requirements and interviewed officials to gather further information on these issues. The VAMCs GAO visited represent different surgical complexity groups, sizes of veteran populations served, and geographic regions. GAO also interviewed VA headquarters officials and obtained and reviewed documents regarding VA headquarters' oversight. GAO shared the information in this statement with VA officials. During its preliminary work at the five selected VAMCs, GAO found inconsistent compliance with the three VA purchasing and tracking requirements selected for review. Noncompliance with these requirements created potential risks to veterans' safety. (1) Requirement for VAMC committee review and approval. At two of the VAMCs, officials stated that the required designated committee review and approval occurred for all of the expendable medical supplies and RME that the VAMCs had not previously purchased. These reviews are designed to evaluate the cost of the purchase as well as its likely impact on veterans' care. However, at the remaining three VAMCs, officials stated that the required committee review and approval of the expendable medical supplies, such as those used in conjunction with dialysis machines, did not always occur. As a result, these purchases were made without evaluating the likely impact on veterans' care. (2) Requirement for signatures of purchasing and approving officials. At one of the VAMCs, VAMC officials discovered that a staff member in a dialysis department ordered an expendable medical supply item for use in dialysis machines, without obtaining the required signature of an approving official. That staff member ordered an incorrect item, the use of which presented a risk of exposing veterans to infectious diseases, such as Human Immunodeficiency Virus. (3) Requirement for entering information in VA's inventory management systems. Officials from one of the five VAMCs told GAO that information about expendable medical supplies that were ordered on a recurring basis was entered into the appropriate inventory management system, as required. At the remaining four VAMCs, officials told GAO that information about certain expendable medical supplies--those used in a limited number of clinical departments such as dialysis departments--was not always entered into the system. This lack of information can pose a potential risk to veterans' safety; in the event of a recall of these items, these VAMCs may have difficulty determining whether they possess the targeted item. VA reports that it plans to improve its oversight of VAMCs' purchasing and tracking of expendable medical supplies and RME. For example, VA headquarters officials stated that, effective October 1, 2010, VA plans to shift greater responsibility for reviews of purchase card transactions from the VAMCs to the Veterans Integrated Service Networks, which are responsible for overseeing VAMCs. VA headquarters officials also told GAO that VA is developing a new inventory management system, which it expects will help improve VA's ability to track information about expendable medical supplies and RME across VAMCs. VA expects this new system to be operational in March 2011.

You are an expert at summarizing long articles. Proceed to summarize the following text: As we previously reported, factors such as a rapid decline in home prices throughout much of the nation, weak regional labor market conditions in some states where foreclosure rates were already elevated, along with the legacy of eased underwriting standards, wider use of certain loan features associated with poorer loan performance, and growth in the market for private label residential mortgage-backed securities, contributed to the increase in loan defaults and foreclosures beginning in late 2006. The nation’s economy was in recession between December 2007 and June 2009. During this period, the elevated unemployment rate and declining home prices worsened the financial circumstances for many families and, with it, their ability to make their mortgage payments. Analysis by federal agencies, the Federal Reserve System, and housing market observers attribute the continued increase in foreclosures between 2008 and 2011 to several factors, including, continued depreciation in home values, elevated numbers of unemployed nationwide, and weaknesses in the servicing industry’s response to the large number of delinquent borrowers. When individuals purchase residential real property with borrowed funds, they usually enter into a contractual agreement in which they agree, among other things, to make payments to the originating lender for a period of time. To secure their debt, lenders obtain a lien on the underlying property as collateral against borrower default. The lien holder has the right to seize the property should the borrower fail to pay. The residential mortgage market can be divided into several loosely defined segments that are determined, in part, by a borrower’s credit quality. Prime mortgages are made to borrowers with strong credit histories and provide the most competitive interest rates and mortgage terms. Near-prime mortgages (also called Alt-A mortgages) generally serve borrowers whose credit histories are close to prime, but the loans often have one or more high-risk features such as limited documentation of income or assets. Subprime mortgages are generally made to borrowers with blemished credit and feature higher interest rates and fees than the prime and near-prime markets. Government-insured or government-guaranteed mortgages primarily serve borrowers who may have difficulty qualifying for prime mortgages. These mortgages generally feature interest rates competitive with prime loans, but borrowers must purchase mortgage insurance or pay guarantee fees. HUD’s Federal Housing Administration (FHA), VA, and USDA operate the main federal programs that insure or guarantee mortgages, which protect lenders against losses in the event of default. Originating lenders generally sell or assign their mortgages to other financial institutions that securitize them rather than hold them in their portfolios. The purchasers of these mortgages package them into pools and issue securities (known as mortgage-backed securities, or MBS). The pooled mortgages serve as collateral, and the securities pay interest and principal to their investors, which include other financial institutions, pension funds, and other institutional investors. The secondary market consists of several types of securities. Ginnie Mae securities are backed by government-insured or government-guaranteed mortgages (FHA, USDA, and VA). Securities issued by the enterprises are backed by mortgages that meet the requirements for purchase by Fannie Mae and Finally, private label securities—activity levels for which Freddie Mac.have dropped dramatically since 2007—are backed by mortgages that typically do not conform to Fannie Mae or Freddie Mac purchase requirements because they are too large or do not meet their underwriting criteria. Investment banks bundled most subprime and Alt-A loans into private label residential MBS, or RMBS. Common measures of loan performance are delinquency, default, and foreclosure rates, which show the percentages of loans that fall into each category. A loan becomes delinquent when a borrower does not make one or more scheduled monthly payments. Loans in default are generally delinquent by 90 or more days—the point at which foreclosure proceedings become a strong possibility. Foreclosure is a legal process that a mortgage lender initiates against a homeowner who has missed a certain number of payments. The foreclosure process, which is usually governed by state law and varies widely by state, generally falls into one of two categories—judicial foreclosure, which proceeds through the courts, or nonjudicial foreclosure, which does not require court proceedings. The foreclosure process has several possible outcomes but generally means that the homeowner loses the property, typically because it is sold to repay the outstanding debt or repossessed by the lender. The legal fees, foregone interest, property taxes, repayment of former homeowners’ delinquent obligations, and selling expenses can make foreclosure extremely costly to lenders. 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 are often 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. In addition, our past work showed that vacant properties— often the aftermath of the foreclosure process—can be broken into and vandalized, illegally occupied, or used by people engaging in criminal activities, increasing the risk of fires or other public safety hazards. Creditors, investors and servicers can incur a number of costs during the foreclosure process (e.g., maintenance and local taxes) and can incur a net financial loss as a result of the 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 local government associated with maintaining vacant and abandoned properties. More broadly, avoiding preventable foreclosures has been viewed as a key component of stabilizing home prices and restoring confidence in housing for prospective home buyers and existing homeowners. As noted by the Federal Reserve System, house prices have fallen an average of about 33 percent from their 2006 peak, resulting in a decline of about $7 trillion in household wealth and an associated ratcheting down of aggregate consumption. Options to avoid foreclosure include repayment plans, forbearance plans, loan modifications, short sales, and deeds-in-lieu of foreclosure (DIL). Eligibility for different options often varies by the borrower’s delinquency status. With repayment plans, forbearance plans, and loan modifications, the borrower retains ownership of the property. With short sales and deeds-in-lieu, the borrower does not. With a repayment plan, the borrower agrees to pay a certain amount in addition to the regularly scheduled mortgage payment for a specified number of months as a way to catch up on delinquent payments and fees. With a forbearance plan, an investor agrees to reduce or suspend payments for a specified period of time, during which a portion of the principal balance does not accrue interest. Forbearance may be used in response to a serious event, such as illness, that has caused the homeowner to miss several loan payments. Usually, the investor will require the borrower to make up the difference at a later time, often through a repayment plan. The investor may offer a loan modification when the borrower can no longer afford the monthly payments on the original mortgage but can afford reduced payments. Loan modification involves making temporary or permanent changes to the terms of the existing loan agreement, either by capitalizing the past due amounts, reducing the interest rate, extending the loan term, reducing the total amount of the loan through principal forgiveness or forbearance, or a combination of these actions. sum of the principal, accrued interest, and other expenses owed. Short sales are often the first nonhome retention workout option considered, because the investors do not have to take ownership of the property. Under DIL, the mortgage holder opts to accept ownership of the property in place of the money owed on the mortgage. The homeowner voluntarily gives the investor the keys to the property and executes a deed to transfer title to the investor. The investor agrees to release the debtor from any liability on the outstanding mortgage balance. Mortgage holders generally will not accept a DIL if there are other liens on the property, as foreclosure may be necessary in order to gain clear title—that is, a title with no other claims on the property. A DIL may be combined with a lease agreement in an arrangement called a deed-for-lease, which allows the borrower to remain in the home as a renter. Federal and nonfederal responses to the foreclosure crisis have been varied and have included a range of new efforts and expanded use of existing programs. In contrast to the traditional focus of putting borrowers into temporary repayment plans or forbearance agreements, federal and nonfederal foreclosure mitigation efforts have shifted to modifying the terms of existing loans to make the payments more affordable. With the move toward lowering monthly mortgage payments, the collective performance of modified loans has improved. The key federal effort has been HAMP, which was initiated in early 2009 using TARP and enterprise funds. In addition, the enterprises, federal agencies, and servicers have expanded their existing modification programs in an effort to reach additional borrowers. Although not typically viewed as a foreclosure mitigation effort, federal refinancing programs have been introduced and expanded to help borrowers unable to refinance due to declines in home values take advantage of lower interest rates in order to make their mortgage payments more affordable, such as the Home Affordable Refinancing Program (HARP). In addition, federal and nonfederal efforts also looked to provide temporary relief and expand usage of nonhome retention programs that facilitate short sales and deed-in-lieu of foreclosure, such as Treasury’s Home Affordable Foreclosure Alternatives (HAFA) program, to allow borrowers to transition to more affordable housing and avoid foreclosure. Finally, recent federal and state enforcement actions require the five largest U.S. servicers to take actions to assist struggling homeowners. Additional details related to specific federal and nonfederal efforts are available in appendix II. In total, servicers completed more than 4 million loan modifications under various federal and proprietary programs between January 2009 and December 2011, according to estimates published by HOPE NOW, a mortgage industry association.in 2009, the mortgage industry permanently modified more loans in 2010, nearly 1.8 million. In 2011, however, the volume of modifications subsequently declined to 1 million. Modification activity peaked in the second quarter of 2010 before declining. In fact, loan modification activity during the second quarter of 2010 was more than double the volume of modifications completed in the fourth quarter of 2011, nearly 500,000 modifications compared to about 242,000. After completing 1.2 million modifications Over time, servicers have also begun providing borrowers with larger reductions in their monthly mortgage payments by using different types of modifications. Using CoreLogic data—CoreLogic provides coverage of approximately 65 percent to 70 percent of prime loans and about 50 percent of subprime loans—we found that in 2007 most modifications of prime loans and a substantial number of subprime modifications resulted in an increase in monthly mortgage payments, corresponding to the time when most modifications involved capitalizing past due amounts—that is, adding past due amounts to the remaining mortgage balance and reamortizing (see fig. 1).remaining term and sometimes with a term extension), left borrowers paying more each month. However, by the third quarter of 2008, an increasing proportion of modifications involved other actions that lowered payments to make them more sustainable in the long term. These actions included reducing interest rates, extending loan terms, and reducing principal through principal forgiveness or forbearance. Further, beginning in the first quarter of 2010, more than half of both prime and subprime modifications involved payment reductions of 20 percent or more. In addition, in 2010 and the first half of 2011 about a quarter of all prime and subprime modifications included payment reductions of more than 40 percent, compared to 8 percent of prime modifications and 11 percent of subprime modifications completed between January 2007 and December 2009. These added amounts (sometimes over the Servicers participating in HAMP are required to Treasury reported that between its inception in early 2009 and December 2011, about 933,000 permanent HAMP modifications had been started (see table 1), but almost as many have had their trial or permanent modifications canceled. More than half of these—about 481,000—came through the enterprises’ HAMP efforts. About 763,000 permanent modifications were active as of December 2011. In addition, about 79,000 trial (not permanent) modifications were active as of December 2011. According to Treasury, the median monthly payment reduction for borrowers in an active permanent modification as of December 2011 was about $531, or 37 percent of the median monthly payment prior to modification. As of December 2011, Treasury had spent about $1.8 billion on HAMP incentive payments to servicers, investors, and borrowers for first-lien modifications on nonenterprise loans. Meanwhile, Fannie Mae reported paying about $880 million in servicer and borrowers incentives, and Freddie Mac paid or accrued $685 million in servicer and borrower incentives for HAMP modifications since program inception through December 2011. Although HAMP has assisted many borrowers, a large number of borrowers have been unable to receive a HAMP permanent modification. According to Treasury, about 1.9 million borrowers had their HAMP loan modification application denied, as of December 2011. Further, more than 930,000 homeowners have had their trial or permanent loan modifications canceled. Servicers had canceled 761,961 trial modifications, and the vast majority of these (717,390) had trial start dates prior to June 1, 2010, when Treasury implemented a verified income requirement. Since Treasury implemented this requirement, 86 percent of trial modifications have converted to permanent modifications. The enterprises have not received incentive payments from Treasury for PRA or the other components of the Making Home Affordable program, including HAMP. In January 2012, Treasury announced that it would pay PRA incentives to the enterprises for HAMP PRA modifications of enterprise loans; however, as of June 2012, FHFA does not allow Fannie Mae and Freddie Mac to forgive principal as part of a HAMP modification. and exceeds the NPV result under the standard waterfall. As of December 2011, about 5 percent of active permanent HAMP modifications (a total of about 40,000 loans) and 19 percent of permanent first-lien modifications started that month received reductions in their principal balances under PRA. Treasury had paid $8.8 million in PRA incentives to participating servicers as of December 2011. Treasury announced a series of changes to its HAMP program in January 2012 intended to help reach additional borrowers at risk of foreclosure. Effective June 1, 2012, these modifications, referred to as HAMP Tier 2 modifications, will be made available to borrowers who do not meet the eligibility or underwriting requirements under the original HAMP guidelines (now referred to as HAMP Tier 1). These HAMP Tier 2 modifications will capitalize past due amounts, adjust the interest rate to the market rate plus a risk adjustment, and extend the loan term to 480 months from the date of the modification. In cases where the mark-to- market loan-to-value (LTV) ratio exceeds 115 percent, the servicer must forbear principal equal to the lesser of (a) an amount that would create a post-modification mark-to-market LTV ratio of 115 percent using the interest bearing principal balance or (b) an amount equal to 30 percent of the gross post-modified unpaid principal balance of the mortgage loan (inclusive of capitalized past due amounts). If these changes reduce the borrower’s monthly principal and interest payment by at least 10 percent and result in monthly payments that are between 25 percent and 42 percent of the borrower’s monthly gross income, the modification may be offered. Both Fannie Mae and Freddie Mac have provided loan modifications outside of the HAMP program for mortgages they hold or guarantee. Servicers of Fannie Mae and Freddie Mac loans may use enterprise programs for borrowers who have been evaluated for HAMP but do not qualify or who received a HAMP modification but have redefaulted. Both of the enterprises delegated authority to their largest servicers to offer modifications according to a standard set of waterfall steps. This modification structure was aimed at making monthly payments more affordable. According to Fannie Mae and Freddie Mac data, non-HAMP modifications resulted in median monthly payment reductions of about 26 percent ($279) and 11 percent ($132), respectively, in fiscal year 2011. In addition, the enterprises offered incentives of $800 per completed modification. Fannie Mae and Freddie Mac modified nearly 580,000 loans between January 2009 and December 2011 through their non-HAMP programs. FHFA, which is the regulator and conservator, has direct supervisory authority over Fannie Mae’s and Freddie Mac’s activities. and Freddie Mac made these requirements and servicing practices effective for all loans on October 1, 2011. FHA, VA, and USDA offer their own loan modification options for troubled mortgages. which typically involve capitalizing past due amounts and limited interest rate reductions and term extensions—each agency has implemented an expanded modification program with features similar to HAMP. Each of these agencies requires servicers to evaluate borrowers for the established loss mitigation options first before considering them for the newer expanded modification programs. None of these programs use the Treasury NPV model to evaluate whether the loan should be modified, instead relying on servicers to make that determination. In addition, Treasury does not share the cost to investors of modifying loans under these programs, although FHA and USDA servicers and borrowers may be eligible for incentive payments from Treasury. See appendix II for a more detailed description of the various foreclosure mitigation efforts offered by FHA, VA, and USDA. lien is paid in full.resulted in average monthly payment reductions of about 19 percent in fiscal year 2011, compared to reductions of about 11 percent under its standard modification program. FHA completed more than 370,000 standard modifications and 13,000 FHA-HAMP modifications between January 2009 and December 2011.The claims payments to servicers for these modifications totaled $446 million, and the servicer incentives’ totaled $294 million. According to FHA data, FHA-HAMP modifications In January 2010, VA issued guidelines for VA-HAMP, which will be available until Treasury’s HAMP expires. This program follows Treasury’s HAMP procedures for calculating the target monthly payment and uses the same waterfall (capitalization, interest rate reduction down to 2 percent, term extension, and principal forbearance) to achieve the necessary payment reduction to reach the targeted monthly payment (31 percent of income). Servicers completed about 30,000 modifications of VA loans between January 2009 and December 2011. The incentives for servicers associated with these modifications totaled about $15 million in costs to VA. In August 2010, USDA published a final rule outlining procedures for special loan servicing (SLS). SLS procedures are a permanent part of USDA’s loss mitigation efforts. These procedures expand its modification efforts by allowing for term extensions of up to 40 years from the date of modification (compared to the remaining term under the traditional modification program), further interest rate reductions, and if necessary, a mortgage recovery advance to cover past due amounts and other costs, such as canceled foreclosure fees. In addition, forborne principal may be included in this advance. USDA reimburses the servicer for advancing the funds for the mortgage recovery advance, which is payable when the borrower sells the property or pays off the loan (similar to FHA-HAMP). USDA approved servicing plans for nearly 13,000 traditional modifications and 143 SLS modifications between January 2009 and December 2011. USDA does not offer servicers incentives for modifying loans. According to USDA’s guidance, servicers are required to use the following waterfall in considering a loss mitigation action: repayment agreement, special forbearance, loan modification, SLS loan modification, preforeclosure sale (short sale) or deed-in-lieu of foreclosure. Although Treasury does not share the cost of modifying loans with investors under FHA-HAMP and USDA’s SLS, it has put in place performance incentives that reward participating servicers and borrowers for certain modifications that remain current under these programs. Servicers must have entered into agreements with Treasury to participate in these incentive programs. According to Treasury, it offered VA the opportunity for its servicers and borrowers to receive incentive payments under MHA. However, VA officials told us that implementing this feature increased the complexity of its loan modification program and VA was concerned that veterans may be denied modifications. As a result, VA decided to issue its guidelines for VA-HAMP without the additional incentives. As of December 2011, Treasury had paid $5 million in servicer and borrower incentives using TARP funds for FHA-HAMP modifications that remained current, but had not made any incentive payments for USDA SLS modifications. Treasury’s Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (known as the Hardest Hit Fund or HHF program) has committed $7.6 billion of TARP funding to 18 states and the District of Columbia for programs such as loan modification programs, among other things, to meet the distinct challenges struggling homeowners in their state are facing. For example, California devoted more than $770 million for reducing principal balances for low-to-moderate income borrowers with current LTV ratios greater than 115 percent. Arizona, Michigan, Nevada, North Carolina, Ohio, and Rhode Island are among the states with modification programs that include principal reduction. To estimate the total number of permanent loan modifications through servicers’ proprietary efforts, we subtracted the modifications completed under federal agencies and the enterprises (as reported by the federal agencies and the enterprises) from the total modifications estimated by HOPE NOW. Between January 2009 and December 2011, HOPE NOW estimated there were about 4 million permanent modifications. The HOPE NOW estimates are from a survey of HOPE NOW members, which include approximately 37 million loans and which have been extrapolated to the entire first-lien industry. HOPE NOW reports data on HAMP modifications and “proprietary modifications.” According to a HOPE NOW official, proprietary modifications in their survey include modifications completed through the enterprises, other federal efforts, as well as modifications completed on loans held in lenders’ portfolios or in private label securities. monthly mortgage payments to be at least 31 percent of their income prior to modification, some servicers have a lower threshold for their proprietary programs. As a result, proprietary loan modification programs may reach homeowners who are ineligible for HAMP and other federal programs. Refinancing a mortgage is not typically viewed as an action to mitigate a foreclosure, although it can reduce borrowers’ monthly mortgage payments and thereby result in more sustainable mortgage loans. A number of federal and nonfederal programs are in place to help homeowners who are current on their mortgages but cannot refinance because of declining home values. Generally, these programs offer refinancing options that include accepting higher LTV ratios than have typically been allowed and lowering refinancing costs. The primary federal refinance effort has been the Home Affordable Refinance Program (HARP). It was announced alongside HAMP in February 2009 as a way to provide for borrowers who were current on their mortgage payments but unable to refinance because the declines in home values had left them with little or no equity in their homes. HARP was intended to allow these borrowers to benefit from reduced interest rates in order to make their mortgage payments more affordable. Only mortgages owned or guaranteed by Fannie Mae and Freddie Mac are eligible. Initially, HARP targeted borrowers with current LTV ratios between 80 percent and 105 percent, but FHFA revised those requirements to include borrowers with current LTV ratios up to 125 percent in July 2009. The standard mortgage insurance requirements for these refinance loans were relaxed so that borrowers who did not have mortgage insurance on their existing loan did not have to purchase it for their refinanced loan, something that would typically be required for a loan with an LTV ratio of more than 80 percent. HARP has resulted in approximately 1 million refinances as of December 31, 2011.Approximately 91 percent of HARP refinances have gone to borrowers with current LTV ratios between 80 percent and 105 percent. According to Fannie Mae, borrowers who refinanced in 2011 under its HARP effort saved an average of $151 on their monthly mortgage payments.Fannie Mae and Freddie Mac expected that the program would have minimal net costs to them. To respond to continued weakness in the housing market, including the large number of borrowers with negative equity, FHFA announced changes to HARP in October 2011. These changes included removing the LTV cap to reach more underwater borrowers—those with current LTVs of more than 125 percent. Delivery fees the enterprises charged to lenders and that may be passed on to the borrower were also reduced. In addition, the enterprises eliminated representations and warranties tied to the original loan. FHFA also extended the program’s expiration date to December 31, 2013. While HARP is available only to borrowers with loans owned or guaranteed by Fannie Mae or Freddie Mac, several other refinance efforts were put in place to reach other borrowers. For example, Treasury worked in conjunction with FHA to establish the FHA Refinance for Borrowers in Negative Equity Positions (FHA Short Refinance), which is This program took effect in partially supported using TARP funds. September 2010 and provides an opportunity to borrowers who are current on their mortgage payments and have loans not insured by FHA with current LTV ratios greater than 100 percent to refinance into an FHA- insured mortgage. In order to qualify, investors must write down at least 10 percent of the outstanding principal and achieve an LTV ratio of no more than 97.75 percent. Through December 2011, FHA Short Refinance has had limited success, reaching 646 borrowers. During the subsequent 5 months, however, program volume doubled to 1,303 loans. Although no borrowers who have refinanced under the program had defaulted as of December 31, 2011, Treasury had paid approximately $5.5 million in administrative fees to maintain an $8 billion letter of credit facility that will be used to pay Treasury’s portion of claims on losses associated with loans refinanced under the program. The letter of credit is expected to be in force through September 2020—approximately 8 more years—and the administrative fees associated with this letter of credit could reach a maximum of $117 million. However, participation in the program was initially estimated at 1 million borrowers, and even with FHA’s recently announced changes to the program, whether participation will reach the levels initially projected is not clear. With participation to date much lower than expected and future participation unknown, the costs to Treasury of maintaining the letter of credit facility may not be justified. As noted in our Standards for Internal Control in the Federal Government, program managers are responsible for achieving objectives of the agency while making effective and efficient use of the entity’s resources. Federal agencies and the enterprises have other existing refinance programs, and although the aim of these programs is not necessarily to provide relief to struggling borrowers, some have features that lend themselves to being used by such borrowers. For example, an FHA streamlined refinance without an appraisal may help existing borrowers with negative equity that are current on their mortgage but struggling to make their mortgage payments because it allows lenders to refinance the entire outstanding principal balance. VA’s Interest Rate Reduction Refinancing Loan requires no appraisal or credit underwriting, and borrowers may qualify with VA approval even if they are delinquent. Under the HHF program, several states are using funding for refinance programs that help borrowers with negative equity or second mortgages. For example, Ohio set aside $50 million to help borrowers refinance into mortgages with a reduced principal balance and lower monthly payments. Servicers receive up to $25,000 per borrower for each refinance. North Carolina has a program that would provide interest-free loans of up to $30,000 to refinance certain second mortgages. Not all borrowers in financial distress need the terms of their mortgages changed (loan modification) or a new mortgage (refinance). Short-term relief may be sufficient for some borrowers to relieve a temporary shortfall in funds. Treasury’s Home Affordable Unemployment Program (UP) provides assistance to borrowers whose hardship is related to unemployment. A borrower who is unemployed and requests assistance under HAMP (nonenterprise program only) must be evaluated for and, if qualified, must receive an UP forbearance plan before being considered for HAMP unless the servicer determines that a HAMP modification is the better alternative for the borrower. No TARP funds are used to support the UP program. Under UP, servicers must provide qualified borrowers with a forbearance period during which their mortgage payments are temporarily reduced or suspended for a minimum of 12 months. Upon completion of the forbearance period, borrowers must be evaluated for other loan workout programs. UP has resulted in nearly 18,000 forbearance agreements. Other federal agencies and the enterprises also have existing programs to provide temporary relief to borrowers. These programs may be formal or informal and typically take the form of forbearance agreements and repayment plans. FHA and USDA encourage servicers to use these options informally early in the delinquency to prevent borrowers from ever becoming 90 days delinquent. Fannie Mae and Freddie Mac reported that about 257,000 repayment plans and forbearance agreements had been completed under their existing programs since January 2009. FHA servicers provided repayment plans to about 440,000 borrowers and special forbearance agreements to about 67,000 borrowers. In addition, servicers may advance funds to bring loans current, and FHA paid partial claims totaling $415 million to servicers to reimburse them for almost 47,000 such advances. Servicers reported that successful repayment plans and special forbearance agreements reached about 28,000 VA borrowers, while USDA approved special forbearance servicing plans for more than 5,000 borrowers. FHA extended the minimum term of its special forbearance program for unemployed borrowers from 4 months to 12 months, effective August 2011. In January 2012, Freddie Mac and Fannie Mae announced changes to the forbearance options servicers can offer to unemployed borrowers, which increase the minimum forbearance period to 6 months, extendable for up to an additional 6 months if the borrower is still unemployed. Two recently established programs use federal funds to provide temporary relief to borrowers but are administered at the state level. Under HHF, several states have established programs to provide ongoing mortgage payment assistance to qualified borrowers who are unemployed or underemployed. Other programs provide one-time loans to qualified borrowers to resolve their delinquencies, which may be forgiven after a period of time (e.g., 3 years for California’s program). The Emergency Homeowners Loan Program (EHLP) was authorized under the Dodd-Frank Wall Street Reform and Consumer Protection Act, allowing HUD to provide short-term loans to unemployed borrowers to help meet their mortgage obligations in the 32 states and Puerto Rico that did not receive Hardest Hit Fund dollars. The program was designed to provide mortgage payment relief (up to $50,000 total) to eligible homeowners experiencing a drop in income of at least 15 percent to cover past-due mortgage payments as well as a portion of the homeowner’s mortgage payment for up to 24 months. HUD permitted five states with similar programs already in place—Connecticut, Delaware, Idaho, Maryland, and Pennsylvania—to direct their EHLP allocations to these programs. NeighborWorks America, a federally chartered nonprofit organization, administers EHLP for the remaining 27 states and Puerto Rico. Applications for funds under EHLP were due in September 2011. HUD reported that, as of September 30, 2011, slightly more than half of the $1 billion allocated to the program had been obligated. As of December 27, 2011, more than 5,500 EHLP loans had been closed and nearly 6,000 EHLP loans were in the process of being closed. When borrowers cannot afford to keep a property even with the assistance that a modification or temporary relief program would provide, they may seek alternatives that will allow them to transition to more affordable housing and avoid foreclosure. These alternatives are generally less expensive than going through the foreclosure process and often take less time. Treasury implemented the Home Affordable Foreclosure Alternatives (HAFA) program, which provides incentives for short sales and deeds-in-lieu of foreclosure as alternatives to foreclosure for borrowers who are unable or unwilling to complete the HAMP first-lien modification process. Borrowers, tenants, and certain other non-borrower occupants are eligible for relocation assistance of $3,000 and nonenterprise servicers receive a $1,500 incentive for completing a short sale or deed-in-lieu of foreclosure. In addition, investors are paid up to $2,000 for allowing short-sale proceeds to be distributed to holders of subordinate mortgages on the property. Servicers who participate in the HAMP first-lien modification program are required to evaluate certain borrowers for HAFA, including those who do not pass the NPV test or who default on a HAMP modification. Deed-for-lease agreements, where the borrower is allowed to rent the property after giving up ownership of the property, are permitted but not required under HAFA. Treasury has provided about $100 million in HAFA incentive payments for approximately 26,000 short sales and deeds-in-lieu as of December 2011. Existing programs at the enterprises, FHA, VA, and USDA provide opportunities beyond HAFA for short sales and deeds-in-lieu. These programs are typically the final options for avoiding foreclosure. Fannie Mae and Freddie Mac reported completing almost 300,000 short sales and deeds-in-lieu since January 2009, of which only about 1,600 were HAFA transactions. FHA paid claims on more than 55,000 short sales and 3,000 deeds-in-lieu between January 2009 and December 2011. During the same period, servicers completed about 13,000 short sales and about 2,000 deeds-in-lieu on VA loans, while USDA approved almost 3,400 short sales and about 230 deeds-in-lieu. In some cases, state programs funded under Treasury’s HHF program include foreclosure alternatives and transition assistance for borrowers who cannot afford to keep their homes. For example, California and Rhode Island have programs to provide borrowers who are losing their homes through short sales or deeds-in-lieu with funds to secure new housing. In April 2011, OCC, the Federal Reserve, and the Office of Thrift Supervision (now part of OCC) sent consent orders to 14 servicers outlining changes they needed to make to their servicing processes to provide better service to borrowers.establishing compliance programs for their loss mitigation and loan modification activities and dedicating resources to communicating with These changes included borrowers in ways that avoid confusion and provide continuity (e.g., through providing a single point of contact). A recent joint federal government and state attorneys general agreement with the five largest servicers in the United States requires these servicers to provide financial relief to homeowners struggling to make their mortgage payments and implement new mortgage loan servicing standards.investigation looking at alleged misconduct related to the origination and servicing of single family residential mortgages. The settlement requires the servicers to collectively dedicate $20 billion toward various forms of financial relief to homeowners, including: reducing the principal on loans for borrowers who are delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth; refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth; forbearance of principal for unemployed borrowers; antiblight provisions; short sales; transitional assistance; and benefits for service members. These servicers are required to pay an additional $5 billion in cash to the federal and state governments, which will be used to repay public funds lost as a result of servicer misconduct and to fund housing counseling, among other things. In addition to the financial commitment, servicers must implement new standards for servicing mortgages and handling foreclosures, and take The settlement was the result of a federal and state steps to better ensure information provided in federal bankruptcy court is accurate. Based on our analysis of CoreLogic data that cover approximately 65 percent to 70 percent of the prime and approximately 50 percent of the subprime mortgage market, we found that as of June 2011, 1.9-3.0 million loans had characteristics associated with an increased likelihood of foreclosure, including delinquency and significant negative equity (current LTV ratios of 125 percent or higher). As our data do not cover the whole mortgage market, the actual number of loans with an increased likelihood of foreclosure is probably larger.Banker Association (MBA) data, as of June 2011, approximately 4 million For example, according to Mortgage loans had been delinquent for 60 days or more.housing market conditions—including default and foreclosures—show that the housing market remained weak through 2011. Approximately 8 percent of loans were in default 90 days or more or in foreclosure as of the end of 2011, according to MBA data. Other key housing market indicators, such as home prices and home equity, remained near their recent lows. Based on our analysis of CoreLogic data, we found that 1.9-3.0 million loans—1.6-2.6 million prime (7 to 11 percent) and between 312,000- 449,000 subprime loans (38 to 55 percent)—had characteristics that were associated with an increased likelihood of foreclosure, as of June 2011.For example, we considered loans where the borrower had missed two or more payments—that is, had been delinquent 60 days or more—to be at an increased risk of foreclosure. As of June 2011, approximately 1.6 million prime loans (7 percent) and 312,000 subprime loans (38 percent) were 60 days or more delinquent (see fig. 4). In addition to those loans that were 60 days or more delinquent, we identified other characteristics that were associated with an increased likelihood of foreclosure, such as certain levels of negative equity (owing more on a mortgage loan than the property is worth), high mortgage interest rate, or certain loan origination features. As of June 2011, approximately 1 million additional prime (5 percent) and 136,000 additional subprime loans (17 percent) were current or less than 60 days delinquent but had two or more of these additional characteristics. The number of borrowers with characteristics associated with an increased likelihood of foreclosure remained largely unchanged between June 2009 and 2011 for prime loans while the number of subprime loans declined (see fig. 4). Among prime loans, the total number of loans with delinquency or two or more other characteristics associated with an increased likelihood of foreclosure decreased by less than 1 percent between June 2009 and 2011. In contrast, during the same period the total number of subprime loans with characteristics associated with an increased likelihood of foreclosure decreased by approximately 30 percent. However, this decline is in part a result of the decreasing overall number of surviving subprime loans between June 2009 and 2011. Not all borrowers with characteristics associated with an increased likelihood of foreclosure will require foreclosure mitigation assistance or respond to offers of assistance. Our analysis of CoreLogic data and officials with the enterprises and a federal agency revealed that some borrowers with characteristics associated with an increased likelihood of foreclosure continue to pay on time or, if they are delinquent, become current without intervention. Also, according to FHA and Treasury officials, some borrowers do not answer servicers’ outreach efforts to provide foreclosure mitigation assistance. Appendix IV provides additional data on the results of our analysis for each of the characteristics. likely to be Fannie Mae or Freddie Mac loans and more likely to be held in portfolio or private label securities than the overall population of prime loans. We were unable to analyze the investors associated with subprime loans because the loan-level data for this segment of the market do not contain reliable information about the loan’s investor. Negative Equity: Negative equity is also associated with an increased likelihood of foreclosure, particularly when the loan is delinquent or has other characteristics associated with an increased likelihood of foreclosure. Within the data we analyzed, a total of 1.2 million prime (5 percent) and 157,000 subprime loans (19 percent) in June 2011 had significant negative equity (a current LTV ratio of 125 percent or greater) and additional characteristics associated with an increased likelihood of foreclosure, including delinquency. Among loans with significant negative equity, more than one-third of prime loans (420,000) and more than half of subprime loans (93,000) were 60 days or more delinquent in June 2011. For those borrowers with limited ability to sell or refinance a home for a price that will cover the full mortgage, missed payments increase the likelihood of foreclosure. Negative Equity and Unemployment: As we have previously reported, housing market stakeholders have suggested a relationship between unemployment and negative equity and the increased likelihood of foreclosure. Borrowers who are unemployed and have significant negative equity in their homes are unlikely to be able to sell them at a price high enough to cover the mortgage and move elsewhere to seek work. In June 2011, approximately 67 percent of prime and subprime loans we analyzed with negative equity were located in areas with high local unemployment (10 percent or greater). Mortgage Interest Rate: Borrowers with a high mortgage interest rate—150 basis points or 1.5 percentage points or higher above the market rate—have an increased likelihood of foreclosure as the high interest rate results in relatively higher monthly payments and may indicate other problems that have limited a borrower’s ability to refinance. 1 million prime (5 percent) and 230,000 subprime loans (83 percent) had a high mortgage interest rate and additional characteristics that are associated with an increased likelihood of foreclosure, such as delinquency. Of loans with a high mortgage interest rate and additional characteristics, 40 percent of prime and 29 percent of subprime loans had significant negative equity (LTV of 125 percent or greater). Researchers have found that borrowers with significant negative equity have a limited ability to refinance to lower interest rates and lower monthly payments as a result of tightened underwriting standards that require low LTV ratios. GAO, Nonprime Mortgages: Analysis of Loan Performance, Factors Associated with Defaults, and Data Sources, GAO-10-805 (Washington, D.C.: Aug. 24, 2010). See also Demyanyk, Koijen, and Van Hemert, “Determinants and Consequences of Mortgage Default” pg. 16 and Shane M. Sherlund, “The Past, Present, and Future of Subprime Mortgages,” Federal Reserve Board Finance and Economics Discussion Series, no. 2008- 63 (Washington, DC.: Nov. 2008) Origination Loan Features: We have previously reported on the strong association between certain loan origination features— including low credit score and high LTV at the time of origination—and an increased likelihood of foreclosure. As of June 2011, of the loans we analyzed, approximately 899,000 prime (4 percent) and 314,000 subprime loans (65 percent) had a combination of certain loan origination features (credit score of 619 or below or LTV of 100 percent or higher) and other characteristics associated with an increased likelihood of foreclosure, including delinquency. Of loans with these certain origination features, approximately 16 percent of prime (407,000 loans) and almost half of subprime loans (201,000) were delinquent 60 days or more. Florida and Nevada were among the states with the largest percentage of loans (prime and subprime loans combined) with an increased likelihood of foreclosure (see fig. 5). Of the loans we analyzed in June 2011, as many as 40 percent of loans in Nevada and 29 percent of loans in Florida had characteristics associated with an increased likelihood of foreclosure. California had a lower proportion of loans with characteristics associated with an increased likelihood of foreclosure compared to six other states— Arizona, Florida, Illinois, Michigan, Nevada, and Rhode Island. But California had the largest number of loans with these characteristics. In addition, several states—Arizona, California, Florida, Michigan, and Nevada—had relatively large proportions of loans within the CoreLogic data set with significant negative equity and additional characteristics, including delinquency, associated with an increased likelihood of foreclosure. In particular, over 10 percent of loans in Nevada and approximately 10 percent of loans in Florida had significant negative equity and were delinquent 60 days or more. The number of seriously delinquent loans—those in default 90 days or more or in foreclosure—remained high in December 2011. According to MBA data, approximately 8 percent of loans were seriously delinquent nationwide, a fourfold increase compared with the number of such loans in June 2006, near the beginning of the current housing crisis. In comparison, during the prior 5 years from 2000 through 2005, approximately 2 percent of loans were seriously delinquent—substantially fewer than the current number. Continued high levels of serious delinquencies suggest that the volume of future foreclosures will likely remain high as these troubled mortgages are resolved. Serious delinquency data covers both loans that have entered but not We completed foreclosure and loans in default for 90 days or more.found that the number of loans in foreclosure in December 2011 was slightly below the peak levels in March and December 2010 but remained elevated with approximately 4 percent of loans in foreclosure (see fig. 6). Similarly, the volume of loans in default in December 2011 experienced a drop below their peak levels, with less than 4 percent of loans in default in comparison to about 5 percent in December 2009. Further, the volume of loans in default and in foreclosure during the most recent recessionary period have been extraordinarily high compared to the previous two recessions. In addition to the high volume of loans in foreclosure and default in December 2011, other key national indicators of the housing market, such as home prices, home equity, and unemployment, suggest that the housing market has not yet begun to recover. Decreases in home prices have played a central role in the current crisis and continue to be well below their peak nationwide. According to CoreLogic’s Home Price Index, as of June 2011 home prices across the country had fallen 32 percent from their peak in April 2006 (see fig. 7). The decrease follows a 10-year period of significant home price growth, with the index more than doubling between April 1996 and 2006. During periods in 2009 and 2010, home prices showed some slight improvement, but in early 2011 home prices fell again and reached their lowest level since 2002. Home prices rose slightly in June 2011 but remained well below the 2006 levels. Home values have declined faster than home mortgage debt. As a result, homeowners have lost substantial equity in their homes. As of December 2011, national home equity (the difference between aggregate home value and mortgage debt owned by homeowners) was approximately $3.7 trillion less than total home mortgage debt (see fig. 8). In part because of the decline in home prices, households collectively lost approximately $9.1 trillion (in 2011 constant dollars) in home equity between 2005 and 2011. In contrast, aggregate home mortgage debt—a measure of the value of household-owned real estate debt—continued to increase by an additional $1.2 trillion between 2005 and 2007, reflecting the continued looseness of the credit markets early in the crisis as mortgage originations to low-credit quality borrowers continued to expand. Home mortgage debt has fallen slightly from its highest point in 2007 to approximately $10 trillion in 2011—a development that a study by the Federal Reserve Bank of New York attributed to consumers paying down debt and lenders’ tightened lending standards.2007, steep declines in house values left the nation’s homeowners, for the first time since the data were kept in 1945, holding home mortgage debt that surpassed the equity in their homes. Studies of housing market conditions we reviewed and some agency officials with whom we spoke identified the current sustained high unemployment rate as a key factor in the housing market’s continued poor performance. The unemployment rate more than doubled between April 2006—the peak period of home price increases when it stood at 4.7 percent—and October 2009, when it reached its highest level since 1984 of 10.1 percent. Although the rate had declined to less than 9 percent at the end of 2011, it has remained above 8 percent since February 2009— the longest sustained period at this level since 1948. In addition, the gap between the standard unemployment measure and a more comprehensive measure that includes underemployed and discouraged workers grew significantly between April 2006 and December 2011.This increase suggests that a growing number of workers have been employed below their capacity, a development that may result in their being unable to meet future mortgage obligations and will further contribute to reduced housing demand, additional foreclosures, and falling home prices. In contrast to other indicators of the housing market we analyzed, home affordability was at record-high levels at the end of 2011, reflecting the decline in home prices and historically low interest rates. Based on our review of economic data, home affordability appeared to have increased 72 percent between March 2006 and December 2011. Improved home affordability may encourage new buyers to purchase homes and thus increase demand for housing and provide support for home values. However, according to the Federal Reserve and Joint Center for Housing Studies at Harvard University, many potential homebuyers have been reluctant or unable to purchase a home due to fear of further home price declines, uncertain income prospects, and difficulties obtaining mortgage credit. Further according to Census data on household growth, average annual household growth from 2008 through 2011 was less than half that of 2000 through 2007; although the most recent data indicate an increase in household formation in 2011 compared to growth in 2008 through 2010. Most stakeholders we contacted said that enhancing existing federal foreclosure mitigation efforts was the most appropriate action to take to facilitate the recovery of the housing market, and we found that opportunities existed for federal agencies to improve the effectiveness of their efforts. Our analysis of available data indicated that a large number of struggling homeowners could be eligible for federal foreclosure mitigation programs and a large number with FHA insured or enterprise- backed loans are at an increased risk for foreclosure because of their delinquency status. As the following examples illustrate. Treasury estimated that as of December 31, 2011, about 900,000 borrowers could be eligible for its HAMP modification program. This number included loans that were 60 days or more delinquent and were serviced by participating HAMP servicers that appeared to meet the program’s eligibility requirements. Fannie Mae and Freddie Mac collectively had about 1.1 million loans that were seriously delinquent as of the quarter ending on December 31, 2011. FHA reported that about 711,000 of its loans were seriously delinquent for the month of December 2011. Furthermore, between March 2010 and June 2011 FHA’s serious delinquency rate ranged between 8.2 and 8.8 percent but between June and December 2011, it climbed about 1.4 percentage points to 9.5 percent. Although federal agencies and the enterprises have taken steps to help ensure that servicers reached struggling borrowers, not all agencies were conducting the necessary analyses to determine which of their foreclosure mitigation actions were most effective. Specifically, we found that not all federal agencies consider current data on redefault rates and evaluate the total costs of various loan modification actions to weigh the tradeoffs between assisting borrowers to retain their homes and protecting taxpayers’ financial interests. As a result, agencies may not be making the best use of foreclosure mitigation funds. Additionally, not all federal agencies analyze loan and borrower characteristics that could influence the success of these actions. Doing so would help in determining which actions would be most successful both in aiding homeowners and in containing costs. We also found some evidence to suggest that principal forgiveness as a mitigation tool could help some borrowers—those with significant negative equity—but that federal agencies and the enterprises were not using it consistently and some were not convinced of its overall merits. Moreover, there are other policy issues to be considered when determining how widely this option should be used, including moral hazard (borrowers strategically defaulting to become eligible for assistance). Stakeholders provided us with a variety of reasons for not introducing new federal programs at this time. Specifically, most stakeholders said that introducing entirely new initiatives at this stage could be counterproductive. Such initiatives, they said, would create additional uncertainty in the market and could further delay a recovery because of the time and costs that would be involved in implementing them. Further, some stakeholders noted that support for new initiatives that required additional federal funding would be difficult to implement in the current budgetary environment. Stakeholders also said that not all borrowers who were at risk of foreclosure would be able to avoid foreclosure through any action and that some borrowers might not be interested in doing so. For example, Treasury officials said that some underwater borrowers could have already decided that foreclosure was in their best economic interest and may not want or seek assistance. Finally, some industry observers have argued that foreclosure mitigation efforts hinder the housing market’s recovery by simply delaying unavoidable foreclosures. All of the federal agencies—Treasury, FHA, VA, and USDA—as well as the enterprises have policies in place for servicers to follow once a borrower becomes delinquent. These policies are consistent with the results of our econometric analysis of CoreLogic and HAMP data that found that reaching borrowers early on, when they had missed fewer payments, resulted in more successful loan modifications. For instance, the redefault rate for loans that were delinquent less than 60 days at the time of modification was 9 percent, but the redefault rates for loans that were delinquent 90 days or more was 17 percent. The rate was even higher for those already in foreclosure—19 percent. In general, the agencies and the enterprises require servicers to make contact with delinquent borrowers, identify the reason for the delinquency, and provide borrowers information on available options to help them resolve the delinquency. However, Treasury and FHA officials said that servicers were unable to reach many borrowers, which may hinder efforts to provide foreclosure mitigation actions. For example, servicers have reported to FHA that about 13 percent of the delinquent borrowers they attempt to contact do not respond. As a result, with the exception of USDA, these agencies and the enterprises have taken a number of steps to reach more borrowers and monitor servicers’ ability to reach struggling borrowers. In 2010, Treasury began airing nationwide public service announcements and conducting homeowner events across the country in order to raise the profile of its foreclosure mitigation programs and help struggling homeowners contact their servicers. Based upon the results from on-site and remote compliance reviews, Treasury began to rate the largest servicers’ procedures and controls for reaching out to delinquent borrowers as part of its MHA Servicer Assessments.eligible borrowers were contributing factors to Treasury’s decision to withhold servicer incentive payments from certain servicers. Issues related to identifying and contacting potentially FHA requires servicers to report monthly on delinquent borrowers, including the extent of the delinquency and the most recent action the servicer has taken. In 2011, FHA piloted a scorecard designed to comprehensively evaluate servicers’ loss mitigation activity, including their compliance with servicing guidelines and regulations. Further, FHA has been identifying best practices for reaching borrowers. For example, one servicer reported having increased success contacting borrowers earlier in a delinquency using text messages and email instead of telephone calls and letters, and FHA has shared this practice with other servicers. In 2011, Fannie Mae and Freddie Mac revised the procedures servicers must follow when contacting borrowers to help ensure that all those eligible know about the options that may be available to them. The enterprises have also developed a performance metric to track servicers’ compliance with these requirements. Further, they recently implemented changes to HARP program requirements by eliminating the maximum LTV ratio and allowing servicers to solicit borrowers who may be eligible for the program. In addition, the enterprises have required servicers to report monthly on delinquent borrowers, including on the extent of the delinquency and the most recent action the servicer has taken. VA assigns a staff member to each case after a borrower becomes 60 days delinquent to monitor the servicer’s efforts and provide assistance to the borrower. The VA staff member performs an “adequacy of servicing” review if the delinquency is not resolved before the borrower becomes 120 days past due on the loan. If servicing is found to be adequate at that point, VA will continue to perform these reviews every 90 days until the delinquency is resolved. If the VA staff member determines that the servicer has not taken adequate steps to reach and assist the borrower, the VA staff member will try to contact the borrower directly and then may work with the servicer to identify the best foreclosure mitigation action. In contrast, USDA does not require servicers to report information about their efforts to reach borrowers, and its systems are not set up to determine whether servicers are complying with USDA’s requirements. For example, servicers report monthly on loans that are at least 30 days delinquent, but USDA does not require servicers to report on efforts to contact the borrower early in the delinquency or on the extent to which they have offered informal foreclosure mitigation options. Once a loan is 90 days delinquent, servicers must submit servicing plans to USDA that outline recommended foreclosure mitigation actions, which USDA has to approve. But if a servicer determines that no foreclosure mitigation actions are appropriate, it does not need to submit a servicing plan. According to USDA officials, they would not have information on the servicer’s efforts to reach the borrower or offers of informal actions and may not become aware of the servicer’s decision not to offer a formal foreclosure mitigation action until after the loan goes into foreclosure and the servicer files a claim. USDA officials said that they review each loss claim to determine whether the servicer followed requirements for evaluating the borrower for foreclosure mitigation options. However, the absence of comprehensive and timely information limits USDA’s ability to assess and identify opportunities to improve servicers’ efforts to reach struggling borrowers and prevent foreclosures. The enterprises and Treasury have adopted additional changes to policies and procedures with the goal of expanding the reach of existing programs to additional borrowers. The enterprises’ standard modification programs, which were announced in mid-2011 under FHFA’s Servicer Alignment Initiative, are intended to help ensure that borrowers who do not qualify for HAMP Tier 1 modifications are treated consistently at the next step in the evaluation process. Before these programs were put in place, terms of non-HAMP modifications varied among the enterprises and were set independently by Fannie Mae or Freddie Mac. Treasury’s recently announced HAMP Tier 2 modification largely aligns with the enterprises’ standard loan modification and is intended to expand HAMP to a larger pool of potentially eligible borrowers. This change provides servicers and borrowers with consistency across programs, regardless of the investor (i.e., Fannie Mae or Freddie Mac, private-label security owner, private lender). Further, this change could simplify servicers’ operations, improve their efficiency, and enhance their capacity, all of which have been long-standing concerns. Treasury and the enterprises incorporate analysis of long-term costs into their loss mitigation program design and management through redefault models and analysis, but the other agencies do not. The models that Treasury and the enterprises use incorporate data on the likelihood of redefault for different loan and borrower characteristics and are tailored to their particular pools of borrowers and costs. Specifically, the models incorporate data on redefault rates that are associated with loan and borrower characteristics, such as borrower income and expenses, delinquency status, current LTV, borrower credit score, and size of monthly payment reduction. Treasury and the enterprises use the results from these analyses to determine the eligibility requirements and loan modification terms for their loan modification programs. As part of this analysis, Treasury and the enterprises analyze redefault rates—one of the most common measures of the effectiveness of foreclosure mitigation efforts—for various types of foreclosure mitigation actions. According to Fannie Mae and Freddie Mac officials, recent changes to their non-HAMP loan modification programs—particularly the introduction of a trial period plan—resulted from analysis of differences in redefault rates and the size of monthly payment reduction between their various loan modification actions. Our own analysis of the performance of loans identified certain loan and borrower characteristics that reduce the likelihood of redefault. When controlling for observable borrower and loan characteristics, our analysis of CoreLogic data found that greater reductions in monthly mortgage payments reduced the 6-month redefault rate (see fig. 9).that reducing monthly mortgage payments by 40 to 49 percent resulted in the lowest 6-month redefault rates. Specifically, loans with monthly payment reductions of 40 to 49 percent had redefault rates of 12 percent—as compared to a redefault rate of 20 percent for loans that received a payment reduction of less than 10 percent. Larger reductions in the monthly payment—that is, 50 percent or more—did not result in further improvement in the 6-month redefault rate. According to our analysis, payment reductions for the majority of FHA and VA loan modifications were smaller than payment reductions for other types of modified loans. As figure 10 illustrates, 45 percent of FHA- modified loans and about 40 percent of VA-modified loans had payment reductions of less than 10 percent of the original mortgage payment. In contrast, the majority of modifications for enterprise-prime loans, nonenterprise-prime loans, and subprime loans had resulted in payment reductions greater than 20 percent, and in some cases were much larger. For example, more than half of enterprise-prime modified loans and 39 percent of subprime loans had payment reductions of 30 percent or more of the original monthly mortgage payment. Furthermore, our analysis found that the predicted 6-month redefault rate for FHA-modified loans was several percentage points higher than for the other loan types—for example, FHA’s rate was 22 percent, while the rate for subprime loans was 17 percent. However, the predicted 6-month redefault rate for VA- modified loans was 15 percent, which was similar to other loan types. According to our analysis of CoreLogic data, modifications resulting in payment reductions can involve one action or a combination of actions, such as lowering the interest rate, reducing the loan balance (through forgiving or forbearing principal), capitalizing past due amounts, and extending the term of the loan. Some of these actions were much more commonly used than others—for example, interest rate reductions and capitalization were used far more frequently than reducing the loan balance (see fig. 11). Further, our analysis indicated that the predicted 6- month redefault rates could differ depending on the action used. Modifications that included balance reductions had a redefault rate of 11 percent, while modifications that included a rate reduction, capitalization, or term extension had redefault rates of 15, 16, and 18 percent, respectively. Our analysis of HAMP data indicated that the baseline 12- month redefault rate for all modified loans was 15 percent. Among HAMP loans that received principal forbearance, the rate was slightly lower—12 percent. However, the rate for HAMP loans that received principal forgiveness was even lower—8 percent. See appendix V for a detailed description of the relationship between the modification action type and loan performance. Further, loan modifications for borrowers with significant negative equity (LTV of 125 percent or higher) can be as effective as modifications for borrowers with equity in their home. For example, the lowest redefault rates for both borrowers with significant negative equity and borrowers with LTV less than 95 percent are achieved with payment reductions of 40 to 49 percent (see fig 12). We also found that certain borrower and loan characteristics affected redefault rates. For instance, borrowers who were the most delinquent at the time of modification had higher redefault rates than less delinquent or current borrowers. Borrowers who were delinquent 90 days or more had a redefault rate of 17 percent, and those already in foreclosure had a redefault rate of 19 percent. But the rate for borrowers who had been delinquent for less than 60 days was 9 percent. Furthermore, modified loans with certain characteristics were more likely to redefault: loans in areas where the unemployment rate had increased since modification, loans receiving higher interest rates at modification, or loans that were originated with adjustable rather than fixed rates. Generally, federal agencies are responsible for helping ensure that loss mitigation programs reduce taxpayers’ costs. For example, FHA requires and USDA encourages servicers to use foreclosure mitigation actions to minimize losses from loans going to foreclosure. Similarly, one of the core values of VA is to be a good steward of financial resources that taxpayers provide to the agency. In addition, in estimating costs of loan guarantee programs, agencies are required to consider the long-term costs of the loan guarantee on a net present value basis. Long-term costs include payments by the government to cover defaults and delinquencies, among other things. Further, according to the Office of Management and Budget loss mitigation actions should be used only if they are likely to be less expensive than the cost of default or foreclosure. And, as noted earlier, both the Treasury and the enterprises analyze the performance of modified loans and consider loan and borrower characteristics to better understand the long-term costs of various loan modification actions. Finally, as we previously reported, agencies could use performance information to identify problems, take corrective action, and improve programs. Evaluating the costs of various loan modification actions enables agencies to more effectively weigh the tradeoffs between helping borrowers keep their homes and protecting taxpayers’ interests. FHA officials stated that they considered loan performance and long-term costs in the initial design of the program in 1996. However, FHA has not updated its analysis of loan performance and long-term costs since this time to reflect changes to its loss and foreclosure mitigation activities— including the introduction of FHA-HAMP—or the housing market. In addition, FHA officials told us that they had not assessed the extent to which individual servicers considered long-term costs in making decisions about offering loss and foreclosure mitigation options to borrowers.Recently, FHA began to require trial modification payment periods for certain foreclosure mitigation actions. FHA expects this will reduce redefault rates. FHA has recently begun to calculate redefault rates for specific home retention actions and plans to examine these data in the future. FHA officials stated that they regularly monitor redefault rates of delinquent loans as part of their oversight of servicer activities. For example, FHA set an annual performance goal beginning in fiscal year 2010 for its combined home retention actions and has used the results of this monitoring to provide oversight and training to servicers to reduce redefault rates. However, this goal is for the actions in the aggregate and does not take into account individual actions, such as FHA’s standard loan modification and the FHA-HAMP modification. Further, FHA has not used this information to analyze the effectiveness of its programs. Recently, FHA began to calculate redefault rates for specific home retention actions and plans to continue to calculate and examine these data in the future. FHA currently collects limited data on loan and borrower characteristics at the time of a foreclosure mitigation action. FHA collects information such as delinquency status and the amount of the new principal and interest payment for some modified loans. However, it does not currently collect other key information on borrowers—such as borrower income and expenses at the time of foreclosure mitigation action. Analyses of the characteristics of modified loans and their borrowers could help in adjusting loss mitigation policies. Further, this information could be used to help identify which foreclosure mitigation action would be most appropriate for a borrower. According to FHA officials, servicers are required to provide only minimal data on loan and borrower characteristics at the time of a foreclosure mitigation action, as the responsibility for determining eligibility for loss mitigation activities rests with the servicer and not FHA. In October 2011, a contractor began work to assess FHA’s oversight of servicers’ loss mitigation activities. The assessment identified loan and borrower characteristics commonly collected within the industry, which include current LTV as well as information needed to calculate the change in monthly payment, among other things. The assessment concluded that FHA should collect additional loan-level data from servicers to enable FHA to analyze the performance of modified loans. FHA is considering changes to its current approach that may facilitate the analysis of long-term costs. In December 2010, a team of consultants assisting the agency to establish the Office of Risk Management advised FHA to use an NPV model to help identify appropriate loss mitigation options and maximize the economics of modifications. In March 2012, FHA indicated that it planned to develop a loss model to inform its loss mitigation approach. The use of a loss model would help the agency better understand its programs’ long-term costs. FHA officials told us that they planned to reassess the sequence of their foreclosure mitigation actions, including the point at which borrowers would be evaluated for an However, as of April 2012, FHA had not FHA-HAMP loan modification.decided to use an NPV model. FHA officials raised concerns about using an NPV approach. Specifically, they noted that FHA policy requires servicers to work with all delinquent borrowers to find long-term solutions that, if possible, permit the borrower to retain homeownership. Further, FHA does not use results from analyses to provide the basis for not offering assistance to struggling homeowners. Incorporating an NPV model into FHA’s foreclosure mitigation toolkit would not preclude servicers from working with all delinquent borrowers or offering assistance. Instead, it would likely provide greater clarity about the predicted economic outcome of specific foreclosure mitigation actions and would help servicers better prevent avoidable foreclosures. Further, incorporating an NPV model would help balance the tradeoffs between assisting borrowers to keep their homes and helping ensure the lowest cost to the taxpayer. VA also has not incorporated analyses of long-term costs into its loss mitigation programs. Although VA collects some information about the performance of modified loans and modified loan characteristics, it does not currently analyze its portfolio to understand differences in performance based on type of loss mitigation actions or for loan and borrower characteristics.data servicers provide on loan performance and other loss mitigation actions to determine redefault rates and has not used the information The agency also does not currently evaluate servicers report on loan and borrower characteristics to determine the optimal change in monthly payment amounts for future modifications. Finally, VA requires servicers to collect data on borrowers’ income and expenses but not to report the data to the agency. According to VA officials, VA monitors the effectiveness of its loss mitigation activities on a case-by-case basis by assigning a VA loan technician to oversee situations that cannot be resolved and work directly with the borrower, if required. Finally, USDA has not incorporated analyses of long-term costs into its foreclosure mitigation program, which is designed to have the least upfront cost to the government. As a result, USDA does not require servicers to consider long-term costs in determining which mitigation options to offer borrowers. It collects loan-level data from servicers on loan performance and type of action taken. Further, when servicers submit a request to provide a loss mitigation action to a borrower, they provide data on certain loan and borrower characteristics, including the monthly payment amount after the action, verified income and expenses, and the property value (which could be used to calculate LTV). However, USDA has not analyzed these data, in part because the data are provided through two different reporting systems and would have to be matched in order to be useful. Although the agency had not previously tried to match data, USDA officials said that it would be possible to match data on individual borrowers. Further, USDA officials stated that their loss mitigation data collection systems were outdated and noted that the agency had plans to update them to allow the agency to more systematically capture data on their loss mitigation activities. However, USDA officials were uncertain of the timetable or availability of funding to implement these changes. Because FHA does not analyze the performance of loss mitigation activities by loan and borrower characteristics and VA and USDA do not analyze the performance of these activities by type of home retention action or loan and borrower characteristics, these agencies have a limited understanding of the ultimate costs of their loss mitigation programs. As a result, their loss mitigation activities may not be effectively balancing the tradeoffs between assisting borrowers to keep their homes and helping ensure the lowest cost to the taxpayer. If these agencies better understood the performance and ultimate costs of each home retention action, they could, for example, decide that it was in their best financial interest, as well as the borrowers, to change the order in which their loss mitigation options were offered or to adjust their eligibility requirements. And by collecting additional data and conducting more comprehensive analyses, they could better inform decision makers, helping them to ensure that federal foreclosure mitigation programs are as effective as possible and, at the same time, limiting long-term costs. Such efforts would be key to helping address the ongoing problems of the housing market, including the high volume of seriously delinquent loans that face an elevated risk of foreclosure. To date, principal forgiveness as a method of addressing defaults and foreclosures among borrowers that have significant negative equity has played a limited role in foreclosure mitigation efforts. Principal forgiveness involves reducing the amount the borrower owes on a mortgage without requiring that the amount of the reduction be repaid. As a result, this action not only lowers the borrower’s monthly mortgage payment but allows underwater borrowers the opportunity to rebuild equity in their homes more quickly. Our analysis found that, although the redefault rate for the loans that received principal forgiveness was lower than the overall pools of modified loans, the effects of changing the amount of principal forgiven on loan performance were inconclusive. However, private investors and lenders that hold loans in their portfolio have used principal forgiveness, suggesting that this foreclosure mitigation tool may be effective in certain circumstances. Between 2009 and 2011, the prevalence of principal forgiveness among modified loans ranged from about 3 to 13 percent, and averaged about 6 percent (see fig 13). During the fourth quarter of 2011, about 9 percent (9,867) of modifications included principal forgiveness—up from about 3 In contrast, percent during the first quarter of 2011, according to OCC.more than three-quarters of all modifications during the fourth quarter of 2011 included capitalization or rate reduction, more than half received a term extension, and almost a quarter of modifications included principal forbearance. Principal forgiveness was more prevalent among HAMP modifications (about 16 percent) than among all modifications (about 9 percent). At the same time, OCC data indicated that the prevalence of principal forgiveness varied by market segment and investor. Specifically, principal forgiveness was more prevalent among subprime loans (about 13 percent) than prime loans (7 percent). Further, principal forgiveness was used primarily for loans held in portfolio or serviced for private investors. FHFA does not permit the enterprises to use principal forgiveness as a loan modification action. HUD, USDA, and VA are not authorized to support principal forgiveness. Our analysis of Treasury data for the HAMP program (including Fannie Mae and Freddie Mac loans) found that the 12-month redefault rate for loans that received principal forgiveness was 8 percent, while the rate for loans receiving principal forbearance was 12 percent. Both of these figures are lower than the overall redefault rate for all HAMP loans, which was 15 percent. Our analysis of HAMP data, when controlling for observable borrower and loan characteristics, found that the effect of principal forgiveness on the redefault rate was inconclusive. However, larger balance reductions through principal forbearance were found to lower the redefault rate. The inconclusive results are likely attributable to the fact that principal forgiveness has been used sparingly. While principal forgiveness has always been allowed under HAMP, Treasury did not start offering incentives to investors to forgive principal until October 2010. Since few HAMP modifications have incorporated principal forgiveness, our ability to fully examine the impact of this action on redefault rates was limited. For the CoreLogic data, we analyzed the performance of loans that received a balance reduction, either through principal forgiveness or principal forbearance, and found that loans that received a balance reduction were less likely to redefault. Specifically, the overall 12-month redefault rate of modified loans (loans comparable to HAMP loans) was 26 percent. In contrast, the redefault rate of loans that received a balance reduction was 15 percent. Treasury has taken recent action to further encourage servicers to use principal forgiveness. As discussed earlier, since October 2010 Treasury has required servicers to evaluate severely underwater HAMP applicants for its Principal Reduction Alternative, which provides investors in nonenterprise loans with incentive payments when forgiving principal as part of a HAMP modification. In January 2012, Treasury announced that HAMP would be modified to further encourage investors to offer principal reductions by increasing the incentives payments. In the past, investors received between 10 and 21 cents on the dollar to write down principal on loans. As of March 2012, Treasury began paying 30 to 63 cents on the dollar. FHFA, the conservator and regulator of Fannie Mae and Freddie Mac, has not allowed them to use their own funds to offer principal forgiveness. FHFA has argued that it has a statutory responsibility to preserve and conserve the assets and property of the regulated entities. At the same time, FHFA noted that it has a statutory responsibility to maximize assistance for homeowners to minimize foreclosures while taking into consideration the cost to taxpayers of any action undertaken. FHFA performed an initial analysis comparing the effectiveness of principal forbearance to principal forgiveness as a loan modification tool in December 2010 and updated it in June and December 2011 using Treasury’s HAMP Net Present Value (NPV) model. The agency concluded that although both forgiveness and forbearance reduce the borrower’s payment to the same affordable level, forbearance achieves marginally lower losses for the taxpayer than forgiveness. These analyses have provided the basis for FHFA’s current policy decision to not permit the enterprises’ use of principal forgiveness. However, some housing market observers have been critical of FHFA’s approach to evaluating the utility of principal forgiveness. For example, one industry observer noted that FHFA’s analysis assessed the costs of writing down all loans in the enterprises’ portfolios with negative equity instead of the possibility of using principal forgiveness for some borrowers and a forbearance strategy for others based on the borrowers’ and loans’ characteristics. For example, one Treasury official has been quoted as stating that principal forgiveness may have the best result for borrowers above 120 LTV ratios that can prove some type of hardship. Other concerns raised by industry observers included FHFA’s use of information obtained at loan origination rather than current data (i.e., Fair Isaac Corporation (FICO) credit scores, income, etc.) and not following HAMP modification rules for the extent of the monthly payment reduction, which require a 31 percent debt-to-income target rather than a prescribed LTV reduction. In January 2012, Treasury announced that it would pay incentives to the enterprises if FHFA allowed servicers to forgive principal as part of Fannie Mae and Freddie Mac HAMP modifications, a change that could significantly alter FHFA’s position. Shortly after Treasury’s announcement, FHFA began to conduct analyses to reevaluate the use of principal forgiveness as a foreclosure mitigation tool. FHFA updated its earlier analyses by incorporating the impact of receiving incentive payments from Treasury and altered its analyses to address some of the critiques made of its previous approach. Specifically, FHFA indicated that it made adjustments to the loan origination data to better reflect likely changes in borrowers’ FICO scores and housing payment debt-to-income ratios, and used zip code as opposed to state-level indices to more accurately identify high LTV borrowers. In addition, FHFA officials told us that they used a 31 percent debt-to-income target in their updated analyses. According to FHFA officials, they also modified their current analysis to fully consider HAMP and HAMP PRA modification rules. FHFA officials told us that they believed that this change addressed the critique about using a mutually exclusive approach of using principal forgiveness versus forbearance for all loans with negative equity. As of June 2012, FHFA had not made a final decision on allowing the enterprises to engage in HAMP principal forgiveness modifications. According to FHFA, its preliminary analysis, as of April 2012, showed a positive benefit of $1.7 billion to the enterprises of accepting $3.8 billion in Treasury incentive payments for performing loan modifications involving principal forgiveness. Further, FHFA noted any savings, from the perspective of the federal government, would be negligible due to the draw on the Treasury. However, all TARP-funded housing programs are expenditures, including incentives paid to the nonenterprise investors, servicers, and borrowers. Further, the payment of incentives to the enterprises for principal forgiveness modifications would be paid out of the $45.6 billion that Treasury has already obligated to be used for preventing avoidable foreclosures and preserving homeownership. FHFA’s estimate was based on the nearly 700,000 loans in Fannie Mae’s and Freddie Mac’s portfolios considered to be eligible for a HAMP loan modification that were severely underwater (current LTV greater than 115) as of June 30, 2011, and were either already in delinquency status or loans that could become delinquent within 6 months. According to FHFA, the actual number of borrowers who would receive principal forgiveness would likely be lower due to other eligibility requirements and because eligible borrowers may choose not to participate. Additionally, FHFA noted that HAMP principal forgiveness modifications would not expand the number of borrowers who are eligible to obtain modifications under HAMP because the eligibility requirements are the same. Separately, the enterprises assessed the feasibility of principal forgiveness, but their analyses focused on different issues and produced different results. Before Treasury announced that it would pay incentives to the enterprises, Fannie Mae assessed the affect of principal forgiveness on loan modifications through two small pilot programs, but found that the pilots did not provide any indication that performance varied between modifications with and without principal forgiveness. However, Fannie Mae analysis did not address the financial impact to the enterprise of receiving Treasury HAMP PRA incentive payments. Freddie Mac prepared estimates of the savings that principal forgiveness might provide using the HAMP NPV model by assuming principal forgiveness to a 105 percent LTV. Given the underlying assumptions, it found that for 100,000 borrowers, the inclusion of the recently proposed Treasury incentive payments could offset losses to the enterprises by approximately $480 million as opposed to performing a loan modification without subsidies from Treasury. Aside from the direct financial impact to the enterprises of receiving incentive payments for participating in HAMP’s PRA , FHFA and the enterprises have raised concerns about borrowers strategically defaulting to become eligible for principal forgiveness—moral hazard—as well as the additional costs and time this approach would require. Nonetheless, there remain techniques for mitigating its impact on borrower behavior, most notably requiring that the borrower already be in default and prove a financial hardship. All three entities also pointed to the costs for developing information systems and the time it would take the enterprises and its servicers to implement principal forgiveness. For example, according to Fannie Mae officials, these costs could be as high as tens of millions of dollars and could require up to 22 to 24 months. FHFA noted that it was still evaluating the direct operational costs associated with adopting principal forgiveness under HAMP and that those costs were not trivial. However, FHFA has not indicated whether those direct costs are likely to be greater than the $1.7 billion in financial benefits that it determined would likely accrue to the enterprises from receiving Treasury HAMP PRA incentive payments. Moreover, as noted by FHFA, the anticipated benefit of principal forgiveness is that, by reducing foreclosures relative to other modification types, losses to the enterprises would be lowered and house prices would stabilize faster, thereby producing broader benefits to all market participants. Despite the unprecedented scale of federal and nonfederal efforts to help borrowers facing potential foreclosure, key indicators suggest that the U.S. housing market remains weak and that high foreclosure levels will likely persist in the foreseeable future. While these efforts resulted in more than 4 million loan modifications between January 2009 and December 2011, the volume of modifications has declined since 2010 and millions of borrowers have sought but have been unable to receive a permanent modification. Specifically, our analysis of mortgage data showed that 1.9-3 million loans still had characteristics associated with an increased likelihood of foreclosure, such as serious delinquency and significant negative equity (LTV ratio of 125 or higher), as of June 2011. Further, Treasury estimated that there were 900,000 borrowers who were seriously delinquent and potentially eligible for its HAMP modification program as of December 31, 2011. Another almost 2 million FHA, Fannie Mae, and Freddie Mac loans also were seriously delinquent. In addition, indicators such as home prices and home equity remain near their postbubble lows. And finally, as of December 2011, total U.S. household mortgage debt was $3.7 trillion greater than households’ equity in their homes. Despite their efforts, neither federal agencies nor nonfederal entities have been able to come up with a clear path for resolving the foreclosure crisis. A number of factors have hindered foreclosure mitigation efforts, including competing priorities (e.g., balancing short-term versus long-term costs, mitigating moral hazard) and ongoing developments, such as declining house values, and a high unemployment rate. Ultimately, what will likely be required will be a variety of approaches aimed at removing various obstacles to existing foreclosure mitigation strategies. Comprehensive data-gathering and analysis will also be needed to help ensure that federal foreclosure mitigation programs are effective and also limit fiscal costs and the potential for negative long-term consequences from government intervention. Our analysis found that several agencies and the enterprises could do more to better manage the costs associated with foreclose mitigation efforts and step up their efforts to reach and help borrowers, specifically the following, Treasury has not reassessed its need for the letter of credit on FHA’s Short Refinance program, which will not likely reach the number of borrowers that it initially estimated it would help. For this reason, Treasury may not need to maintain an $8 billion letter of credit for the program and thus may be able to cut costs by reducing or eliminating the fees associated with the letter. One of the key findings of our econometric analysis of the CoreLogic and HAMP loan-level data was that loan modifications should be made before borrowers become seriously delinquent on their mortgage payments in order to obtain the best results. Although USDA requires servicers to attempt to work with borrowers before they become seriously delinquent, USDA does not collect information from servicers about these efforts. Moreover, its monitoring and data collection to ensure that servicers are complying with its requirements to reach distressed borrowers before they become seriously delinquent are limited. Collecting and analyzing data would provide USDA with a more complete picture of how well servicers are reaching distressed borrowers and preventing avoidable foreclosures. FHA, VA, and USDA have not fully analyzed the costs and benefits of their foreclosure mitigation actions to help ensure that both borrowers and taxpayers benefit from efforts to keep homeowners in their homes. Although FHA has begun to calculate redefault rates for specific home retention actions, it has not used this information to assess the effectiveness of its foreclosure mitigation efforts. Doing so is particularly important since FHA loan modifications typically do not reduce borrower’s monthly payments to the levels that our analysis indicated result in more sustainable modifications. Further, VA and USDA do not routinely calculate redefault rates for specific types of home retention actions—such as their various loan modification programs—although additional efforts to calculate this performance data would provide these agencies with better information to manage their foreclosure mitigation efforts. In addition, our analysis of the performance of loans identified key loan and borrower characteristics that reduced the likelihood of redefault. Specifically, we found that the size of payment change as well as the current LTV and delinquency status at the time of modification greatly influenced the success of a loan modification. However, FHA, VA, and USDA have not assessed the impact of loan and borrower characteristics on the performance of their foreclosure mitigation efforts. In some cases, these agencies do not have the data needed to conduct these analyses. In contrast, Treasury and the enterprises routinely calculate and evaluate this performance information. For example, the enterprises based recent changes to their non-HAMP loan modification programs on their analysis of the size of monthly payment reductions on redefault rates. Without these types of analysis and data, FHA, VA and USDA cannot, on a regular basis, evaluate the merits of the different home retention actions and use the information to identify opportunities to improve program performance. Finally, several federal agencies and the enterprises continue to make changes and enhancements to their foreclosure mitigation efforts to assist borrowers struggling to avoid foreclosure. For example, Treasury recently announced a number of changes to HAMP to increase the number of borrowers helped by the program, including targeting efforts to help underwater borrowers by tripling the incentives paid to investors for principal forgiveness and offering incentive payments to the enterprises for loan modifications that include principal forgiveness. In response, FHFA is currently reevaluating its prohibition against the use of Fannie Mae and Freddie Mac funds for principal forgiveness. Although permitting the enterprises to offer principal forgiveness would not expand the numbers of borrowers eligible for a HAMP modification, FHFA’s preliminary analysis indicated that the Treasury incentive payments would result in a positive benefit to the enterprises of $1.7 billion as opposed to performing traditional HAMP modifications for severely underwater borrowers. FHFA and the enterprises have noted that there would be various costs associated with adopting a principal forgiveness program that have not yet been fully determined, thus, delaying a decision on whether the enterprises will engage in principal forgiveness. Given the December 31, 2013, deadline for entry into a HAMP permanent loan modification and the lead time required for the enterprises to implement a principal forgiveness program, it is critical that FHFA take the steps needed to expeditiously make a decision about allowing the enterprises to engage in HAMP principal forgiveness modifications. As estimated by FHFA, nearly 700,000 severely underwater borrowers could potentially be eligible if the enterprises were to offer HAMP modifications with principal forgiveness. As the enhanced efforts pick up speed, it may be possible to identify further enhancements that would help both struggling homeowners and the overall economy. However, the ability of federal agencies and the enterprises to make such determinations is unclear, unless they collect and analyze the data needed to demonstrate the success and cost- effectiveness of individual actions. This information can help program managers and policymakers decide what further steps, if any, to take in their efforts to mitigate the foreclosure crisis. To help ensure Treasury is making effective and efficient use of its resources, Treasury and FHA should update their estimates of participation in the FHA Short Refinance program given current participation rates and recent changes to the program. Treasury should then use these updated estimates to reassess the terms of the letter of credit facility and consider seeking modifications in order to help ensure that it meets Treasury’s needs cost-effectively. In order to better ensure that servicers are effectively implementing the agency’s loss mitigation programs and that distressed borrowers are receiving the assistance they need as early as possible before they become seriously delinquent, we recommend that the Secretary of the Department of Agriculture require servicers to report information about their efforts to reach distressed borrowers. For example, servicers could report on their efforts to reach borrowers and whether borrowers have responded to outreach from the servicer regarding early delinquency interventions and are receiving informal foreclosure mitigation actions. Further, the Secretary of USDA should determine the extent to which distressed borrowers have not been reached and assess whether changes are needed to help ensure servicers are complying with USDA’s loss mitigation requirements. To more fully understand the strengths and risks posed by foreclosure mitigation actions and protect taxpayers from absorbing avoidable losses to the maximum extent possible, we recommend that FHA, VA, and USDA conduct periodic analyses of the effectiveness and the long-term costs and benefits of their loss mitigation strategies and actions. These analyses should consider (1) the redefault rates associated with each type of home retention action and (2) the impact that loan and borrower characteristics have on the performance of different home retention actions. The agencies should use the results from these analyses to reevaluate their loss mitigation approach and provide additional guidance to servicers to effectively target foreclosure mitigation actions. If FHA, VA, and USDA do not maintain data needed to consider this information, they should require services to provide them. We recommend that FHFA expeditiously finalize its analysis as to whether Fannie Mae and Freddie Mac will be allowed to offer HAMP principal forgiveness modifications. We requested comments on a draft of this report from Treasury, HUD, USDA, VA, FHFA, Fannie Mae, Freddie Mac, OCC, Federal Reserve, FDIC, and the Consumer Financial Protection Bureau (CFPB). We received formal written comment letters from Treasury’s Assistant Secretary for Financial Stability, HUD’s Acting Assistant Secretary for Housing (Federal Housing Commissioner), VA’s Chief of Staff, and FHFA’s Senior Associate Director of the Office of Housing and Regulatory Policy; these are presented in appendixes VI through IX. We also received e-mail comments from USDA that are discussed below. Lastly, we received technical comments from Treasury, HUD, FHFA, Fannie Mae, Freddie Mac and FDIC that are incorporated as appropriate in the report. OCC, the Federal Reserve, and CFPB did not provide any comments on the draft report. Treasury, HUD, VA, and FHFA each agreed to consider or concurred with the recommendations and indicated that action was either under way or planned in response to our recommendations. In its written comments, FHFA noted that savings to the federal government would likely be negligible if the enterprises offered modifications under the HAMP Principal Reduction Alternative because of the incentive payments Treasury would have to provide. In response, we added additional information to the report noting, as we have in prior reports, that all TARP-funded housing programs are expenditures, including incentives paid to investors other than the enterprises, servicers, and borrowers. Further, incentives to the enterprises for principal forgiveness modifications would be paid out of the $45.6 billion that Treasury has already obligated for preventing avoidable foreclosures and preserving homeownership. FHFA also noted that the draft report did not discuss the issue of principal forgiveness modifications with respect to FHA, USDA, and VA. We included additional text in the report to note that FHA, USDA, and VA each cited limitations related to their authority to forgive loan principal as part of a foreclosure mitigation action. Moreover, as the draft report notes, FHA, VA, and USDA have not fully analyzed the costs and benefits of their foreclosure mitigation actions to help ensure that both borrowers and taxpayers benefit from efforts to keep homeowners in their homes. Therefore, we recommended that these agencies analyze the effectiveness and the long-term costs and benefits of their loss mitigation strategies and actions. Although USDA did not provide a formal written comment letter, e-mail comments from Rural Development noted that USDA generally concurred with the information applicable to USDA in the report. Further, USDA provided additional data on the types of information that servicers were required to report on their foreclosure mitigation efforts. In response, we clarified the text of the report and the associated recommendation to provide additional examples of data that would enhance USDA’s ability to monitor servicers’ borrower outreach and foreclosure mitigation efforts. We are sending copies of this report to interested congressional committees, Treasury, HUD, USDA, VA, FHFA, Fannie Mae, Freddie Mac, OCC, Federal Reserve, FDIC, CFPB, Special Inspector General for TARP, and members of the Financial Stability Oversight Board. We also will make this report available at no charge on the GAO website at http://www.gao.gov. If you or your office 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. Key contributors to this report are listed in appendix VII. This report focuses on foreclosure mitigation efforts. Specifically, this report examines (1) the federal and nonfederal response to the housing crisis, (2) the number of loans potentially at risk of foreclosure and the current condition of the U.S. housing market, and (3) opportunities to enhance the effectiveness of current foreclosure mitigation efforts. To examine the response to the housing crisis, we identified key federal and nonfederal efforts to mitigate foreclosures, focusing our review on those that provided direct assistance to homeowners: Department of the Treasury’s efforts, including the Home Affordable Modification Program (HAMP), HAMP-Principal Reduction Alternative (PRA), Federal Housing Administration Refinance of Borrowers in Negative Equity Positions (FHA Short Refinance, joint program with the Department of Housing and Urban Development (HUD)), Home Affordable Unemployment Program (UP), and Home Affordable Foreclosure Alternatives (HAFA) Program. HUD’s efforts, mainly through FHA, including special forbearance agreements, standard modifications, FHA-HAMP, FHA Short Refinance (joint program with Treasury), partial claims short sales, and deeds-in-lieu of foreclosure. Department of Agriculture’s (USDA) efforts, including special forbearance, traditional modifications, special loan servicing, short sales, and deeds-in-lieu of foreclosure. Department of Veterans Affairs’ (VA) programs, including repayment plans, special forbearance agreements, standard modifications, VA- HAMP, short sales, and deeds-in-lieu of foreclosure. Efforts of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), including repayment plans, forbearance agreements, standard loan modification programs, Home Affordable Refinance Program (HARP), short sales, and deeds-in-lieu of foreclosure. Efforts implemented by states but supported by federal funds, such as Treasury’s Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (Hardest Hit Fund) and HUD’s Emergency Homeowners Loan Program (EHLP). Efforts implemented by mortgage servicers, commonly known as proprietary foreclosure mitigation efforts. For federal efforts, we identified and reviewed statutes, regulations, requirements, guidance, and press releases. Further, to examine these foreclosure mitigation efforts, we obtained viewpoints from a wide range of housing market participants and observers, including federal officials from HUD, USDA, VA, and Treasury, as well as the Office of the Comptroller of the Currency (OCC), Federal Housing Finance Agency (FHFA), Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), and Consumer Financial Protection Bureau (CFPB). In addition we met with staff from two government-sponsored-enterprises, Fannie Mae and Freddie Mac (the enterprises). We also met with housing market trade associations, including the Mortgage Bankers Association (MBA), Mortgage Insurance Companies of America, Association of Mortgage Investors, American Securitization Forum, and National Association of Realtors. Finally, we met with housing market observers and participants, such as CoreLogic, the Center for Responsible Lending, the National Association of Consumer Advocates, Amherst Securities, NeighborWorks America, HOPE NOW, and the National Community Reinvestment Coalition. To describe the volume, characteristics, and costs associated with federal efforts and specific foreclosure mitigation actions (such as loan modifications), we obtained summary data from Treasury, HUD, USDA, VA and the enterprises. We did not independently confirm the accuracy of these data. However, we took steps to ensure that the data we used were sufficiently reliable for our purposes, such as reviewing existing information about data quality, interviewing officials familiar with the data, and corroborating key information. We also reviewed reports generated by Treasury, HUD, USDA, VA, the enterprises, and FHFA describing the volume, characteristics, performance, and costs of foreclosure mitigation efforts and actions that occurred for the period of January 2009 through December 2011. To examine the volume, characteristics and performance of nonfederal foreclosure mitigation efforts, we reviewed publically available data reported by HOPE NOW (an industry association) and servicers (through OCC’s Mortgage Metrics Reports)We did not independently confirm the accuracy of the summary data we obtained from these sources. However, we took steps to ensure that the data we used were sufficiently reliable for our purposes, such as reviewing the data with officials familiar with generating the data. To supplement these data sources, we also analyzed loan-level servicing data we obtained from CoreLogic to examine the volume, characteristics, and performance of loan modifications made through both federal and nonfederal programs. The data we obtained provide wide coverage of the national mortgage market—that is, approximately 65 percent to 70 percent of prime loans and about 50 percent of subprime loans, according to CoreLogic officials. Due to the proprietary nature of CoreLogic’s estimates of its market coverage, we could not directly assess the reliability of these estimates. However, we have used CoreLogic data in prior reports in which we concluded that the data we used were sufficiently reliable for our purposes. in the coverage and completeness of the data, our analysis may not be representative of the mortgage market as a whole. CoreLogic’s prime loans include conventional loans as well as loans insured or guaranteed by FHA, VA, and other government entities. Further, prime loans include near prime or Alt-A loans. For example, see GAO, Mortgage Reform: Potential Impacts of Provisions in the Dodd- Frank Act on Homebuyers and the Mortgage Market, GAO-11-656 (Washington, D.C.: July 19, 2011). provides information on certain loan and borrower characteristics at origination, such as the original loan amount and interest rate as well as credit score, and a series of monthly observations, which include current mortgage status (current on payments, 30, 60, or 90 or more days delinquent, in foreclosure, real estate owned, or has paid off). We restricted our analysis to first-lien mortgages for the purchase or refinancing of single-family residential properties (1- to 4-units) in the 50 states and the District of Columbia that were active sometime during the period from January 2007 through June 2011. This data set contained about 58.2 prime mortgages and about 7.7 subprime mortgages. We reviewed documentation on the process CoreLogic used to collect its data. We discussed this process and the interpretation of different data fields with CoreLogic representatives. In addition, we conducted reasonableness checks on data elements to identify any missing, erroneous, or outlying data. Although the Core Logic data has certain limitations—for example, certain data fields are not fully reported—we concluded that the data we used were sufficiently reliable for our purposes. To examine the volume, characteristics, and performance of loan modifications, we took a 15 percent random sample of the CoreLogic data set, which resulted in 7,608,603 prime mortgages and 608,704 subprime mortgages. Although this data set did not contain direct information about the presence of modifications, we developed a set of algorithms to infer if the loan had been modified. We confirmed the accuracy of our algorithms by using our methodology to analyze data provided by OCC that included known modifications (see app. III). We conducted several analyses on this data set. For example, we calculated the magnitude of payment reductions as well as the 6-month redefault rates for modified loans. To identify other key efforts intended to mitigate foreclosures, we interviewed a wide range of housing market participants and observers. We identified a number of efforts, such as improvements to servicing standards. To examine this effort, we reviewed information related to the consent orders OCC the federal banking regulators sent to 14 servicers as well as the agreement reached by the federal government and state attorneys general agreement with the five largest servicers in the United States. To examine the current condition of the U.S. housing market, we analyzed the loan-level data we obtained from CoreLogic. We conducted our analysis on all active loans in June 2009, 2010, and 2011 that met our selection criteria. Specifically, we identified loans that were associated with an increased likelihood of foreclosure and then described the number and loan and borrower characteristics of these loans. First, we identified key characteristics associated with an increased likelihood of foreclosure by reviewing our prior work and other studies, as well as interviewing housing market participants and observers. Based on these studies and viewpoints, we identified the following five key characteristics: (1) loans with two or more missed payments; (2) loans with significant negative equity (a current LTV ratio of 125 percent or greater); (3) loans with significant negative equity located in an area with unemployment of 10 percent or greater; (4) loans with a high current interest rate (1.5 percentage points or 150 basis points or higher above the market rate); and (5) loans with certain origination features, such as a credit score of 619 or below and an LTV of 100 percent or higher at the time of origination. Second, we analyzed the CoreLogic loan-level data to determine the extent to which loans were associated with these five characteristics. We took steps to ensure that the data we used were sufficiently reliable for our purposes, such as conducting reasonableness checks on data elements. In some cases, the CoreLogic data set did not contain information associated with these characteristics—specifically, negative equity, unemployment, and high interest rate. In these cases, we linked additional data to the CoreLogic data to derive this information. To estimate a borrower’s equity, we linked historical and current house price information at the zip code level to the CoreLogic data. Specifically, we calculated for each loan the current house value based on the date of origination. In areas where a house price did not exist we used the state-level average house price index for the month of origination and for June 2009, 2010, and 2011. Due to data limitations our analysis did not take into account additional liens. As a result, we may overstate the amount of equity a borrower has in their home. To estimate unemployment levels that could affect borrowers we used employment data at the county level from the Bureau of Labor statistics (BLS) to analyze local area unemployment rates. We linked the local area unemployment data with zip code data in CoreLogic to determine a local area unemployment rate for each loan as of June 2009, 2010, and 2011. If the local area unemployment rate was 10 percent or higher we determined that the loan was in an area with a high unemployment. For loans originated during the last 5 years, we determined high interest rates by comparing the interest rate on individual loans to the current Freddie Mac’s Primary Mortgage Market Survey monthly results for adjustable rate mortgage (ARM), 30-year fixed, and 15- year fixed-rate mortgages, depending on the loan’s origination mortgage product as of June 2009, 2010, and 2011. If the current interest rate was equal to or greater than the Freddie Mac rate by 150 basis points, we determined that the loan had a high interest rate. We analyzed loans with delinquency or with two or more of the other four characteristics associated with an increased likelihood of foreclosure (i.e., significant negative equity, significant negative equity and located in an area with high unemployment, high current interest rate, certain origination features). We also conducted a state-by-state analysis. To further examine the current condition of the U.S. housing market, we identified and analyzed key national housing market indicators, including measures of loan performance, home equity, unemployment, and home affordability. To identify these indicators, we reviewed a wide range of publicly available information and interviewed housing market participants and stakeholders. To analyze the indicators, we reviewed information in several reports, including, the National Delinquency Survey data issued by the Mortgage Bankers Association (MBA), data issued by the National Bureau of Economic Research, CoreLogic’s Home Price Index, the Federal Reserve’s statistical releases on the Flow of Funds Accounts of the United States, IHS Global Insight data on home affordability, and unemployment data reported by BLS. We did not independently confirm the accuracy of the information and analysis that we obtained from third parties. However, we took steps to ensure that the data we used from these sources were sufficiently reliable for our purposes, such as reviewing existing information about data quality, interviewing officials familiar with the data, and corroborating key information. To examine opportunities to enhance the effectiveness of foreclosure mitigation efforts, we identified and reviewed the purposes and goals of federal foreclosure mitigation efforts as well as statutes, requirements, and guidance associated with these efforts. To describe the costs associated with federal efforts and specific foreclosure mitigation actions, we obtained summary data from Treasury, HUD, USDA, VA and the enterprises. Again, we did not independently confirm the accuracy of the summary data we obtained. However, we took steps to ensure that the data we used were sufficiently reliable for our purposes, such as interviewing officials familiar with the data. We reviewed relevant principals of federal budgeting resulting from federal credit reform. We obtained the viewpoints of a wide range of housing market participants and observers. For example, we met with officials from Treasury, HUD, FHFA, Fannie Mae, Freddie Mac, VA, and USDA to understand the extent to which their foreclosure mitigation programs reached struggling borrowers. We discussed their activities to monitor the performance of their foreclosure mitigation efforts and the extent to which they had considered other factors that may affect performance. For instance, we asked whether they had analyzed the effect of loan and borrower characteristics on the performance of loss mitigation actions and considered redefault rates and loss severity when evaluating the costs and benefits of these actions. Finally, we discussed the utility of, as well as any obstacles to, taking these steps. To better understand characteristics that affect redefault rates of modified loans, we conducted an econometric analysis. Specifically, we analyzed a sample of loan-level data we obtained from CoreLogic. We took steps to ensure that the data we used were sufficiently reliable for our purposes, such as conducting reasonableness checks on data elements. In addition, we analyzed loan-level data we obtained from Treasury to examine the performance of HAMP loan modifications. The HAMP data are reported by servicers at the start of the trial modification period, during the trial period, during conversion to a permanent modification, and during the permanent modification phase of the program. The data contain several loan and borrower characteristics at origination, including the loan-to- value (LTV) and loan amount; as well as some information at time of the modification, including delinquency status. Since we did not have data on the performance history of the modified loans, we constructed the loan history using data from different points in time. The HAMP data have certain limitations. For instance, certain data fields are not fully reported, as indicated by the Department of the Treasury. However, we determined that the data were sufficiently reliable for our purposes. See appendix V for a detailed summary of the methodology for the analysis of the CoreLogic and HAMP data, as well as the results from this analysis. 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. Treasury has outlined the requirements for certain foreclosure mitigation programs in the MHA Handbook, which are summarized here. These guidelines apply to mortgages that are not owned or guaranteed by Fannie Mae or Freddie Mac and that are not insured or guaranteed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Department of Agriculture (USDA). Fannie Mae and Freddie Mac participate in the Home Affordable Modification Program (HAMP) but have issued their own guidance. FHA, VA, and USDA have issued guidance for companion programs that are separate from HAMP. Treasury’s programs provide relief to borrowers whose mortgages are held in lenders’ portfolios or in private securitization trusts. To qualify, mortgages must have been originated on or before January 1, 2009, and be secured by a one-to- four unit residential property. In general, borrowers must be delinquent or default must be reasonably foreseeable (imminent default). Home Affordable Modification Program (HAMP) Tier 1: HAMP Tier 1 modifications reduce borrowers’ monthly mortgage payments to affordable levels and help them avoid foreclosure. To be eligible under HAMP Tier 1, borrowers must occupy the property and have monthly mortgage payments that exceed 31 percent of their monthly gross income. The HAMP Tier 1 evaluation includes identifying actions to be taken that will result in a monthly mortgage payment-to- income ratio of 31 percent. These actions must follow a standard sequence until this ratio is reached: capitalizing past due amounts, reducing the interest rate down to a minimum of 2 percent, extending the mortgage term by up to 40 years from the date of modification, and forbearing principal. Servicers have the option of using an alternative sequence of modification actions under the Principal Reduction Alternative that includes principal forgiveness as a second step before reducing the interest rate. Servicers then use a standardized net present value (NPV) test to compare the financial benefits to the investor of modifying relative to not modifying the loan. Borrowers who are approved for HAMP Tier 1 begin with a trial period that lasts at least 3 months. Borrowers who successfully complete a trial period receive a permanent modification. After 5 years, the interest rate begins to step up each year until the market rate is reached if the starting interest rate was below the market rate at the time of the modification. Treasury pays incentives to investors and servicers for completed modifications and to borrowers, investors, and servicers for the continued successful performance of certain modifications. More than 450,000 nonenterprise permanent modifications were started between when the program began in 2009 and December 2011. HAMP Tier 2: Effective June 1, 2012, the HAMP Tier 2 program will offer modifications to certain borrowers who do not qualify for HAMP Tier 1, including those whose current mortgage payments are below 31 percent of their income and those who do not occupy the property as their primary residence. HAMP Tier 2 modifications will capitalize past due amounts, adjust interest rates to the market rate, extend loan terms to 40 years, and forbear up to 30 percent of principal on loans with LTV ratios of more than 115 percent to reach the 115- percent threshold. Borrowers will be offered HAMP Tier 2 modifications only if these changes reduce monthly payments by at least 10 percent and result in payments ranging from 25 percent to 42 percent of monthly gross income. Second-Lien Modification Program (2MP): The Second Lien Modification Program (2MP) is designed to work in tandem with HAMP modifications to provide a comprehensive solution to help borrowers afford their mortgage payments. A participating servicer of a second lien for which the first lien receives a HAMP Tier 1 or Tier 2 modification must offer to modify the borrower’s second lien, accept a lump sum payment from Treasury to fully extinguish the second lien, or accept a lump sum payment from Treasury to partially extinguish the second lien and modify the remaining portion. Under 2MP, servicers are required to take modification actions in the following order: capitalize accrued interest and other past due amounts; reduce the interest rate to as low as 1 percent for 5 years (when the interest rate will reset at the rate on the HAMP-modified first lien); extend the term to at least match the HAMP- modified first lien; and forbear or forgive principal in at least the same proportion as the forbearance or forgiveness on the HAMP-modified first-lien, although servicers may choose to forbear or forgive more than that amount. According to Treasury, nearly 61,000 second liens had been modified under 2MP, including nearly 13,000 that involved full extinguishments. Home Affordable Unemployment Program (UP): This program provides forbearance on mortgage loans to borrowers whose hardship is related to unemployment. Borrowers who indicate that their hardship is related to unemployment when being considered for HAMP must be evaluated for UP and, if qualified, receive an offer for forbearance. At their discretion, however, servicers may offer a HAMP trial period instead, although they must document their reasons. Servicers are not required to offer UP forbearance to borrowers whose delinquency exceeds 12 months of scheduled monthly mortgage payments. The minimum duration of UP forbearance is 12 months unless the borrower finds a job during that time. There is no maximum forbearance period, and servicers may extend forbearance in increments at their discretion. Servicers must reduce monthly payments during the forbearance period to no more than 31 percent of monthly gross income, but may opt to suspend them in full. When the forbearance period ends, the servicer must evaluate the borrower for HAMP or other modifications to resolve the delinquency. As of December 2011, more than 18,000 UP forbearance agreements had been started. Home Affordable Foreclosure Alternatives (HAFA): Borrowers who cannot afford to keep their homes must be considered for short sales and deeds-in-lieu of foreclosure (DIL) under the HAFA program. Borrowers may be considered for HAFA after being considered for HAMP or upon the borrower’s request. Borrowers who qualify for a HAFA short sale must sign and return a short sale agreement that lasts for a minimum of 120 days and that lists the minimum price, allowable transaction costs, and monthly mortgage payments to be made during the period of the agreement, if applicable. Borrowers may also qualify for HAFA if they have received an offer on their property and submit a request for a short sale. Through HAFA, a borrower may also receive a DIL either as a condition of the short sale agreement if the property doesn’t sell or separately without a requirement to market the property. In all HAFA transactions, the title must be clear, any subordinate lien holders must release their liens, and investors must agree to the transaction. According to Treasury data, about 26,000 nonenterprise HAFA short sales and DILs had been completed as of December 2011. Fannie Mae has outlined the requirements for foreclosure mitigation programs in its Single Family Servicing Guide, which are summarized here. These guidelines apply only to mortgages that are owned or guaranteed by Fannie Mae. Fannie Mae recently changed its foreclosure mitigation workout hierarchy to require servicers to first evaluate whether borrowers face a temporary or permanent hardship. Temporary hardships may be addressed with repayment plans and temporary forbearance. Permanent or long-term hardships may be addressed with modifications (which may include forbearance) under the Home Affordable Modification Program (HAMP), Fannie Mae’s standard loan modifications, short sales or deeds-in-lieu of foreclosure (DIL) under the Home Affordable Foreclosure Alternatives program (HAFA) or Fannie Mae’s own program. Fannie Mae also has a program to lease back a property that has been conveyed through a DIL to the former homeowner, called a deed-for-lease. Previously Fannie Mae required servicers to evaluate borrowers for a HAMP modification before considering them for other foreclosure mitigation actions. Repayment Plans and Forbearance: A repayment plan is an agreement between servicer and borrower that gives the borrower a period of time to reinstate the mortgage by making regular monthly payments plus an additional amount to repay the delinquency. Servicers may also offer forbearance to borrowers, which suspends or reduces payments for up to 6 months. Forbearance periods longer than 6 months require written agreements with the borrower and written approval from Fannie Mae. Fannie Mae also has unemployment forbearance, which is the first action servicers must consider for unemployed borrowers. Fannie Mae clarified the requirements for this action in early 2012. Unemployment forbearance initially lasts for 6 months or until the borrower is reemployed, whichever occurs first. If the borrower completes the initial unemployment forbearance period and remains unemployed, the servicer may offer extended unemployment forbearance for up to 6 more months with Fannie Mae’s approval. For all forbearance programs, once the borrower’s hardship is resolved, the forbearance period ends and the borrower must repay the full amount, enter a repayment plan, or receive a loan modification or other foreclosure mitigation action. Fannie Mae completed about 90,000 repayment plans and forbearance agreements under these programs between January 2009 and December 2011. Home Affordable Modification Program (HAMP): Servicers must evaluate borrowers for HAMP before considering them for other modification options. Like Treasury’s nonenterprise HAMP program, the Fannie Mae HAMP evaluation reduces the monthly mortgage payment-to-income ratio to 31 percent by following a standard sequence of modification actions: capitalizing past due amounts, reducing the interest rate to a minimum of 2 percent, extending the mortgage term to up to 40 years, and forbearing principal. Servicers use Treasury’s net present value (NPV) model to estimate the financial outcome of modifying or not modifying the loan. Unless the NPV result for not modifying the loan exceeds the NPV result for modifying the loan by more than $5,000, the servicer must move forward with the HAMP modification. Borrowers who are approved for HAMP begin with a trial period that lasts at least 3 months. Modifications become permanent after borrowers have successfully completed the trial period. Fannie Mae pays borrower and servicer incentives for HAMP modifications but is not eligible for Treasury’s investor incentives under HAMP. Fannie Mae completed nearly 330,000 HAMP modifications as of December 2011. Non-HAMP Loan Modifications: Fannie Mae servicers must consider borrowers who do not qualify for HAMP or have defaulted on HAMP modification for standard modifications. The terms of Fannie Mae’s standard loan modification program, which took effect October 1, 2011, require servicers to capitalize past due amounts, adjust interest rates to a fixed rate (to be adjusted from time to time based on market conditions), and extend the amortization term to 480 months. In addition, if the current loan-to-value (LTV) ratio exceeds 115 percent, the servicer must forbear up to 30 percent of the principal balance to bring the LTV ratio down to 115 percent. These changes must reduce monthly payments by at least 10 percent, and the borrower’s front-end debt-to-income ratio must be greater than or equal to 10 percent and less than or equal to 55 percent in order for the modification to proceed. Fannie Mae offers up to $1,600 in incentives for each modification, depending on how early in the delinquency the modification takes effect. Prior to October 2011, Fannie Mae delegated authority to its largest servicers, which represent approximately 90 percent of loans, to offer modifications to borrowers who met specified eligibility criteria according to a standard set of waterfall steps. This modification structure was aimed at making monthly payments more affordable. Fannie Mae paid servicers $800 for each approved modification. Nearly 390,000 loans were modified through Fannie Mae’s non- HAMP programs between January 2009 and December 2011. Short Sales and Deeds-in-Lieu of Foreclosure: Borrowers who cannot afford to keep their homes must be considered for a short sale or DIL, first under HAFA and then under Fannie Mae’s own program. Borrowers who qualify for a HAFA short sale must sign and return an agreement that lasts for 120 days and lists the minimum list price for the short sale, allowable transaction costs, and monthly mortgage payments for the period of the agreement. A HAFA DIL is generally available to borrowers who are unable to sell their properties under the HAFA short sale process. In certain instances—such as a serious illness, death, military relocation or in other cases when a borrower has no interest or ability to market the property—the servicer may offer DIL without going through the HAFA short sale process. Under Fannie Mae’s program, Fannie Mae has delegated authority to certain servicers to offer short sales and DILs on its behalf under the terms of the delegated authority. However, servicers that do not have Fannie Mae’s delegated authority are required to obtain Fannie Mae’s approval on a case-by-case basis. Fannie Mae short sales and DILs can be offered to borrowers who are ineligible for HAFA. Fannie Mae reported completing more than 190,000 short sales and DIL transactions since January 2009. In addition, Fannie Mae has a deed-for-lease program as part of its DIL effort that has been in place since November 2009. Under this program, the borrower can receive a lease agreement for up to 12 months. Fannie Mae officials told us that most borrowers are looking to move out of the home at a time that is convenient for them rather than looking to stay for an extended period of time. Freddie Mac has outlined the requirements for foreclosure mitigation programs in its Servicer Guide, which are summarized here. These guidelines apply only to mortgages that are owned or guaranteed by Freddie Mac. Freddie Mac requires servicers to evaluate borrowers for foreclosure mitigation actions in accordance with a hierarchy, which begins with reinstatement, repayment plans and forbearance. If servicers determine that those options are not appropriate, they evaluate borrowers for a modification under the Home Affordable Modification Program (HAMP) before considering them for other foreclosure mitigation actions. If the borrower does not qualify for HAMP, the servicer evaluates the borrower for a Freddie Mac standard loan modification. If the borrower is not eligible for a modification, the servicer evaluates the borrower for a short sale or deed-in-lieu of foreclosure (DIL) under the Home Affordable Foreclosure Alternatives program (HAFA), and then under Freddie Mac’s own program. Repayment Plans and Forbearance: A repayment plan is an agreement between the servicer and a borrower that gives the borrower a set period to reinstate the mortgage by making the borrower’s contractual payments plus an additional amount to repay the delinquency. Forbearance is another temporary relief option that typically involves reducing or suspending payments for a period of time, and Freddie Mac has three different types of forbearance. Short-term forbearance, which does not require Freddie Mac’s approval, is a written agreement that either suspends payments for up to 3 months or reduces payments for up to 6 months. Long-term forbearance, which requires a written agreement and Freddie Mac’s written approval, is available under certain circumstances—for example, when the borrower is experiencing a hardship due to long-term or permanent disability—and reduces or suspends monthly payments for 4 to 12 months. Unemployment forbearance was added in early 2012. Servicers must consider unemployed borrowers for unemployment forbearance first. Unemployment forbearance initially lasts for 6 months or until the borrower gets a job, whichever occurs first. Borrowers who remain unemployed may be eligible for extended unemployment forbearance, which can last for up to 6 more months, so long as the borrower’s total delinquency does not exceed 12 months, with Freddie Mac’s approval. Freddie Mac reported that servicers had completed nearly 170,000 repayment plans and forbearance agreements under these programs between January 2009 and December 2011. Home Affordable Modification Program (HAMP): Servicers must evaluate borrowers for HAMP before considering them for other modification options. Like Treasury’s nonenterprise HAMP program, the Freddie Mac HAMP evaluation includes following a standard sequence of modification actions to produce a monthly mortgage payment-to-income ratio of 31 percent: capitalizing past due amounts, reducing the interest rate down to a minimum of 2 percent, extending the mortgage term by up to 40 years from the date of modification, and, if applicable, forbearing principal. Servicers use Treasury’s net present value (NPV) model to estimate the financial outcome of modifying or not modifying the loan. Unless the NPV result for not modifying the loan exceeds the NPV result for modifying the loan by more than $5,000, the servicer must move forward with the HAMP modification. Borrowers who are approved for HAMP begin with a trial period that lasts at least 3 months, and the modification becomes permanent if they successfully complete the trial period. Freddie Mac completed more than 150,000 HAMP modifications between January 2009 and December 2011. Non-HAMP Loan Modifications: Freddie Mac servicers also consider borrowers who do not qualify for HAMP or have defaulted on a HAMP modification for standard modifications. The terms of Freddie Mac’s standard loan modification program, which became available on October 1, 2011, require servicers to capitalize past due amounts, adjust interest rates to a Freddie Mac- specified fixed rate, and extend the amortization term to 480 months. In addition, if the current LTV ratio exceeds 115 percent, the servicer must forbear up to 30 percent of the unpaid principal balance to reduce the LTV to 115 percent. The modification proceeds only if these changes reduce the borrower’s monthly principal and interest payments by at least 10 percent and the front-end debt-to- income ratio to greater than or equal to 10 percent and less than or equal to 55 percent. Servicers are eligible to receive incentives of up to $1,600 for each modification, depending on how early in the delinquency the modification takes effect. Prior to January 2012, Freddie Mac required all servicers to evaluate borrowers for a non-HAMP modification using a standard waterfall. In some cases, Freddie Mac delegated authority to some servicers to offer non-HAMP modifications. Servicers that did not have Freddie Mac’s delegated authority were required to provide a recommendation to Freddie Mac for a non-HAMP modification. Freddie Mac would determine the conditions of non-HAMP modifications and offered incentives of $800 per completed modification. Freddie Mac modified more than 190,000 loans between January 2009 and December 2011 through their non-HAMP programs. Short Sales and Deeds-in-Lieu of Foreclosure: Borrowers who cannot afford or do not want to retain ownership of their homes must be considered for short sales and deeds-in-lieu of foreclosure (DIL), first under the Home Affordable Foreclosure Alternatives (HAFA) program and then under Freddie Mac’s own program. These programs are typically the final options for avoiding foreclosure. Borrowers may be considered for HAFA only after being considered for home retention options, such as HAMP and a Freddie Mac standard modification. Borrowers who qualify for a HAFA short sale must sign and return a short sale agreement that lasts for 120 days and lists the minimum list price for the short sale, allowable transaction costs, and monthly mortgage payments to be made during the period of the agreement. Freddie Mac can extend the agreement if no acceptable purchase offers have been received, provided that the borrower has fully complied with the short sale agreement and an acceptable purchase offer is likely to occur during the extension period. Freddie Mac delegates the approval of HAFA short sales to servicers. A HAFA DIL is available only to borrowers who were unable to sell under the HAFA short sale process. With Freddie Mac’s approval, the servicer prepares a DIL agreement that, among other things, sets the date when the owner will vacate the property and outlines monthly payment terms until then. Borrowers who are ineligible for HAFA may be eligible for a Freddie Mac short sale or DIL. In some cases, Freddie Mac requires that the servicer obtain approval prior to accepting short sale offers or offering a DIL agreement. Under both HAFA and Freddie Mac’s short sale and DIL programs, if the borrower completes the transaction in accordance with Freddie Mac’s standard requirements, the borrower is released from liability for the remaining unpaid balance on the mortgage. Freddie Mac reported completing more than 100,000 short sales and DILs since January 2009. Federal Housing Administration (FHA) The Federal Housing Administration (FHA) has outlined the requirements for foreclosure mitigation programs in a series of guidance documents (called mortgagee letters), which are summarized here. These guidelines apply only to mortgages that are insured by FHA. Prior to engaging in formal foreclosure mitigation actions, FHA requires servicers to address delinquencies through an early intervention process. This process involves contacting the borrower and gathering information on the borrower’s circumstances and financial condition. The servicer may refer the borrower to default counseling. During this process, the servicer may come to an informal forbearance arrangement with the borrower, which lasts for 3 months or less, that helps the borrower reinstate the loan through a repayment plan. When a servicer determines the need for a formal foreclosure mitigation action, FHA requires servicers to ensure that the borrower can afford the new monthly payment. In addition, servicers must consider formal foreclosure mitigation actions in the following order, from the lowest upfront cost to FHA to the highest upfront cost: repayment plans and special forbearance, standard loan modification, partial claim, FHA-HAMP, preforeclosure sale, and deed-in-lieu of foreclosure (DIL). To qualify for most of these actions, borrowers must be at least 90 days delinquent but no more than 12 months past due. Repayment Plans and Special Forbearance: Servicers may provide temporary relief to borrowers through repayment plans and special forbearance. Special forbearance combines a suspension or reduction in monthly mortgage payments with a repayment period and is available to borrowers who are at least 3 mortgage payments delinquent. Two types of special forbearance are available. Under Type I, the minimum forbearance period is 4 months, unless the borrower is unemployed, in which case the minimum forbearance period is 12 months under a temporary program change. Servicers must verify the employment status of unemployed borrowers monthly and certify that payments are made as scheduled. Type II special forbearance combines a short-term special forbearance plan with a loan modification or partial claim. The borrower must make three full monthly payments before the loan modification begins or the partial claim is executed. FHA provides servicers with incentive payments of $100 to $200 for Type I special forbearance agreements, depending on servicers’ performance ratings. FHA does not provide incentives for Type II agreements because servicers can receive them for the subsequent loan modifications or partial claims. Servicers reported that about 440,000 repayment plans were completed between January 2009 and December 2011. During the same period, FHA paid incentives on about 67,000 Type I special forbearance plans. Standard Loan Modifications: Borrowers must have paid at least 12 full monthly mortgage payments and be at least 3 months delinquent in order to qualify for a standard loan modification. Servicers capitalize past due amounts, reduce interest rates to the current market rate, and extend the term by up to 10 years from the original maturity date or 360 months. Borrowers generally must complete a trial period of 3 months. FHA offers $750 in incentives per standard modification completed. More than 370,000 standard loan modifications have been completed since January 2009. Partial Claims: Servicers may advance funds on behalf of a borrower to reinstate a loan that is at least 4 months delinquent. The total past due amount may not exceed 12 months and the mortgage may not be in foreclosure. The advance (called a partial claim) does not change the borrower’s monthly payments, so servicers must ensure that borrowers can resume making their regular payments. Borrowers must complete a trial period of at least 3 months making their regularly scheduled monthly payments before the partial claim is executed. FHA reimburses the servicer for the partial claim and executes an interest-free subordinate lien for the amount, which is payable when the property is sold or the first mortgage is paid off. FHA provides servicers with incentive payments of $500 per partial claim. FHA has paid claims on nearly 47,000 partial claims since January 2009. FHA-HAMP Modifications: Borrowers for whom a standard modification is not sufficient may be evaluated for a HAMP-style modification under the authority provided to HUD in 2009. The delinquent loan must have been originated at least 12 months before, and the borrower must have paid at least four full monthly payments. FHA-HAMP modifications bring borrowers’ monthly payments down to 31 percent of income by reducing interest rates to the market rate, extending the loan term to 30 years, and deferring principal. Rather than capitalizing past due amounts, however, servicers advance funds to reinstate the loan. FHA reimburses the servicer for the advance (as with a partial claim) and executes an interest-free subordinate lien in the amount of the advance plus any deferred principal. The amount of the subordinate lien cannot exceed 30 percent of the unpaid principal balance prior to the modification. FHA provides servicers with incentive payments of up to $1,250 per FHA-HAMP modification. According to data from FHA officials, about 13,000 FHA-HAMP loan modifications have been completed since the program was implemented. Preforeclosure Sales and Deeds-in-Lieu of Foreclosure (DIL): Under a preforeclosure sale agreement (also called a short sale), FHA accepts the proceeds of the sale as satisfying the mortgage debt, as long as the net proceeds (sales price minus certain costs) are at least 84 percent of the appraised value. A DIL is a voluntary transfer of a property from the borrower to FHA for a release of all obligations under the mortgage. FHA provides servicers with incentive payments of up to $1,000 for each completed preforeclosure sale and borrowers with payment of $750 to $1,000. For DILs, servicers can receive incentive payments of $250 per completed DIL transaction, and borrowers can receive $2,000. Nearly 60,000 pre-foreclosure sales and DILs have been completed since the beginning of 2009. Department of Veterans Affairs (VA) The Department of Veterans Affairs (VA) has outlined the requirements for foreclosure mitigation programs in a series of guidance documents, which are summarized here. These guidelines apply only to mortgages that are guaranteed by VA. VA recommends that servicers consider foreclosure mitigation actions in the following order: repayment plans, special forbearance, loan modifications (including VA-HAMP), refunded loans, compromise sales, and deeds-in-lieu of foreclosure (DIL). In addition, VA assigns each loan that is more than 60 days delinquent to a staff member, who monitors the servicer’s activity to ensure appropriate action is taken to assist the veteran borrower. VA provides the contact information of the staff member to the borrower, as well as options for resolving the delinquency. If the loan becomes 120 days delinquent, the VA staff member performs a review of the adequacy of servicing, which includes reviewing the servicer’s case notes, discussing the case with servicer staff, and serving as an intermediary between the servicer and borrower, if necessary. If VA determines the servicing has been adequate, another review will be performed in 90 days. Repayment Plans: Repayment plans, which last at least 3 months, allow borrowers to make their normal monthly payments plus a portion of the past due amount. Servicers must establish that the borrower is financially able to make these payments and must review the plan monthly to ensure that the borrower is complying with the plan. VA provides servicers with incentive payments of up to $200 for each repayment plan that reinstates a loan that was more than 60 days delinquent. According to data provided by VA officials, more than 25,000 repayment plans have been completed since January 2009. Special Forbearance: VA recommends that servicers consider special forbearance for borrowers who would not be able to maintain a repayment plan. Special forbearance involves a written agreement in which the servicer agrees to reduce or suspend payments for a month or more. There is no maximum period for special forbearance plans. At the end of the forbearance period, the borrower must pay the total delinquency or enter into a repayment plan. VA provides servicers with incentive payments of up to $200 for each special forbearance plan that reinstates a loan that was more than 60 days delinquent. However, if the borrower starts a repayment plan at the end of the forbearance period, the special forbearance is not eligible for the incentive payment. Instead, the servicer receives it on the repayment plan if the loan is reinstated. According to data from VA officials, about 2,600 special forbearance plans have been completed since the beginning of 2009. Standard and VA-HAMP Loan Modifications: Servicers are allowed to modify loans without VA’s prior approval provided certain regulatory conditions are met, such as the borrowers must have made at least 12 full monthly mortgage payments, the loan is not modified more than once in a 3-year period, and no more than three times over the life of the loan. If the conditions are not satisfied, the servicer may seek VA prior approval to modify the loan if they have determined that the event or circumstance that caused the delinquency has been or will be resolved and is not expected to reoccur. The traditional loan modification results in a loan with a fixed interest rate that does not exceed the current market rate plus 50 basis points. The term of the loan may be extended to the shorter of 360 months after the due date of the first payment on the modification or 120 months after the original maturity date. According to VA officials, servicers are expected to use VA’s underwriting guidance on affordability to determine whether the borrower can make the monthly payments, including recommended thresholds for residual income and debt-to-income ratios, with appropriate consideration of exculpatory or mitigating circumstances. If servicers determine that a traditional modification is not sufficient, they may evaluate the borrowers for a HAMP-style modification according to the guidelines VA issued in 2010. These VA-HAMP modifications involve reducing the interest rate to as low as 2 percent, extending the term of the loan to 480 months, and deferring principal. VA provides servicers with incentive payments of up to $700 for each loan modification that reinstates a loan that was more than 60 days delinquent. According to data from VA officials, about 30,000 loan modifications have been completed since the beginning of 2009. VA officials stated that they do not require servicers to specify whether the modifications they complete are traditional or VA-HAMP modifications when they report. However, the number of completed modifications increased markedly after the VA-HAMP guidance was issued in January 2010 (see figure). Refunded Loans: VA may elect to purchase a loan and assume the servicing responsibilities if the servicer determines that modifying the loan is not in the servicer’s economic interest. VA officials we spoke with said that VA evaluates refunding options under the terms of HAMP modifications using a VA net present value (NPV) model. If the NPV result is positive, VA will refund the loan. Even if the NPV result is negative, VA will evaluate the borrowers’ circumstances and may decide to refund the loan if the circumstances warrant it. This process is typically the final attempt to keep veterans in their home. According to data from VA officials, about 250 loans have been refunded since the beginning of 2009. Compromise (Short) Sales and Deeds-in-Lieu of Foreclosure (DIL): A compromise sale, also known as a short sale, is the first option the servicer should consider after determining that home retention options are not feasible. A compromise sale is typically for an amount that is less than the borrower’s total indebtedness on the loan. VA provides servicers with incentive payments of up to $1,000 for each completed compromise sale on loans that were more than 60 days delinquent. According to data provided by VA officials, almost 13,000 compromise sales have been completed since the beginning of 2009. A DIL is a voluntary transfer of a property from the borrower to the holder for a release of all obligations under the mortgage. Servicers are to consider a DIL only after considering all other loss mitigation options and determining they are not viable. The servicer must obtain a VA appraisal of the property. After completing the DIL, the servicer may retain ownership of the property or transfer it to VA. VA provides servicers with incentive payments of up to $350 per deed- in-lieu of foreclosure transaction that is completed on loans that were more than 60 days delinquent. According to data provided by VA officials, about 2,000 DILs have been completed since the beginning of 2009. Department of Agriculture (USDA) The Department of Agriculture (USDA) has outlined the requirements for foreclosure mitigation programs in a loss mitigation guide and regulations, which are summarized here. These guidelines apply only to mortgages that are guaranteed by USDA. Servicers are encouraged to address delinquencies of one or two missed payments through an early intervention process. This process involves borrower analysis, where the servicer gathers information on the borrower’s circumstances, intentions, and financial condition, and default counseling, where the servicer provides the borrower with information on available resources for housing counseling and loss mitigation options. During this process, the servicer may come to an informal forbearance arrangement, which lasts for 3 months or less, that helps the borrower reinstate the loan. When moving into formal mitigation actions (which begin when the borrower is 90 days or more delinquent), servicers should determine first whether the default is curable or noncurable. For curable defaults, servicers should consider special forbearance, loan modifications, and special loan servicing. For noncurable defaults, servicers should consider preforeclosure sales and deeds-in- lieu of foreclosure. Special Forbearance: A special forbearance plan can be structured to gradually increase monthly payments to repay the past due amount over time (at least 4 months) or through a resumption of normal payments for 3 or more months followed by a loan modification. Servicers may also suspend or reduce payments for 1 or more months (typically for periods of up to 3 months) to allow the borrower to recover from the cause of the delinquency, or may allow the borrower to resume making full monthly payments while delaying the repayment of the past due amount. The past due amount must not exceed the equivalent of 12 months of principal, interest, taxes, and insurance. There is no maximum duration for special forbearance plans, but the term must be reasonable and based upon the borrower’s repayment ability. USDA does not provide servicers with incentive payments for special forbearance plans. According to USDA, more than 5,000 special forbearance servicing plans were approved between January 2009 and December 2011. Traditional Loan Modifications: Loan modifications can be offered only if borrowers are 3 or more months delinquent or in imminent danger of default. A loan that is in foreclosure must be removed from foreclosure status in order to be modified. Borrowers must be owner-occupants of the property and be committed to occupying the property as a primary residence. The servicer must verify the property’s physical condition through an inspection before approving a modification. The term of the loan modification should not exceed 360 months from the date of the original loan, because USDA’s guarantee is only in effect for 30 years from the date of the original loan. Loan modifications may include reducing interest rates, including to below market levels; capitalizing all or a portion of past due amounts into the mortgage balance; and reamortizing the balance due. The modified balance may exceed the original loan balance and may equal more than 100 percent of the property’s current value. Modified loans that become delinquent are to be treated as new delinquencies, and servicers are to go through the full loss mitigation process. USDA does not offer servicers incentive payments for completing loan modifications. According to USDA, almost 13,000 loan modification servicing plans were approved between January 2009 and December 2011. Special Loan Servicing: Under regulations finalized in September 2010, USDA authorized servicers to provide additional relief to borrowers when traditional servicing methods do not provide a means to cure the default. As with loan modifications, the borrower must be in default or facing imminent default and must occupy the property as the primary residence and intend to continue doing so. Under this authority, called special loan servicing, servicers must reduce the interest rate to the market rate plus 50 basis points and extend the loan term up to 30 years. If necessary, the servicer may reduce the interest rate further, extend the term of the loan to up to 40 years from the date of the modification, and/or advance funds to satisfy the borrower’s past due amount, including legal fees and costs related to a canceled foreclosure. In addition, the servicer may defer principal. The sum of funds advanced cannot exceed 30 percent of the unpaid principal balance at the time of default and cannot cover past due amounts of more than 12 months of principal, interest, taxes, and insurance. USDA will reimburse the servicer for this amount and the borrower will execute a subordinate lien that is due when the property is sold or the mortgage paid off. Borrowers who are delinquent at the time of special loan servicing must complete a 3-month trial period, and borrowers who are in imminent default a 4- month trial period. According to USDA, 143 special loan servicing modification plans were approved between January 2009 and December 2011. Preforeclosure Sales and Deeds-in-Lieu of Foreclosure (DIL): A preforeclosure sale, also known as a short payoff or short sale, is the first option servicers are to consider after determining that a borrower cannot resolve a default. A preforeclosure sale is generally for an amount that is less than the borrower’s total indebtedness on the loan. The preforeclosure sale period is typically 3 months, and the servicer must review the sale plan every 30 days. If no closing date is scheduled within 90 days, the servicer may discuss the likelihood of a sale with the real estate broker and determine whether to extend the sale period by 30 days (if a sale is likely) or end the sale period. USDA provides servicers with incentive payments of up to $1,000 for each completed sale. According to USDA, almost 3,000 preforeclosure sale servicing plans were approved between January 2009 and December 2011. A DIL is a voluntary transfer of a property from the borrower to the holder for a release of all obligations under the mortgage. A DIL is preferable to foreclosure because it avoids the time and expense of a legal foreclosure action, and the property is generally in better physical condition because the borrower is cooperating with the servicer. USDA provides servicers with incentive payments of up to $250 for each completed DIL transaction. According to USDA, more than 200 DIL servicing plans were approved between January 2009 and December 2011. Refinancing can provide relief to borrowers who need lower monthly payments, but borrowers who are delinquent or who owe more than their homes are worth are generally unable to qualify. Here we present information on federal refinance programs that specifically target distressed borrowers. Home Affordable Refinance Program: The Home Affordable Refinance Program (HARP) was announced in February 2009 as a way to help borrowers who were current on their mortgage payments but unable to refinance because of declining home values. Under HARP, such borrowers can benefit from reduced interest rates that make their mortgage payments more affordable. Only mortgages owned by Fannie Mae and Freddie Mac are eligible. Initially, HARP targeted borrowers with current loan-to-value (LTV) ratios between 80 percent and 105 percent, although in July 2009 the Federal Housing Finance Agency (FHFA) revised those requirements to include borrowers with current LTV ratios of up to 125 percent. To respond to continued weakness in the housing market, including the large number of borrowers with significant negative equity (current LTV ratios that are greater than 125 percent), FHFA announced changes to HARP in October 2011. Among these changes was the removal of the LTV cap—allowing borrowers with current LTV ratios above 125 percent to refinance—and reduced delivery fees (fees that the enterprises charge to servicers and that are typically passed on to the borrower). The standard mortgage insurance requirements for these refinance loans were relaxed so that borrowers who did not have mortgage insurance on their existing loan did not have to purchase it for their refinanced loan, something that would typically be required for a loan with an LTV ratio of more than 80 percent FHA Refinance for Homeowners in Negative Equity Positions: Treasury worked in conjunction with FHA to establish the FHA Refinance for Borrowers in Negative Equity Positions (FHA Short Refinance), which is in part supported by TARP funds. For loans refinanced under the FHA Short Refinance program, Treasury will pay claims on those loans up to a predetermined percentage after FHA has paid its portion of the claim. This program took effect in September 2010 and provides an opportunity to borrowers who are current on their mortgage payments and who have loans not insured by FHA that have current LTV ratios greater than 100 percent to refinance into an FHA-insured mortgage. In order to qualify, investors must write down at least 10 percent of the outstanding principal and achieve an LTV ratio of no more than 97.75 percent. Through December 2011, FHA Short Refinance has had limited success, reaching 646 borrowers. Borrowers who receive a refinance under the FHA Short Refinance program and who have second liens may qualify for relief under the Treasury/FHA Second Lien Program. Treasury provides incentives to investors and servicers for partially or fully extinguishing these second liens. While Treasury allocated $2.7 billion in TARP funds to the program, it had not made any incentive payments as of December 31, 2011, and no second liens had been extinguished. There are many other efforts that have been undertaken, including those by states, localities, and private organizations to mitigate foreclosures. Here we highlight three other efforts: the FDIC loan modification program, which was considered in developing the Home Affordable Modification Program (HAMP); the Housing Finance Agency Innovation Fund for Hardest Hit Housing Markets, which provides TARP funds to 18 states and the District of Columbia to develop innovative solutions to address housing problems; and the Emergency Homeowners Loan Program, which provided funds to the remaining 32 states and Puerto Rico to provide temporary assistance to unemployed borrowers. FDIC Loan Modifications: On July 11, 2008, FDIC was named conservator of IndyMac Federal Bank. Soon after, FDIC developed a loan modification program to modify nonperforming mortgages owned or serviced by the bank into affordable loans. Under that program, the goal was to reduce monthly payments to 38 percent of monthly gross income (this amount was subsequently changed to 31 percent, the same as HAMP) through capitalization, interest rate reduction, term extension, and, if necessary, principal forbearance—the same waterfall used by HAMP. The loan modification program implemented at Indymac Federal Bank served as a model for loan modification requirements found in Shared-Loss Agreements. According to FDIC staff, no federal funds have been expended for these failed bank resolutions. Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (Hardest Hit Fund): Treasury obligated $7.6 billion to 18 state housing finance agencies in states that were designated as among the hardest hit by the housing crisis, plus the District of Columbia. These states were to develop innovative solutions appropriate for their states. Treasury approved plans for these states’ programs, which totaled 55 as of December 2011. These programs target unemployed borrowers with temporary relief as well as offer loan modification assistance, refinance options, and foreclosure alternatives. Emergency Homeowners Loan Program: Through the Emergency Homeowners Loan Program (EHLP), HUD provided short-term loans to unemployed borrowers to help meet their mortgage obligations in the 32 states and Puerto Rico that did not receive Hardest Hit Fund dollars. The program was designed to provide mortgage payment relief (up to $50,000 total) to eligible homeowners experiencing a drop in income of at least 15 percent to cover past- due mortgage payments as well as a portion of the homeowner’s mortgage payment for up to 24 months. HUD permitted five states with similar programs already in place—Connecticut, Delaware, Idaho, Maryland, and Pennsylvania— to direct their allocations to those programs. NeighborWorks America, a federally chartered nonprofit organization, administers EHLP for the remaining 27 states and Puerto Rico that did not receive Hardest Hit Fund dollars and did not have existing programs similar to EHLP. Applications for funds under EHLP were due in September 2011. HUD reported that, as of September 30, 2011, slightly more than half of the $1 billion allocated to the program had been obligated. As of December 2011, more than 5,500 EHLP loans had been closed and nearly 6,000 other loans were in process. This appendix describes the algorithms we developed to identify mortgages that received a modification action and the steps we took to demonstrate the reliability of our results. By identifying the modification actions, we were able to examine the timing and characteristics of modification activity, and to see how certain characteristics affected the loan performance of a broad set of modified mortgages. We developed the algorithms because direct information on loan modifications is not generally available, and is not reported in the proprietary loan-level data set of prime, Alt-A, and subprime mortgages compiled by CoreLogic, an aggregator of monthly mortgage data reported by servicers that have agreed to provide this information. The CoreLogic data provide wide coverage of the entire mortgage market—approximately 65 percent to 70 percent of prime loans and about 50 percent of subprime loans, according First, we took several steps to prepare the data so to CoreLogic officials.that we would have complete and clean loan performance histories. Second, we developed algorithms to identify month-to-month changes in loan terms that would indirectly indicate the presence of modifications. We reviewed statistics on the volume and features of loan modifications contained in OCC’s mortgage metric reports and shared our approach and algorithms with a variety of researchers, analysts, and regulators, making adjustments in response to their comments. Finally, we assessed the performance of our algorithms by applying them to a large set of mortgages serviced by entities subject to OCC’s regulation. These servicers provided information on modifications and loan and borrower characteristics directly to OCC. We began with a sample of mortgages in the CoreLogic database that met certain requirements. Specifically, we restricted our analysis to first- lien mortgages for the purchase or the refinancing of single-family residential properties (1- to 4-units) located in the 50 states and the District of Columbia that were active during the period from January 2007 through June 2011. We took a 15-percent sample of this set of loans that resulted in a set of 7,608,603 prime (and Alt-A) mortgages and 608,704 subprime mortgages. For each mortgage, the CoreLogic database provided information on selected loan and borrower characteristics at origination. It also provided a series of monthly observations on, among other items, the balance, scheduled payment, interest rate, and mortgage status (current; 30,60, or 90 or more days delinquent; in foreclosure; real estate owned; or paid in full). This yielded a panel data set with a sequence of monthly observations for each loan. Because we required information on month-to-month changes for certain loan characteristics, such as balance and interest rate, we needed complete and reliable information on these characteristics for each month that a loan was active during the period. However, many mortgages, particularly subprime mortgages, had an incomplete set of monthly observations, often because a servicer stopped providing information to CoreLogic. In these cases, we had a sequence of monthly observations early on but not complete information for our entire period, even though the mortgage was still active. We also had incomplete data for loans that were transferred from servicers that did not participate with CoreLogic to servicers that did and for loans with servicers who joined CoreLogic later in our sample period, leaving us without information on the earlier mortgage activity. We excluded loans with these and other data-reporting issues that impaired For the our ability to identify loan modifications over our time period.remaining loans (those with complete information), we calculated the changes in interest rate, balance, and scheduled payment from their values in the previous month. To identify modification actions we developed decision rules or algorithms for identifying monthly changes in mortgage terms that were likely to indicate an actual modification action. Some changes to mortgage terms were expected, but others were not. For instance, in the case of a fully amortizing, fixed-rate mortgage, the interest rate should not change for the entire duration of the mortgage. Thus any change to the interest rate should indicate a modification. But in the case of an adjustable rate mortgage (ARM) or hybrid mortgage, the interest rate changes in expected ways according to reset provisions in the mortgage contract. Thus, a change to the interest rate in a month in which a rate change was expected and by an amount consistent with identified reset parameters would likely not indicate a modification. Our decision rules differed depending on whether a mortgage was a fixed-rate mortgage, ARM, or hybrid mortgage. Because we could observe month-to-month changes in interest rates and loan balance, our algorithms focus on interest rate decreases, balance increases, and balance decreases that were likely to indicate a modification. We relied on rules developed by Federal Reserve Bank researchers to inform our initial screens. Their approach screened out quite small changes and set upper and lower bounds on balance changes. In some contexts, they also used information on a loan’s performance status as part of their decision rules—for instance, by requiring that observed changes be counted as modifications only if the mortgage was delinquent before the observed change. We modified these concepts, initially, accepting as potential modifications even very small changes in interest rates and balances. We did not impose upper bounds on balance changes, and we did not require that loans be delinquent. We made the latter decision because the HAMP program provides modifications for borrowers who are in imminent risk of default on their mortgages, even though they may be current in their payments. Additionally, in the case of prime, subprime and Alt-A hybrid loans, and subprime ARM loans, we compared the interest rate in the month of a rate change to the rate that equaled the loan’s specified margin and the specified index interest rate that was used to determine any adjustments. If the rate in the month of a rate change was lower than our calculated rate by more than 100 basis points, we accepted the change as a modification because the decrease was large relative to what would be expected. We placed each identified action into one of five broad categories: capitalization accompanied by a rate reduction; capitalization only; rate reduction only; balance decrease accompanied by a rate reduction; and balance reduction only. For a month-to-month balance decrease, we could not distinguish between balance forbearance and balance forgiveness. In addition, because these month-to-month changes were net changes, we could not identify modifications in which arrears were added to the balance (capitalization) at the same time as an offsetting balance reduction. For example, we could not distinguish a (net) balance decrease modification from a modification in which a capitalization is more than offset by balance forbearance or forgiveness. Similarly, we could not distinguish a (net) balance increase modification from a modification in which a capitalization is less than offset by balance forbearance or forgiveness. After examining the resulting volume, timing, and composition of our initial set of identified actions and incorporating information from OCC mortgage metric data, we tightened our screens by adjusting the lower bounds, including upper bounds, and imposing some loan performance conditions (see table 2). We discussed our general approach with Federal Reserve Bank researchers, OCC staff, representatives from CoreLogic, and representatives from Amherst Securities Group, LP. Further, we discussed our preliminary results with these researchers, OCC staff, and representatives from CoreLogic. We did not attempt to identify modifications with only a term extension characteristic because of data reliability issues concerning information on a loan’s original term and maturity date and because this type of modification occurred fairly infrequently. However, for months in which we did find a rate change or balance change, we solved for the amortization period associated with other mortgage characteristics at modification, and estimated whether and by how much the mortgage term had been extended. Specifically, we placed each action into one of three term extension categories: with term extension (if the estimated term extension was between 4 and 200 months); no term extension (if the estimated term extension was less than 4 months or greater than 200 months); or unknown term extension (if we were not able to calculate a measure of term extension). Our algorithms performed well when applied to a database of mortgages containing information reported by servicers on both modified and nonmodified loans. We were able to obtain information from OCC’s database on mortgage characteristics and monthly loan performance for two samples of 1,000,000 loans that were active for at least some portion One sample of the period from January 2009 to December 2010.included known modified loans, the other loans that had not been modified. We used similar data cleaning steps we developed for the CoreLogic data to screen out mortgages without complete and reliable histories and selected only fixed-rate mortgages for our robustness test. We examined fixed-rate mortgages because they were by far the most prominent mortgage type in our CoreLogic data sample. Because ARMs by definition have more month-to-month changes than fixed-rate mortgages, algorithms for ARMs are likely to be less successful in identifying true modifications. To the extent that ARMs were proportionately more troubled and more likely to be candidates for modification, this difficulty was a limitation Nonetheless, we believe our overall approach was reasonable and reliable. Furthermore, our econometric analysis in appendix V is robust to the issue of ARM modifications. We were left with 434,635 fixed-rate mortgages with known modifications and 513,645 fixed-rate mortgages without modifications. When we applied our algorithms to the set of 434,635 modified mortgages, we identified 415,367 as having at least one modification action. Because a mortgage can receive a modification action in more than one month, we identified a total of 450,131 modification actions over this time period. Table 3 shows the relationship between OCC’s data and GAO’s at the loan level, combining the known modified and nonmodified loans. Of the 434,635 loans for which there was at least one directly reported modification action, we missed 19,268 (4.4 percent) of them. We believe that this percentage is an acceptable incidence of false negatives. Of the loans for which our algorithms did not indicate a modification, about 10 percent of the actions were reported to be term extensions only. We did not develop algorithms for this type of modification because of data limitations and evidence that term extensions only were not frequent. Approximately 40 percent were rate reductions only with very small rate movements, and approximately 30 percent were capitalization-only actions. For the set of 513,645 nonmodified loans, our algorithms identified 2,240 loans with at least one modification action, or 0.4 percent of these loans. OCC staff expressed concerns about the usefulness of an algorithmic approach to the identification of modifications. Nonetheless, we interpret our low rate of false negatives in conjunction with this low false positive rate to mean that our decision rules were appropriate. That is, our algorithms found virtually all of the known modifications and very few modifications in the nonmodified sample. We were also interested in assessing how the volume of modification actions captured by our algorithms compared to the volume of directly reported modification actions over time. In OCC’s monthly mortgage data, we defined the month of a modification as the month when the database field for the date of last modification matched the month of the data record. For example, in the February 2010 data record, the date of last modification indicated that a modification occurred in February 2010. In some cases, however, the date of last modification was not reported until after the fact—for example, a data record for September 2010 might provide the first indication that a modification had occurred in June 2010. In these cases, we selected as the month of modification the month indicated as the month of last modification, even if it was not reported until later. We totaled modification actions for each month from January 2009 through December 2010 for the directly reported actions and for those identified by our algorithms. Figure 20 presents the modification volume during the period and shows that the pattern indicated by the application of our algorithms is comparable to the pattern of modifications provided directly by servicers. We analyzed CoreLogic data to identify the number and percentage of prime and subprime loans with characteristics associated with an increased likelihood of foreclosure in June 2009, 2010, and 2011. Specifically, we analyzed loans with the following characteristics that we identified as being associated with an increased likelihood of foreclosure: delinquency of 60 days or more; current loan-to-value (LTV) ratio of 125 percent or higher; local area unemployment of 10 percent or higher and current LTV of 125 percent or higher; mortgage interest rate that is 1.5 percentage points or 150 basis points above market rate; origination credit score of 619 or below; and origination LTV of 100 percent or greater. We analyzed the volume of prime and subprime loans with each characteristic as of June 2009, 2010, and 2011. In addition, we evaluated these characteristics by performance, investor (prime loans only), loan type (prime loans only), and product type at origination. Finally, we assessed the extent to which loans had multiple characteristics and the prevalence of overlap among characteristics. For a detailed description of our analysis, please see appendix I. This appendix provides (1) a summary of the characteristics of loans in the CoreLogic proprietary loan-level servicing database that we used in our econometric analysis of loans that redefaulted (became 90 days or more delinquent or in foreclosure) 6 months after receiving loan modification actions and a comparison of the characteristics of loans in the CoreLogic data set and Treasury’s Home Affordable Modification Program (HAMP) data set, and (2) the results of our econometric analysis of the relationship between redefault rates and modification actions, controlling for several observable borrower and loan characteristics. We used the CoreLogic database to analyze loans that had been modified under a variety of programs, including proprietary programs and federal programs, such as loans modified through the Department of the Treasury’s HAMP. In addition, we analyzed information from a Treasury database that contained information only on loans that were considered for or received HAMP loan modifications. Although the CoreLogic data set does not include data from all servicers, because it covers a significant portion of the mortgage market, we used it to approximate the universe of loans. The HAMP data set includes loans that had initiated trial modifications and loans that had converted to permanent modifications. For our analysis of HAMP data, our redefault rate is only for permanent modifications. For the CoreLogic data, we could not distinguish between trial and permanent modifications. Using the above data, we described the borrower and loan characteristics of modifications from the universe of loans represented in the CoreLogic database and loans in the HAMP data set. We compared differences between them, focusing on the differences in borrower and loan characteristics, and in loan performance. We also used an econometric analysis to examine the characteristics of borrowers and loans that redefaulted postmodification. First, we looked at the effectiveness of different modification actions (e.g. interest rate reductions, term extensions, loan balance reductions) in reducing redefaults. Second, we compared the effectiveness of HAMP modifications and the universe of modifications identified in the CoreLogic data in reducing redefaults. Third, we examined whether a relationship existed between monthly payment reductions and redefault rates. Finally, we looked at the effect of borrower and loan characteristics (such as the delinquency status of the borrower prior to receiving loan modification and negative home equity) on redefault rates. The CoreLogic database contains loan-level information on mortgage servicing. According to CoreLogic officials, it covers approximately 65 to 70 percent of the prime loans and about 50 percent of the subprime loans in the U.S. mortgage market. The database contains detailed information on the characteristics of purchase and refinance mortgages. We used these data to represent the universe of loans that received modification actions between January 2009 and December 2010. We constructed data for loans that had aged at least 6, 12, or 18 months since modification. Although a loan could receive multiple modification actions over time, we recorded each modification action for the same loan as a separate loan. The data contain static and dynamic monthly data files. The static data fields are populated as of loan origination and include variables such as the loan purpose and product type. This is supplemented by monthly data fields (“transactional” data) that reflect the current loan terms (such as interest rate) and loan performance. The CoreLogic database has limitations, including the lack of data on some important variables, such as the type of modification action and FICO credit scores at the time of loan modification. Because this data set did not contain direct information about the presence of modifications, we developed a set of algorithms to infer if the loan had been modified. In addition, the CoreLogic database has incomplete information on key variables, such as second-liens and loan investor or ownership. We explicitly excluded from the analysis mortgages with certain characteristics, including loans that were paid off or in real estate owned (REO) status; liens other than first-liens; loans made for unknown purposes or purposes other than purchase or refinancing; loans with missing or invalid data on the underlying property type; loans for multifamily dwellings with five or more units; loans for mixed-use properties; and loans for commercial units. For computational tractability, we used a 15-percent random sample of the CoreLogic database. The data comprise loans modified between the first quarter of 2009 and the fourth quarter of 2010. The sample we used for the analysis generally contained more than 90,000 loans that had redefaulted—that is, were 90 days or more delinquent or in foreclosure—within 6 months of the modification after using an algorithm to identify loans that received modifications, using several filters, and excluding missing observations. Because of limitations in the coverage and completeness of the CoreLogic database, our analysis may not be fully representative of the mortgage market as whole. Nonetheless, we have determined that the data were sufficiently reliable for the purposes of our study. The second database we used contained information from servicers that participate in HAMP. start of the trial modification period, during the trial period, during conversion to a permanent modification, and monthly after the conversion to a permanent modification. Through the fourth quarter of 2010, 15 large servicers held 85 percent of the loans, and the rest of the loans were serviced by a few hundred small servicers. Table 19 contains a complete list of variables from the CoreLogic and HAMP databases. Servicers of nonenterprise loans and loans not insured by FHA, VA, and USDA undertake modifications based on the HAMP guidelines while servicers of Fannie Mae and Freddie Mac loans modify loans using guidelines from the enterprises. Modified loan becomes 90 or more days past due (dpd) or in foreclosure within 6 months Modified loan becomes 90 or more days past due (dpd) or in foreclosure within 12 months Modified loan becomes 90 or more days past due (dpd) or in foreclosure within 18 months Percentage change in monthly payment of principal & interest Payment reduction is less than10% Payment reduction is between 10% and 19% Payment reduction is between 20% and 29% Payment reduction is between 30% and 39% Payment reduction is between 40% and 49% Payment reduction is between 50% and 59% Payment reduction is 60% or higher Change in interest rate (bps) Definition FICO greater than or equal to 620 and less than 660 at modification FICO greater than or equal to 660 and less than 680 at modification FICO greater than or equal to 680 and less than 700 at modification FICO greater than or equal to 700 and less than 750 at modification FICO greater than or equal to 750 at modification Current loan-to-value (CLTV) ratio at modification CLTV is greater than or equal to 10% and less than 80% at modification CLTV is greater than or equal to 80% and less than 95% at modification CLTV is greater than or equal to 95% and less than 100% at modification CLTV is greater than or equal to 100% and less than 115% at modification CLTV is greater than or equal to 115% and less than 125% at modification CLTV is greater than or equal to 125% and less than 150% at modification CLTV greater than or equal to 150% at modification Housing backend debt-to-income ratio (DTIBE), at modification DTIBE is greater than or equal to 30% and less than 35% at modification DTIBE is greater than or equal to 35% and less than 40% at modification DTIBE is greater than or equal to 40% and less than 45% at modification DTIBE is greater than or equal to 45% and less than 50% at modification DTIBE is greater than or equal to 50% and less than 55% at modification DTIBE is greater than or equal to 55% and less than 65% at modification DTIBE is greater than or equal to 65% at modification Percentage change in house prices after modification, zip code level Change in unemployment rate after modification, county level Interest rate at modification (basis points) Fair Isaac Corporation (FICO) credit score at loan origination FICO greater than or equal to 350 and less than 550 at loan origination FICO greater than or equal to 550 and less than 580 at loan origination FICO greater than or equal to 580 and less than 620 at loan origination FICO greater than or equal to 620 and less than 660 at loan origination FICO greater than or equal to 660 and less than 680 at loan origination FICO greater than or equal to 680 and less than 700 at loan origination FICO greater than or equal to 700 and less than 750 at loan origination FICO greater than or equal to 750 at loan origination Loan-to-value (LTV) ratio at origination LTV greater than or equal to 10% and less than 70% at origination LTV greater than or equal to 70% and less than 80% at origination LTV equal to 80% at origination LTV greater than 80% and less than 90% at origination LTV greater than or equal to 90% and less than 100% at origination LTV greater than or equal to 100% at origination Interest rate at origination (basis points) If loan is owned by government-sponsored enterprises (Fannie Mae or Freddie Mac) If loan is owned by non-agency private investors If loan is owned by lender Prime loan = 1, subprime loan = 0 Adjustable rate (ARM) = 1, Fixed rate (FRM) = 0 Condominiums, including PUDs (planned unit developments) Other housing units, including cooperatives Conventional loans (nongovernment owned or guaranteed loans) Federal Housing Administration (FHA) loans Veterans Affairs (VA) If owner-occupied housing versus a nonowner occupied Loans for refinance, with cash-out Loans for refinance, without cash-out Loans for refinance, reason unknown Loan originated in 2003 or before The payment change is the result of modification actions, including, rate reduction, balance reduction (from principal forgiveness or principal forbearance), capitalization, and term extension. This modification action includes a rate reduction. This modification action includes a balance reduction. This modification action includes principal forgiveness. This modification action includes principal forbearance. This modification action includes capitalization. This modification action includes a term extension. The data do not include second liens. Housing price data are from CoreLogic. Unemployment data are from the Bureau of Labor Statistics. Includes loans originated on January 1, 2009. We discuss selected key characteristics of the universe of loans in the CoreLogic database using the average values of the variables (see table 20). Data for all loans are in column A, and prime and subprime loans are in columns B and C, respectively. The overall redefault rate 6 months after modification is 18 percent for all loans: 17 percent for prime loans, and 19 percent for subprime loans. Prime loans make up 85 percent of the universe of loans in the data set and subprime loans 15 percent. Eighty-eight percent of the loans have fixed rates (FRM) at origination, and the rest have adjustable rates (ARM). The modification actions we identified were generally used in combination with other actions, much like the modification actions in the OCC Mortgage Metrics database. For loan modifications that include interest rate changes, the average change in interest rate is 299 basis points (bps), or 2.99 percentage points, and 289 bps and 361 bps for prime and subprime loans, respectively. In loan modifications, the balances decrease with principal forgiveness or principal forbearance but increase with capitalization. For modifications that include balance reductions, the average reduction is 20 percent (20 percent and 16 percent for prime and subprime loans, respectively). The capitalized amounts averaged 6 percent of the balances (6 percent and 8 percent for prime and subprime loans, respectively). The average increase in loan term used in combination with other modification actions is 96 months (95 months for prime loans and 101 months for subprime loans). The average reduction in monthly principal and interest payments as a result of changes in interest rates, loan balances, and loan term from the modifications is 24 percent of the payments at modification and amounts over $250. The payment reductions are 24 percent and 25 percent for prime and subprime loans, respectively. Thus the changes in the modification actions were generally larger for subprime loans than for prime loans, implying that the modifications helped subprime borrowers the most. About 83 percent of the modified loans identified in the CoreLogic data set were seriously delinquent (at least 90 days past due or in foreclosure), including 85 percent for prime and 74 percent of subprime loans. Ten percent of prime loans were in foreclosure, compared with 20 percent of subprime loans. The CLTV ratios at the time of modification were 108 percent overall (107 percent for prime loans and 112 percent for subprime loans). These ratios had increased since origination—24 percent for House prices continued prime loans and 30 percent for subprime loans. to decline for the 6 months after modifications, falling by about 2 percent, on average. The overall FICO credit score at the time of origination is 657, but scores for prime and subprime loans differed widely (666 and 609, respectively). The CLTV ratios and FICO scores are consistent with the relatively low quality of subprime loans. Overall, unemployment rates declined by less than 1 percent (among prime loans rates decreased by 0.08 percent compared to an increase of 0.2 percent for subprime loans). Many observations are missing data on the loan investor or ownership, especially for subprime loans. The majority of the prime loans identified are owned or guaranteed by the enterprises, while the majority of the subprime loans are private-label securitized (PLS) loans. Overall, portfolio loans slightly outnumber PLS loans. About 84 percent of the prime loans are conventional, with FHA accounting for 15 percent and VA and other government-guaranteed loans for the remaining 1 percent. All subprime loans are conventional. Almost all the loans (96 percent) are for owner- occupied housing, and a slight majority (55 percent) were for refinancings. The average unpaid principal balance for prime loans at the time of origination was $222,617, compared with $197,079 for subprime loans. About 67 percent and 73 percent of prime loans and subprime loans, respectively, were originated between 2005 and 2007. Modifications increased in 2010 compared to 2009, partly because of HAMP and included a larger share of prime loans as the available pool of subprime loans dwindled. We compare certain borrower and loan characteristics using comparable data from the universe of loans as represented by the CoreLogic data and HAMP loans found in the Treasury data. We restricted the CoreLogic data to first-lien loans for owner-occupied housing that received modifications between the fourth quarter of 2009 and the second quarter of 2010, and that received payment reductions. The HAMP database has certain limitations. The data were sometimes missing or questionable, as indicated by the Department of the Treasury. Also, we constructed the performance history of HAMP loans using several monthly databases. Since we did not have data for February 2010 and April 2010, we assumed that the performances was the same as in the following months, March 2010 and May 2010, respectively. We do not expect this assumption to affect our results, since redefault is defined as 3 or more consecutive months of delinquency.We excluded observations if loan performance data were missing for any of the months. Generally, we believe that the constructed loan performance data become more reliable as the number of months since modification increases, as the quality of HAMP data has been improving over time. As a result, we compare CoreLogic and HAMP loans that are at least 12 months postmodification or that have redefaulted within 12 months. We believe that the HAMP data we use are sufficiently reliable for our purposes. In table 21, the data indicate that the redefault rate is much higher for CoreLogic than for HAMP loans (26 percent and 16 percent, respectively, 12 months after modification). The HAMP data we use are for participants with permanent modifications—those who have successfully completed the trial modification. Most of the CoreLogic loans were far advanced in their delinquency prior to the modification, with about 89 percent 90 days or more delinquent or in foreclosure, compared to 61 percent of HAMP loans. The overall changes resulting from modification actions were generally largest for HAMP loans, which had an average payment reduction of 37 percent, compared to 30 percent among CoreLogic loans. The current LTVs were 109 percent and 140 percent, respectively, in the CoreLogic and HAMP databases, but there was not much difference between the loans at the time of origination, when the LTVs were 83 percent and 82 percent, respectively. Thus the decline in equity was 26 percent for the CoreLogic loans and 58 percent for HAMP loans. The majority of the modified loans were originated between 2005 and 2007. We discuss below the models we developed and used to estimate the likelihood of redefault after modifying the typical loan (using the CoreLogic and HAMP databases), and the estimated results and robustness checks of the estimates. Unlike the descriptive statistics, this approach allows us to determine the relationship between the redefault rate and modification actions, holding other factors constant (including borrower and loan characteristics). Similarly, this approach also allows us to determine the relationship between the redefault rate and certain borrower or loan characteristics holding all the other borrower and loan characteristic in the model constant. Following the literature, we grouped into four categories the factors that generally affect whether a loan modified permanently through government and proprietary modification programs would redefault: borrower and loan characteristics at origination, borrower and loan characteristics at modification, geographic market and time effects, and investor/lender and servicer effects. We also note that, the redefault rate can be affected by the type of loan modification action. Typically, the modification lowers the monthly principal and interest payments by changing the interest rate, term, or loan balance. We use reduced-form multivariate probabilistic regression models, an approach used to examine choices and evaluate various events or outcomes, to help determine these effects. Accordingly, based on economic reasoning, data availability, and previous studies on loan performance, we use a relatively flexible specification to estimate the likelihood that a loan that has been modified redefaults.equals 100 if a loan that has been permanently modified redefaults within 6 months and 0 if the loan is still active and current. The explanatory variables that we include in the model to explain loan redefaults are borrower and loan characteristics and modification actions, conditioned by the available data. The complete list of variables available for the analysis is in table 19. The dependent variable for the redefaults is binary and We discuss results for redefault in the universe of loans using the CoreLogic database. The regression estimates are in table 22. We estimated the models using the ordinary least squares (OLS) regression technique. Overall, the models are significant, and most of the variables are statistically significant at the 5-percent level or better. The effects (the direction of their impacts) are generally consistent with our expectations. We discuss below the key findings, based on statistically significant changes in the likelihood of redefaults, using the estimated marginal effects of the explanatory variables. The regression results from estimating redefault in the universe of loans using the data in table 20 are presented in table 22 (based on the CoreLogic database) for the combined prime and subprime loans. The table presents regressions of redefault indicators (a modified loan becoming 90 days or more delinquent within 6 months of the modification) on modification actions—monthly payment changes, interest rate changes, balance reduction, capitalization, and term changes. In addition we include information on the borrower and the loan. The estimates were generated using the OLS technique. Fixed-effects estimates for loan origination year and zip codes are not reported, for brevity. The reported estimates are marginal effects (percentage point differences). The standard errors are presented in parentheses, and *, **, and *** denote two-tailed significance at 10 percent, 5 percent, and 1 percent or better, respectively. We discuss the results from the redefault model using the CoreLogic data set, which represents the universe of loans, using the estimates in table 22. We start with the effects of modification actions on the redefault rate. We first discuss the payment change, which is an outcome of the modification actions (rate change, balance reduction, capitalization, and term extension). For policy purposes, the payment change is important for loan modifications because it indicates whether the modification is affordable to the consumer. But while the payment change is important to the consumer, the type of modification action is also important to the lender/investor, because certain actions may not be feasible given the terms of the mortgage or could result in lower returns. For this reason, we also discuss the effects of the modification actions, independent of the resulting payment change. In general, modification actions that make the loan affordable are expected to lower the redefault rate. Payment change: Using the coefficient estimate of -0.174 for the impact of payment change in table 22, we note that the larger the reduction in monthly principal and interest payments, the less likely the loans are to redefault. In particular, a 24-percent (the average) reduction in monthly payments would reduce the likelihood of redefault by 4 percentage points from the baseline redefault rate of 18 percent to 14 percent. Rate change: Using the coefficient estimate of -0.008 for the impact of rate change in table 22, we find that the larger the reduction in the interest rates of loans that receive interest rate reductions and at least one other modification action, the lower the redefault rate. A decrease of 302 bps (the average) would decrease the redefault rate by 2 percentage points from the baseline redefault rate of 16 percent to 14 percent. Balance reduction: Although the coefficient estimate for the impact of balance reduction in table 22 indicates, unexpectedly, that modifications that include balance reductions increase redefaults, the result is generally not robust. For instance, the estimates are insignificant when loans with balance reductions of 40 percent or more are excluded. Furthermore, the sample size used for the analysis is relatively small for the result to be meaningful.results are inconclusive regarding the impact on the redefault rate of a modification action that includes a balance reduction, the baseline redefault rate of these loans is generally low, at 11 percent, compared to the overall redefault rate of 18 percent, which is the baseline redefault for the pool of loans used to estimate the payment reduction equation. Capitalization: Using the coefficient estimate of 0.947 for the impact of capitalization in table 22, we see that the larger the proportion of the amount capitalized, combined with other modification actions, the higher the redefault rate. A capitalization of 6 percent of the loan balance (the average) would increase the redefault rate by 6 percentage points from the baseline redefault rate of 19 percent to 25 percent. Term extension: Using the coefficient estimate of -0.012 for the impact of term extension in table 22, we note that the redefault rate falls as the term extension increases. A term extension of 99 months (the average) would reduce the redefault rate by 1 percentage point from the baseline redefault rate of 19 percent to 18 percent. We discuss key results for borrower, loan, and other characteristics based on results for the payment regression equation in column 1 of table 22. The payment reduction is an amalgamation of several modification actions, and the results are generally similar to the estimates in the regression equations for the other modification actions (columns 2 through 5). We present the effects—most of which are expected—on the redefault rate of borrower and loan characteristics at modification. Delinquency status at modification: As expected, the results indicate that the more delinquent the loan at modification, the higher the redefault rate. House price depreciation: The redefault rates of loans are higher for higher CLTVs, as expected. Continued depreciation in house prices after the loan modification also increases the redefault rate. Unemployment rate: The redefault rates of loans are higher in areas where the unemployment rate has increased since the modification, as expected. Interest rate at modification: Loans with higher interest rates at the time of modification are more likely to redefault, as expected. Time of modification: Loan modifications that started prior to the fourth quarter of 2009 are more likely to redefault than those modified in later periods, probably because over time servicers learned which actions were more effective. We also present results of the effects of borrower and loan characteristics at origination on redefault rate: Credit score at origination: The higher the FICO credit scores at origination, the less likely loans are to redefault, as expected. LTV at origination: The redefault rates of loans with higher LTVs at origination are less likely to redefault, an unexpected result. However, the effects are generally not statistically significant. These results are therefore inconclusive. Interest rate at origination: Loans with higher interest rates at origination are less likely to redefault, an unexpected result. The reason for this result is not clear. We present results of other loan characteristics on the redefault rate: Investor/lender: As we have already mentioned, a substantial amount of data on the loan investor or ownership are missing or unavailable, especially for subprime loans. When we include the investor variable in the model using the limited available data for prime loans, we find that the redefault rates of portfolio loans and private-label securitized loans are lower than Fannie Mae and Freddie Mac loans. Excluding the Fannie Mae and Freddie Mac loans, portfolio loans were less likely to redefault compared to private-label securitized loans.servicers have better information about borrowers in their pools of portfolio loans than they have about those in the pool of private-label securitized loans. This finding is also consistent with the notion that servicers modify loans differently based on investor or ownership type. The difference in the redefault rates could be that Adjustable Rate Mortgages (ARM): Loans with ARMs were more likely to redefault than those with fixed rates, as expected. Property type: Loans for condominiums were more likely to redefault than loans for single-family houses. Loan type: FHA and VA loans were less likely than conventional loans to redefault. The reason for this finding is not clear. Loan purpose: Loans for refinancing, with or without cash-outs, were less likely to redefault than purchase loans. The reason for this effect is not clear. We now compare the effects of the loan modifications in the CoreLogic data, which represent loans that had been modified under a variety of proprietary and federal programs, to the effects of loan modifications made under HAMP. To make the two data sets comparable, we restricted the CoreLogic data set to owner-occupied housing, since HAMP modified only this type of housing during the applicable period (fourth quarter of 2009 to second quarter of 2010). The modification also had to reduce the monthly payment. We also assumed that modification actions resulted in the same changes to the loan terms. The analysis includes loans that redefaulted 12 months after they were modified. We used 12 months after modification instead of 6 months because of HAMP data limitations, which we mentioned earlier. A summary of the results is presented in table 23. The full estimates for CoreLogic and HAMP data are in table 24 and 25, respectively. The values represent the incremental effects, which are the product of the estimated coefficients from regression estimates of loan redefaults within 12 months of modifications and the average changes in the modification actions based on the CoreLogic data representing the universe of loans. We find that the reduction in redefault rates is similar for loans in both data sets that are modified to lower monthly payments. For loans from the CoreLogic data set, a 30 percent payment reduction decreases the redefault rate by about 9 percentage points. For HAMP-modified loans, the same reduction results in a 10-percentage-point decrease. The results are generally similar for rate reduction and capitalization, actions commonly used for loans in both data sets. Although we could not separately identify actions that resulted in principal forgiveness and principal forbearance in the CoreLogic data, our analysis of HAMP found that the 12-month redefault rate for loans that received principal forgiveness was 8 percent, and that for loans receiving forbearance 12 percent. Both rates are lower than the overall redefault rate for all HAMP loans, which was 15 percent. When controlling for observable borrower and loan characteristics, however, we found that the effect of principal forgiveness on the redefault rate was inconclusive, while larger forbearance lowers the redefault rate. Table 24 presents regressions of a redefault indicator (a modified loan becoming 90 days or more delinquent within 12 months of the modification) on modification actions—monthly payment changes, interest rate changes, balance reduction, capitalization, and term changes—for the CoreLogic data. The regression includes information on the borrower and the loan. We used the OLS technique, and fixed-effects estimates for loan origination year and zip codes are not reported, for brevity. The reported estimates are marginal effects (percentage point differences). The standard errors are presented in parentheses, and *, **, and *** denote two-tailed significance at 10 percent, 5 percent, and 1 percent or better, respectively. Table 25 presents regressions of a redefault indicator (a modified loan becoming 90 days or more delinquent within 12 months of the modification) on modification actions—monthly payment changes, interest rate changes, principal forgiveness, principal forbearance, capitalization, and term changes—for the HAMP data. The regression includes information on the borrower and the loan. We used the OLS technique. Fixed-effects estimates for loan origination year and zip codes are not reported, for brevity; and fixed effects for the servicers are not reported for reasons of confidentiality. The reported estimates are marginal effects (percentage point differences). The standard errors are presented in parentheses, and *, **, and *** denote two-tailed significance at 10 percent, 5 percent, and 1 percent or better, respectively. Using the loans from the CoreLogic data, we estimated the impact of decreases in monthly payments on redefault within 6 months of modification, limiting the data to payment decreases and within set ranges. These included payment decreases—0 percent to less than 10 percent (the reference category), 10 percent to less than 20 percent, 20 percent to less than 30 percent, 30 percent to less than 40 percent, 40 percent to less than 50 percent, 50 percent to less than 60 percent, and more than 60 percent. We also included all the controls used in the previous estimates (see table 22). An abridged version of the estimates is presented in table 26 (only for the buckets of payment decreases). The first bucket is used as the reference group, and the reported estimates are marginal effects (percentage point differences). The standard errors are presented in parentheses, and *, **, and *** denote two-tailed significance at 10 percent, 5 percent, and 1 percent or better, respectively. The relationship between the payment decreases and redefault rate is shown in figure 21, based on the estimates in column 1 of table 27. We also summarize below the results for the separate modification actions in columns 2 to 5 of table 27. As shown in figure 21, there is a tradeoff between decreases in monthly payments as a result of modification actions and the redefault rate. That is, as the payments decrease, the redefault rate generally decreases, but only up to a certain point. As an example, irrespective of the modification action (except for balance reduction), the redefault rate is 12 percent for loans receiving a 40-percent reduction (the lowest redefault rate), but rises to 20 percent for loans receiving a reduction of less than 10 percent. The data also show that the majority of the loans received payment reductions of less than 30 percent. We obtain similar effects for the specific modification actions—rate reduction, balance reduction, capitalization, and term extension. The modification actions generally result in lower redefault rates as the payment reductions increase, except for balance reductions (see fig. 21). Some of these actions were much more commonly used than others—for example, interest rate reductions and capitalization were used far more frequently than term extensions and reducing the balance (see fig. 21). Also, the majority of the loans receive payment reductions of less than 30 percent, except for balance reductions which generally result in payment reductions exceeding 40 percent. Several borrower and loan characteristics at modification strongly predict redefaults, but their impacts differ according to how much payments are reduced and the type of loan or borrower characteristics. Overall, borrower and loan characteristics at the time of modification are predictive of redefault. Large payment reductions generally help borrowers with high credit risks more than they help other borrowers. High-risk borrowers generally have high CLTV ratios, high unemployment rates after modification, and increased delinquency prior to modification. These borrowers are sensitive to large payment reductions possibly because they cannot afford their mortgages, but we could not control for affordability in the model because of a lack of usable data on the debt-to- income (DTI) ratio. We find that payment reductions are more effective in reducing redefault rates for borrowers with high CLTV ratios, especially those with ratios above 125 percent (see table 28 and fig. 22). For instance, the baseline redefault rate is 18 percent for borrowers with a CLTV of at least 125 percent and 13 percent for those with a CLTV of less than 95 percent. With a payment reduction of less than 10 percent, the redefault rates are 25 percent and 16 percent for these two groups, respectively, but fall to 16 percent and 12 percent for payment reductions of 30 percent to 39 percent. Among the loans we analyzed, about a third had a CLTV of less than 95 percent and about a quarter had a CLTV of 125 percent or more. For all CLTV categories, the majority of the loans received payment reductions of less than 30 percent. Payment reductions are more effective in reducing redefault rates for borrowers in areas where the unemployment rate increased after modification (see table 29 and fig. 23). For instance, the baseline redefault rate is 18 percent for borrowers who are located in areas that experienced higher unemployment rates and 13 percent for those experiencing lower unemployment rates. With a payment reduction of between 50 to 59 percent, the redefault rate reduces to about 14 and 12 percent, respectively. Among the loans we analyzed, the proportion of loans located in areas with increases in or no change in unemployment rates was slightly lower than those located in areas with decreases in unemployment rates. For both unemployment categories, the majority of the loans received payment reductions of less than 30 percent. Payment reductions are more effective for borrowers who are 90 days or more past due (see table 30 and fig. 24). For instance, the baseline redefault rate is 17 percent for borrowers who are 90 days or more delinquent. But with a payment reduction of at least 40 percent, the redefault rate reduces to 13 percent. The payment reductions are generally not very effective for the other borrowers, including those in foreclosure. Among the loans we analyzed, almost three-quarters were 90 days or more past due. For all loan performance categories, the majority of the loans received payment reductions of less than 30 percent. To ensure that the results were reliable, we performed several checks of robustness for the main results reported for the CoreLogic data set in column 1 of table 22 for payment reductions. We find that the results of the checks are generally consistent with what we have reported. First, we estimated the model for different durations after the modifications—12 and 18 months—instead of 6 months. The baseline redefault rate is 35 percent within 12 months of modification, and a 23- percent (the average) reduction in payments decreases the redefault rate by 8 percentage points to 27 percent. Similarly, within 18 months of modification, the redefault rate decreases from a baseline of 51 percent to 45 percent for a payment reduction of 18 percent (the average). Second, as already indicated some loans had multiple modifications. Similar estimates were obtained when we used only the latest modification action for loans that received multiple modifications. Third, as in other studies, the data were limited to loans that entered the CoreLogic database within 3 months of origination. This would help to reduce potential survivorship bias. Also, we restricted the sample to loans originated since January 2005, including those originated since the housing boom. For both of these cases, the results were similar to the main results. Fourth, the significance of the estimates was unchanged when we estimated robust standard errors. Finally, the results were unchanged when we clustered the standard errors by zip codes. See, for example, Agarwal and others (2011a) which uses FICO credit scores and the documentation status of the loans at origination. Since the data are not available for documentation status, we used the delinquency status of the borrower and the FICO credit scores at the time of the modification, both of which are predictive of redefault. way. For instance, low-quality loans would be more likely to redefault than high-quality loans, because screening on unobservable characteristics is less important for the latter pool of loans. But if the estimates show that the conditional redefault rates are similar or low-quality loans were less likely to redefault, then unobserved characteristics related to loan quality are likely not the reason for the redefaults. The robustness check suggests that the results are not likely to be biased by unobserved borrower characteristics. We also excluded loans owned or guaranteed by the enterprises and estimated the models. Loans owned or guaranteed by the enterprises differ from private-label securitized loans in terms of underwriting standards, default risk guarantee, servicer incentives, and modification restrictions. We conducted this analysis for prime loans only due to data limitations. The results were similar with the Fannie Mae and Freddie Mac loans excluded. We also provide predicted estimates of the redefault rates for payment reductions for different modification actions (payment reduction, rate reduction, balance reduction, capitalization and term extension) using data on subpopulations of loans—prime, subprime, enterprise, nonenterprise, FHA, and VA loans in tables 31 to 36 (see also fig. 25). We note that since the modification terms are not randomly determined, but rather may reflect some unobserved borrower and loan characteristics, the results, as in previous studies, should be considered as describing the associative relationship between the modification terms and redefault. Adelino, M., K. Gerardi, and P. Willen. “Why Don’t Lenders Renegotiate More Home Mortgages? The Effect of Securitization,” Federal Reserve Bank of Atlanta, Working Paper no. 2009-17a, 2010. Agarwal, S., G. Amromin, I. Ben-David, S. Chomsisengphet, and D. Evanoff. “The Roleof Securitization in Mortgage Renegotiation” Unpublished manuscript. 2011a. Agarwal, S., G. Amromin, I. Ben-David, S. Chomsisengphet, and D. Evanoff. “Market-Based Loss Mitigation for Troubled Mortgages Following the Financial Crisis,” Federal Reserve Bank of Chicago, WP 2011-03. 2011b. Ambrose, B. and C. Capone, Jr., “Cost-Benefit Analysis of Single-Family Foreclosure Alternatives.” Journal of Real Estate Finance and Economics, 13: 105-120. 1996. Ambrose, B. and C. Capone. “The Hazard Rates of First and Second Defaults.” Journal of Real Estate Finance and Economics, 20(3): 275- 293. 2000. Amherst Securities Group LP. .”Modification Success—What Have We Learned?” Amherst Mortgage Insight (April 5, 2011a). Amherst Securities Group LP. “National Mortgage Servicing Standards and Conflicts of Interests” Testimony of Laurie Goodman, Amherst Securities Group to the Subcommittee on Housing, Transportation and Community Development of the Senate Committee on Banking, Housing and Urban Affairs. (May 11, 2011b). Capone, Jr., C., and A. Metz. “Mortgage Property Rights and Post-Default Incentives.” Unpublished manuscript, available at http://ssrn.com/abstract=1802448.2004. Foote, C., K. Gerardi, and P. Willen (FGW) “Negative Equity and Foreclosure: Theory and Evidence,” Journal of Urban Economics, 64(2): 234-245. 2008. Foote, C., K. Gerardi, L. Goette, and P. Willen (FGGW), “Reducing Foreclosures: No Easy Answers,” Federal Reserve Bank of Boston, Public Policy Discussion Papers, no. 09-2. 2009. Gerardi, C., A. Shapiro, and P. Willen (GSW), “Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures,” Federal Reserve Bank of Boston, Working Paper no. 07-15. 2007. Gerardi, C. and Wenli Li. “Mortgage Foreclosure Prevention Efforts,” Federal Reserve Bank of Atlanta Economic Review, vol. 95, no. 2. 2007. GAO. Troubled Asset Relief Program: Treasury Continues to Face Implementation Challenges and Data Weaknesses in Its Making Home Affordable Program. GAO-11-288. Washington, D.C.: Mar. 17, 2011. Karikari, John. “Why Homeowners’ Documentation Went Missing Under the Home Affordable Mortgage Program (HAMP)?: An Analysis of Strategic Behavior of Homeowners and Servicers, Unpublished manuscript, http://ssrn.com/abstract=1807135. 2011. OCC-OTS (Office of the Comptroller of the Currency/Office of Thrift Supervision). OCC and OTS Mortgage Metrics Report (Disclosure of National Bank and Federal Thrift Mortgage Loan Data: Third Quarter 2010 (Washington, D.C.: December 2010). Piskorski, T., A. Seru, and V. Vig. “Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis.” University of Chicago, Booth School of Business, Research Paper no. 09-02. 2009. Voicu, I., V. Been, M. Weselcouch and A. Tschirart. “Performance of HAMP Versus Non-HAMP Loan Modifications – Evidence from New York City,” Unpublished manuscript, OCC, Washington, DC. 2011. In addition to the individual named above, Harry Medina, Assistant Director; Anne Akin; Serena Agoro-Menyang; Don Brown; Steve Brown; Tania Calhoun; Emily Chalmers; DuEwa Kamara; John Karikari, Patricia MacWilliams; John McGrail; Marc Molino; Christine Ramos; Beverly Ross; Jessica Sandler; Andrew Stavisky; and James Vitarello made key contributions to this report.

Historically high foreclosure rates remain a major barrier to the current economic recovery. To assist policymakers and housing market participants in evaluating foreclosure mitigation efforts, GAO examined (1) the federal and nonfederal response to the housing crisis, (2) the current condition of the U.S. housing market, and (3) opportunities to enhance federal efforts. To address these objectives, GAO analyzed government and mortgage industry data, including loan-level data purchased from a private vendor; reviewed academic and industry literature; examined federal policies and regulations; and interviewed housing industry participants and observers. In an effort to help the millions of homeowners struggling to keep their homes, a range of federal programs have offered relief in the form of loan modifications and refinancing into loans with lower interest rates, among other things. Under Treasury’s Home Affordable Modification Program (HAMP), initiated in early 2009, servicers have modified almost 1 million loans between 2009 and 2011. During the same period, servicers modified nearly 1 million additional loans under programs administered by the Departments of Agriculture (USDA) and Veterans Affairs (VA), Federal Housing Administration (FHA), and Fannie Mae and Freddie Mac (the enterprises). Servicers have also modified about 2.1 million loans under nonfederal loan modification programs resulting in a total of about 4 million modifications between 2009 and 2011. However, a large number of borrowers have sought assistance, but were unable to receive a modification. For example, approximately 2.8 million borrowers had their HAMP loan modification application denied or their trial loan modification canceled. Further, the volume of federal modifications has declined since 2010. Recent efforts have expanded refinancing programs. However, low participation rates in FHA’s program raise questions about the need for Treasury’s financial support, which could reach a maximum of $117 million. In spite of these efforts, the number of loans in foreclosure remains elevated, and key indicators suggest that the U.S. housing market remains weak. GAO’s analysis of mortgage data showed that in June 2011 (most current data available for GAO’s use and analysis) between 1.9 and 3 million loans still had characteristics associated with an increased likelihood of foreclosure, such as serious delinquency and significant negative equity (a loan-to-value ratio of 125 percent or greater). These loans were concentrated in certain states, such as Nevada and Florida. Further, more recent indicators such as home prices and home equity remain near their postbubble lows. As of December 2011, total household mortgage debt was $3.7 trillion greater than households’ equity in their homes—representing a significant decline in household wealth nationwide. Despite the scope of the problem, most stakeholders GAO interviewed said that enhancing current foreclosure mitigation efforts would be preferable to new ones. GAO found that agencies could take steps to make their programs more effective. Collectively, FHA and the enterprises had 1.8 million loans in their portfolios that were 90 days or more past due as of December 2011. GAO found that most of the agencies and enterprises, with the exception of USDA, had stepped up their efforts to monitor servicers’ outreach to struggling borrowers. However, not all the agencies were conducting analyses to determine the effectiveness of their foreclosure mitigation actions. Experiences of Treasury and the enterprises and GAO’s econometric analysis strongly suggest that such analyses can improve outcomes and cut program costs. For example, GAO’s analysis showed that the size of payment change, delinquency status, and current loan to value ratio, can significantly influence the success of the foreclosure mitigation action taken. In contrast, not all federal agencies consider redefault rates and long-term costs when deciding which loan modification action to take. Nor have they assessed the impact of loan and borrower characteristics. In some cases, agencies do not have the data needed to conduct these analyses. GAO found some evidence to suggest that principal forgiveness could help some homeowners—those with significant negative equity—stay in their homes, but federal agencies and the enterprises were not using it consistently and some were not convinced of its merits. In addition, there are other policy issues to consider in how widely this option should be used, such as moral hazard. The Federal Housing Finance Agency (FHFA), for instance, has not allowed the enterprises to offer principal forgiveness. Treasury recently offered to pay incentives to the enterprises to forgive principal, and FHFA is reevaluating its position. Until agencies and the enterprises analyze data that will help them choose the most effective tools and fully utilize those that have proved effective, foreclosure mitigation programs cannot provide the optimal assistance to struggling homeowners or help curtail the costs of the foreclosure crisis to taxpayers. GAO recommends that: Treasury reevaluate the need for its financial support of FHA’s refinance program; USDA increase its efforts to monitor servicers’ outreach tostruggling borrowers; FHA, VA, and USDA collect and analyze information needed to fully assess the effectiveness and costs of their foreclosure mitigation efforts; andFHFA expeditiously finalize analysis on whether to allow the enterprises to offer HAMP principal forgiveness modifications. Treasury, FHA, VA and FHFA agreed to consider or concurred with the report’s recommendations. USDA provided additional information in its comments. In response, we clarified the text and recommendation on USDA’s monitoring of servicers’ outreach efforts.

You are an expert at summarizing long articles. Proceed to summarize the following text: From fiscal years 2008 through 2011, the typical participant in the IL track was a male Vietnam-era veteran. Of the 9,215 veterans who entered the IL track in these years, most (67 percent) were male and 50 years old or older. Most women in the IL track were in their 40s or 50s. Most of the 9,215 IL track veterans served in the Vietnam War; relatively few served in the Global War on Terrorism as part of Operation Enduring Freedom or Operation Iraqi Freedom.veterans served in the U.S. Army, and less than 1 percent served in the National Guard or Reserves. More than three-quarters of IL track veterans had a combined service-connected disability rating of at least 60 In addition, most (60 percent) IL track percent, and 34 percent had a disability rating of 100 percent. 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. Furthermore, 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, from individual counseling and the installation of ramps to a boat, camping gear, and computers. The most common type of goods or services were related to counseling, education and training, and computer and camera equipment. For all veterans who entered the IL track in fiscal year 2008, we estimated that VR&E purchased a total of almost $14 million in goods and services. The average spent per IL track case that year was nearly $6,000. We found that most (about 89 percent) of IL track veterans who began only one plan during fiscal year 2008 were classified by VR&E as “rehabilitated”—i.e., successfully reaching and maintaining the goals identified in their IL plan—by the end of fiscal year 2011. At the same time, about 11 percent of cases were either “discontinued”—i.e., closed by VR&E because the rehabilitation goals in the veteran’s IL plan were not completed—or were still active cases. Of the IL cases that had been discontinued, the reasons included the veteran declining benefits, not responding to VA’s attempts to contact them, worsening medical conditions, and death. We also found that some IL plans were easier to close as rehabilitated than others, due to the varied nature and complexity of IL plans, which are based on veterans’ individual disabilities and needs. For example, one IL plan we reviewed for a veteran with rheumatoid arthritis only called for the purchase and installation of eight door levers and a grab rail for the bathtub to facilitate his independence. However, another IL plan 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 was 89 percent for veterans who started an IL plan in fiscal year 2008, the rate varied by regional office, from 49 to 100 percent. About two-thirds of regional offices rehabilitated 80 percent or more of their 2008 IL track veterans by the end of fiscal year 2011. 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. Furthermore, in fiscal year 2008 IL veterans nationwide completed their IL plans in an average of 384 days (about 13 months); however, we found that the length of time to rehabilitate these veterans varied by regional office from a low of 150 days at the St. Paul Regional Office to a high of At most regional offices (49 895 days at the Roanoke Regional Office. of 53), however, the average number of days to complete veterans’ IL plans ranged from 226 to 621 days (8 to 21 months). To control for various factors that could influence rehabilitation time frames, 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.model show differences across regional offices in the amount of time it takes for veterans to become rehabilitated based on caseload. More specifically, the chance of rehabilitation within 2 years was less than 50 percent at 4 offices, between 50 and 90 percent at 18 offices, and 90 The results of our percent or higher at 16 offices. Veterans served by regional offices with large IL caseloads generally had a higher probability of completing an IL plan more quickly than a veteran served by an office with a small IL caseload (see fig 1). We identified four key areas where VR&E’s oversight of the IL track was limited: (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. Certain VR&E case management requirements were not being met by some regional offices. For example, based on our review of VR&E’s site visit monitoring reports, we found that some Vocational Rehabilitation Counselors (VRCs) were not fulfilling VR&E’s requirement to meet in- person each month with IL track veterans to monitor progress in completing their IL plans. VRCs told us that this requirement is a challenge due to the size of their caseloads and the distances that they may have to travel to meet with veterans. Furthermore, while VR&E and the Veterans Health Administration (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. Several VRCs in the regions we interviewed indicated that when they refer IL track cases to VHA physicians, the physicians do not respond or they respond too late. As a result, services for IL track veterans are delayed or purchased by VR&E instead of VHA. In our review of 182 IL track case records, we found some instances where VR&E purchased goods and services that appear to be medically related, such as ramps and grab bars, which could have been provided by VHA. In response, we recommended VA explore options for enhancing coordination to ensure IL track veterans’ needs are met by VHA, when appropriate, in a timely manner. VA concurred and stated that it was piloting an automated referral system that would allow VR&E staff to make referrals to VHA providers and check on their status electronically. VR&E does not systematically monitor variation in IL track caseload size and benefits across its regional offices. We found that the total IL track caseload for fiscal years 2008 through 2011 ranged from over 900 cases in the Montgomery, Alabama Regional Office to 4 cases in the Wilmington, Delaware Regional Office. In addition, we found that some regions developed IL plans that addressed a broad range of needs while others elected to develop more focused plans that provided fewer benefits to achieve VR&E’s rehabilitation goal. VR&E has relied on the information provided through its general quality assurance (QA) activities and a series of periodic ad hoc studies to oversee the administration of the IL track. Because these activities are limited in scope, frequency, and how the information is used, we noted that they may not ensure consistent administration of the IL track across regions. In response, VR&E officials commented that QA results are analyzed to determine trends, and make decisions about training content and frequency. VR&E’s current policy for approving IL track expenditures may not be adequate, considering the broad discretion VR&E provides to regions in determining and purchasing goods and services. 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’s written policy and guidance do not explicitly require this for all IL expenditures. Thus, regional offices have the ability 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 costly. (See table 1 for the level of approval required for IL expenditures.) In one case we reviewed, VR&E Central Office approval was not required for the purchase of a boat, motor, trailer, and the boat’s shipping cost, among other items, totaling about $17,500. In another case we reviewed, VR&E Central Office was not required to approve total expenditures of $18,829 for a riding lawn mower—which VR&E’s current policy prohibits—and other IL goods and services including a bed, bed frame, desktop computer, and woodworking equipment. Without appropriate approval levels, VR&E’s IL track may be vulnerable to potential fraud, In our report, we recommended that VA reassess waste, and abuse.and consider enhancing its current policy concerning the required level of approval for IL track expenditures. VA concurred with our recommendation and said it will use the results of an internal study to determine if changes are needed to its existing cost-review policies or procedures. VA stated that any necessary changes should be implemented by March 2014. VR&E’s case management system—commonly referred to as —does not collect or report critical program management “CWINRS”information that would help the agency in its oversight responsibilities. More specifically, this system does not collect and maintain information on: Costs of IL goods and service purchased: The system does not collect information on the total amount of funds VR&E expends on IL benefits. 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 VA officials, cost information is not collected on the IL track alone because they view the five tracks within VR&E as a single program with the same overarching goal—to help veterans achieve their employment goals. We previously reported on this issue in 2009. At that time, we found that VR&E’s five tracks do not share the same overarching goal. Therefore, we concluded that VR&E should not combine track information. Types of IL benefits provided: The 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. 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 addition, we found that controls for data entry were not adequate to ensure that all important data were 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. Number of IL veterans served: The system does not provide VR&E with the information it needs 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, as of 2012, was set at 2,700. In analyzing VR&E’s administrative data, we found that VR&E counts the number of IL plans developed annually rather than the number of individual veterans admitted to the track. Because multiple IL plans can be developed for an individual veteran during the same fiscal year, veterans with multiple plans may be counted more than once toward the statutory cap. 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, and ensure that it can effectively manage its cap. Similar to our report’s findings, VR&E’s 2012 evaluation of CWINRS has shown that the system limits VR&E’s oversight abilities and does not capture all important data elements to support the agency’s “evolving business needs.”that the new system modifications will enable them to individually track veterans served through the IL track. However, we found that the CWINRS redesign will not enable VR&E to obtain data on IL track expenditures or the types of goods and services provided. At the time of our review, no specific time frames were provided for the CWINRS redesign, but officials noted it could take up to 3 years to obtain funding for this effort. In our report, we recommended that VA implement an oversight approach that enables VR&E to better ensure consistent administration of the IL track across regions. This approach would include ensuring that CWINRS (1) tracks the types of goods and services provided and their costs, (2) accounts for the number of IL track veterans being served, and (3) contains stronger data entry controls. VA concurred with our recommendation and stated that discussions of system enhancements and the development of ad hoc reports are ongoing. The agency also will be considering a new oversight approach as part of an internal study. Officials told us that they plan to modify CWINRS, and In conclusion, strengthening oversight of VR&E’s IL track is imperative given the wide range of goods and services that can be provided under the law to help veterans with service-connected disabilities improve their ability to live independently when employment is not feasible. More attention at the national level can help ensure that IL track case management requirements are met, the track is administered consistently across regions, expenditures for goods and services are appropriate, and critical information is collected and used to ensure veterans’ IL needs are sufficiently addressed. Chairman Flores, Ranking Member Takano, and Members of the Subcommittee, this concludes my prepared remarks. I would be happy to answer any questions that you or other members of the subcommittee may have. For further information regarding this testimony, please contact Daniel Bertoni at (202) 512-7215, or at [email protected]. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony include Clarita Mrena (Assistant Director), James Bennett, David Chrisinger, David Forgosh, Mitch Karpman, Sheila McCoy, James Rebbe, Martin Scire, Ryan Siegel, Almeta Spencer, Jeff Tessin, Jack Warner, and Ashanta Williams. 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.

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 from fiscal years 2008 to 2011, most were male Vietnam era veterans in their 50s or 60s. The most prevalent disabilities among these veterans were post-traumatic stress disorder and tinnitus ("ringing in the ears"). GAO's review of 182 IL cases from fiscal year 2008 shows that VR&E provided a range of IL benefits to veterans; the most common benefits being counseling services and computers. Less common benefits included gym memberships, camping equipment, and a boat. GAO estimates 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. About 89 percent of fiscal year 2008 IL veterans were considered by VR&E to be "rehabilitated" by the end of fiscal year 2011; that is, generally, to have completed their IL plans. These plans identify each veteran's independent living goals and the benefits VR&E will provide. The remaining 11 percent of cases were either closed for various reasons, such as the veteran declined benefits, or were still active. Rehabilitation rates across regions varied from 49 to 100 percent, and regions with larger IL caseloads generally rehabilitated a greater percentage of IL veterans. On average, IL plans nationwide were completed in 384 days; however, completion times varied by region, from 150 to 895 days. GAO identified four key areas where VR&E's oversight was limited. 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. This has resulted in delayed benefits or VR&E providing the benefits instead of VHA. Second, VR&E does not systematically 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, VR&E's policies for approving IL expenditures may not be appropriate as regions were permitted to purchase a range of items without Central Office approval, some of which were costly or questionable. In one case GAO reviewed, Central Office review was not required for expenditures of $17,500 for a boat, motor, trailer, and the boat's shipping, among other items. Finally, VR&E's case management system does not collect information on IL costs and the types of benefits purchased. VR&E also lacks accurate data on the number of IL veterans served. While the law currently allows up to 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. Since veterans can have more than one IL plan in a fiscal year, one veteran could be counted multiple times towards the cap. VA plans to make modifications to its case management system to address this, but officials noted that it could take up to 3 years to obtain funding for this project. The IL track--one of five tracks within VA's VR&E program--provides a range of non-employment related benefits to help veterans with service-connected disabilities live more 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. This testimony is based on GAO's report issued in June 2013, and describes (1) the characteristics of veterans in the IL track, and the types and costs of benefits 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. 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, procedures, studies, and other documentation. In its June 2013 report, GAO recommended 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 agreed with these recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: As part of our audit of the fiscal years 2008 and 2007 CFS, we evaluated the federal government’s financial reporting procedures and related internal control. Also, we determined the status of corrective actions by Treasury and OMB to address open recommendations relating to the processes used to prepare the CFS detailed in our previous reports. In our audit report on the fiscal year 2008 CFS, which is included in the fiscal year 2008 Financial Report of the United States Government (Financial Report), we discussed the material weaknesses related to the federal government’s processes used to prepare the CFS. These material weaknesses contributed to our disclaimer of opinion on the accrual basis consolidated financial statements and also contributed to our adverse opinion on internal control. We performed sufficient audit procedures to provide the disclaimer of opinion on the accrual basis consolidated financial statements in accordance with U.S. generally accepted government auditing standards. This report provides the details of the material weaknesses identified during the fiscal year 2008 audit that relate to the processes used to prepare the CFS and our recommendations to correct these weaknesses, as well as the status of corrective actions by Treasury and OMB to address recommendations from previous reports. We requested comments on a draft of this report from the Director of OMB and the Secretary of the Treasury or their designees. OMB provided oral comments, which are summarized in the Agency Comments and Our Evaluation section of this report. Treasury’s comments are reprinted in appendix II and are also summarized in the Agency Comments section. Treasury did not establish policies and procedures to provide assurance that federal agencies’ intragovernmental payroll tax amounts are identified and eliminated at the governmentwide level when compiling the CFS. Consolidated financial statements are intended to present the results of operations and financial position of all of the components that make up the reporting entity as if the entity were a single enterprise. Therefore, when preparing the CFS, Treasury should ensure that intragovernmental activity and balances between federal agencies are eliminated. Federal agencies, as well as other employers, are required to pay, among other taxes, a matching amount of Social Security and Medicare taxes for their employees (payroll taxes). Federal agencies’ payments of payroll taxes to the Internal Revenue Service represent intragovernmental transactions. If these amounts are not eliminated at the governmentwide level when compiling the CFS, revenues and expenses become overstated in the CFS. However, in disclosing the types of revenues included in the Statement of Operations and Changes in Net Position in the draft CFS, Treasury’s description stated that “individual income tax and tax withholdings include….payroll taxes collected from other agencies.” We inquired of Treasury as to why these amounts would be included in the CFS and not eliminated during the preparation process. Treasury subsequently deleted the language regarding the inclusion of federal agency payroll taxes from the CFS. However, Treasury was unable to provide any documentation demonstrating that these amounts were appropriately classified as intragovernmental transactions and eliminated from the CFS. Without adequate policies and procedures to accurately identify and eliminate intragovernmental payroll tax amounts in the process used to prepare the CFS, the federal government’s ability to determine the impact of these amounts on the CFS is impaired and, consequently, the CFS may be misstated. We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to design, document, and implement policies and procedures to identify and eliminate intragovernmental payroll tax amounts at the governmentwide level when compiling the CFS. Treasury, in coordination with OMB, did not take the steps necessary to help assure that certain key information related to significant financial events and conditions were consistent and accurately presented throughout the fiscal year 2008 Financial Report. Specifically, Treasury, in coordination with OMB, has not fully established an effective process for preparing and reviewing information included in the Management’s Discussion and Analysis (MD&A), and “The Federal Government’s Financial Health: A Citizen’s Guide to the Financial Report of the United States Government” (Citizen’s Guide) sections of the Financial Report. According to Statement of Federal Financial Accounting Standards No. 15, Management’s Discussion and Analysis, the MD&A should highlight key information and increase the understanding and usefulness of the Financial Report. Similarly, the Citizen’s Guide is intended to provide readers with a brief, high-level summary of key financial information from the Financial Report on our nation’s current fiscal condition and the long- term sustainability. Further, data presented in both the MD&A and Citizen’s Guide must be consistent with related data in the CFS. Treasury, in coordination with OMB, performed certain procedures to prepare and review the MD&A and Citizen’s Guide. However, these procedures were not effective in helping assure that (1) information was consistently reported in the CFS and these related sections of the Financial Report and (2) information reported in the MD&A and Citizen’s Guide was consistent, complete, and accurate. During our comparison of information reported in draft versions of the MD&A and Citizen’s Guide with information reported in the fiscal year 2008 draft CFS, we identified (1) several inconsistencies and (2) numerous instances in which information was omitted from, or incorrectly reported in, these draft sections of the Financial Report that were not detected by Treasury’s review process. For example, information in the draft MD&A and Citizen’s Guide regarding certain federal actions for addressing the financial crisis was incomplete or incorrectly reported. In addition, the $339 billion change in veterans benefit liability in fiscal year 2008 reported in the draft CFS was incorrectly reported as $365 billion in the draft versions of the MD&A and Citizen’s Guide. We communicated our findings to Treasury officials who corrected the data presented in the MD&A and Citizen’s Guide sections of the final Financial Report. Without effective procedures for preparing and reviewing the MD&A and Citizen’s Guide to ensure that the information is complete, accurate, and consistent with the information reported in the CFS, Treasury is at risk that information provided in these key sections of the Financial Report will not be reliable. A contributing factor to the reporting errors and inconsistencies we detected is that Treasury does not have documented procedures for preparing and reviewing the MD&A and Citizen’s Guide sections of the Financial Report in comparison with data presented in the CFS. As preparer of the Financial Report, Treasury management, in coordination with OMB, is responsible for developing and documenting detailed policies, procedures, and practices and for ensuring that internal control is built into and is an integral part of operations to ensure that information is consistent and accurate throughout the Financial Report. GAO’s Standards for Internal Control in the Federal Government calls for clear documentation of policies and procedures. Although, Treasury has documented policies and procedures used to compile the CFS in its Standard Operating Procedures (SOP) entitled “Preparing the Financial Report of the U.S. Government,” the SOP does not provide procedures for preparing and reviewing the MD&A and Citizen’s Guide—two key report sections providing information to the Congress and the public regarding the fiscal condition of the U.S. government—to help assure they are consistent and accurate in comparison with related information presented elsewhere in the Financial Report. We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to develop, document, and implement processes and procedures for preparing and reviewing the MD&A and Citizen’s Guide sections of the Financial Report to help assure that information reported in these sections is complete, accurate, and consistent with related information reported elsewhere in the Financial Report. Treasury, in coordination with OMB, has not established and documented criteria for identifying which federal entities are significant to the CFS for purposes of verifying and validating the information submitted by federal entities for inclusion in the CFS. Treasury, through the Treasury Financial Manual (TFM), identified 35 significant federal agencies and entities, referred to as “verifying agencies.” Those agencies are required to perform a number of procedures to provide audit assurance over the information submitted to Treasury for the CFS. However, Treasury and OMB have not (1) established and documented criteria for designating federal entities as “verifying agencies” significant to the CFS, and (2) established policies and procedures for assessing and documenting, on an annual basis, which entities meet the criteria. Treasury, in coordination with OMB, is required to prepare the CFS. According to the Federal Accounting Standards Advisory Board’s Statement of Federal Financial Accounting Concepts No. 4, Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the United States Government, the consolidated financial report should be a general purpose report that is aggregated from federal agencies’ and other federal entities’ financial reports. The TFM provides policies and procedures on how federal agencies are to provide their financial data to Treasury for consolidation. In accordance with the TFM, verifying agencies are required to submit their financial data to Treasury using a Closing Package. The verifying agency’s Chief Financial Officer must certify the accuracy of the data in the Closing Package and have the Closing Package audited by the agency’s Inspector General. In addition, the Closing Package process requires verifying agencies to reclassify their audited financial statements to the Closing Package “special purpose financial statements.” Verifying agencies must also identify trading partners and enter certain financial statement notes. The special purpose financial statements are audited to obtain reasonable assurance about whether the financial statements are (1) free of material misstatements, (2) in conformity with accounting principles generally accepted in the United States, and (3) presented pursuant to the requirements of the TFM. Because the Closing Package process requires verifying agencies to verify and validate the information in the special purpose financial statements with their audited information and receive an audit opinion, Treasury is provided a level of assurance that it is compiling the CFS with audited financial information. All other federal entities that contribute financial information to the CFS are classified by Treasury as “nonverifying agencies.” Over 100 nonverifying federal agencies and entities submitted data for fiscal year 2008. Currently these entities are only required to submit adjusted trial balance data to Treasury instead of an audited Closing Package. Because of a lack of criteria for determining an entity’s significance to the CFS, it is unclear whether any of these “nonverifying agencies” should be classified as “verifying agencies.” One of Treasury’s and OMB’s goals for preparing the CFS is to link the agencies’ audited financial statements to the CFS. To accomplish this goal, Treasury needs an appropriate level of assurance that it compiles the CFS using audited Closing Packages from the federal entities contributing the most significant amounts of financial information. However, without establishing the criteria for identifying federal entities as significant to the CFS and establishing related policies and procedures to assess, on an annual basis, which entities meet such criteria, Treasury and OMB cannot obtain this level of assurance. We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to (1) establish and document criteria to be used in identifying federal entities as significant to the CFS for purposes of obtaining assurance over the information being submitted by those entities for the CFS and (2) develop and implement policies and procedures for assessing and documenting, on an annual basis, which entities met such criteria. These actions will help provide Treasury and OMB with assurance that the information being used to prepare the CFS is consistent with the audited financial statements of the federal agencies, in all material respects. During fiscal year 2008, Treasury enhanced its SOP entitled “Preparing the Financial Report of the U.S. Government” to require an overall analysis of the consolidated numbers in the financial statements to include a review for reasonableness of changes from the prior year to the current year. However, because of a lack of details on the objectives of the analysis and the procedures to be performed, the overall analysis did not detect significant errors in amounts used to prepare the Statements of Net Cost (SNC). Internal control should provide, among other things, reasonable assurance that financial reporting is reliable. GAO’s Standards for Internal Control in the Federal Government defines the minimum level of quality acceptable for internal control in the federal government and provides the standards against which internal control is to be evaluated. These standards state that internal controls should include, among other items, reviews by management at the functional or activity level. Treasury categorizes and allocates costs in the SNC by agency. For example, most of the costs associated with pension and health benefits that are reported by the Office of Personnel Management (OPM) in its financial statements are allocated to the costs of OPM’s federal user agencies for governmentwide federal reporting purposes. Treasury uses head count figures reported by OPM in its Closing Package to perform the allocation of pension and health benefit costs across all user federal agencies. However, we found that Treasury did not detect a significant variance in head count between certain federal entities from 2007 to 2008, which resulted in significant errors in the draft SNC. Specifically, we found that, in fiscal year 2007, the head count used for the Department of Defense (DOD) was 497,724, and the head count used for “all other entities” was 92,566. In fiscal year 2008, we found that the head counts were erroneously reversed. The head count used for DOD was 95,157, while the head count used for “all other entities” was 495,673. Treasury’s review process and overall analysis did not detect this error. As a result, Treasury’s draft SNC understated DOD’s reported costs on the fiscal year 2008 SNC by approximately $10 billion and costs for the “all other entities” line item was equally overstated. Without sufficiently detailed procedures including guidance for performing the analysis and review of data used in the allocation process for compiling the SNC, significant errors could occur in the SNC and not be detected. We reaffirm our recommendation that the Secretary of the Treasury direct the Fiscal Assistant Secretary to further enhance the SOP entitled “Standard Operating Procedures for Preparing the Financial Report of the U.S. Government” to better ensure that CFS compilation practices are proper, complete, and can be consistently applied, including detailed procedures for conducting reviews and documenting reasonableness of data used in the process for compiling the CFS. In oral comments on a draft of this report, OMB stated that it generally concurred with the new findings and related recommendations in this report. In addition, OMB provided technical comments, which we have incorporated as appropriate. In its April 15, 2009, written comments on a draft of this report, which are reprinted in appendix II, Treasury stated that it concurs with the new recommendations and expects to implement them by the end of fiscal year 2009. We will evaluate the actions taken to address our recommendations as part of our fiscal year 2009 CFS audit. This report contains recommendations to the Secretary of the Treasury. 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 Homeland Security and Governmental Affairs and the House Committee on Oversight and 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 Chairman and Ranking Member of the Senate Committee on Homeland Security and Governmental Affairs and its Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security and the Chairman and Ranking Member of the House Committee on Oversight and Government Reform and its Subcommittee on Government Management, Organization, and Procurement. In addition, we are sending copies to the Fiscal Assistant Secretary of the Treasury, the Director of OMB, the Deputy Director for Management of OMB, and the Acting Controller of OMB’s Office of Federal Financial Management. This report is also available at no charge on GAO’s Web site at http://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 me (202) 512-3406 or [email protected]. Key contributors to this report are listed in appendix III. This appendix includes the status of recommendations from the following six reports that were open at the beginning of our fiscal year 2008 audit: Financial Audit: Process for Preparing the Consolidated Financial Statements of the U.S. Government Needs Improvement, GAO-04-45 (Washington, D.C.: Oct. 30, 2003); Financial Audit: Process for Preparing the Consolidated Financial Statements of the U.S. Government Needs Further Improvement, GAO-04-866 (Washington, D.C.: Sept. 10, 2004); Financial Audit: Process for Preparing the Consolidated Financial Statements of the U.S. Government Continues to Need Improvement, GAO-05-407 (Washington, D.C.: May 4, 2005); Financial Audit: Significant Internal Control Weaknesses Remain in Preparing the Consolidated Financial Statements of the U.S. Government, GAO-06-415 (Washington, D.C.: Apr. 21, 2006); Financial Audit: Significant Internal Control Weaknesses Remain in the Preparation of the Consolidated Financial Statements of the U.S. Government, GAO-07-805 (Washington, D.C.: July 23, 2007); and Financial Audit: Material Weaknesses in Internal Control over the Processes Used to Prepare the Consolidated Financial Statements of the U.S. Government, GAO-08-748 (Washington, D.C.: June 17, 2008). Recommendations from these reports that were closed in prior years are not included in this appendix. This appendix includes the status of the 56 remaining open recommendations, according to the Department of the Treasury (Treasury) and the Office of Management and Budget (OMB), as well as our own assessments. Explanations are included in the status of recommendations per GAO when Treasury and OMB disagreed with our recommendation or our assessment of the status of a recommendation. We will continue to monitor Treasury’s and OMB’s progress in addressing GAO’s recommendations. Of the 56 recommendations relating to the processes used to prepare the consolidated financial statements of the U.S. government (CFS) that are listed in this appendix, 16 were closed and 40 remained open as of December 9, 2008, the date of our report on the audit of the fiscal year 2008 CFS. In addition to the above contact, the following individuals made key contributions to this report: Louise DiBenedetto, Assistant Director; Lynda Downing, Assistant Director; Cole Haase; Dragan Matic; Maria Morton; Thanomsri Piyapongroj; and Taya Tasse.

Since GAO's first audit of the fiscal year 1997 consolidated financial statements of the U.S. government (CFS), material weaknesses in internal control and other limitations on the scope of our work have prevented GAO from expressing an opinion on the accrual basis CFS. Certain of those material weaknesses relate to inadequate systems, controls, and procedures to properly prepare the CFS. The purpose of this report is to (1) provide details of the continuing material weaknesses related to the preparation of the CFS, (2) recommend improvements, and (3) provide the status of corrective actions taken to address the 56 open recommendations GAO reported for this area in June 2008. During its audit of the fiscal year 2008 CFS, GAO identified continuing and new control deficiencies in the federal government's processes used to prepare the CFS. These control deficiencies contribute to material weaknesses in internal control over the federal government's ability to (1) adequately account for and reconcile intragovernmental activity and balances between federal agencies; (2) ensure that the CFS was consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles; and (3) identify and either resolve or explain material differences between components of the budget deficit reported in the Department of the Treasury's records, used to prepare the Reconciliation of Net Operating Cost and Unified Budget Deficit and Statement of Changes in Cash Balance from Unified Budget and Other Activities, and related amounts reported in federal agencies' financial statements and underlying financial information and records. The control deficiencies GAO identified involved: (1) establishing and documenting policies and procedures for identifying and eliminating federal agencies' intragovernmental payroll tax amounts when compiling the CFS, (2) establishing and documenting policies and procedures for preparing and reviewing information included in key sections of the Financial Report of the U.S. Government, (3) establishing criteria for identifying federal entities' significance to the CFS and annually assessing which entities meet such criteria, (4) enhancing procedures for analyzing and reviewing data used when compiling the Statements of Net Cost, and (5) various other control deficiencies identified in previous years' audits. Of the 56 open recommendations GAO reported in June 2008, 16 were closed and 40 remained open as of December 9, 2008, the date of GAO's report on its audit of the fiscal year 2008 CFS. GAO will continue to monitor the status of corrective actions taken to address the 4 new recommendations as well as the 40 open recommendations from prior years.

You are an expert at summarizing long articles. Proceed to summarize the following text: Over the past decade, the number of acres burned annually by wildland fires in the United States has substantially increased. Federal appropriations to prepare for and respond to wildland fires, including appropriations for fuel treatments, have almost tripled. Increases in the size and severity of wildland fires, and in the cost of preparing for and responding to them, have led federal agencies to fundamentally reexamine their approach to wildland fire management. For decades, federal agencies aggressively suppressed wildland fires and were generally successful in decreasing the number of acres burned. In some parts of the country, however, rather than eliminating severe wildland fires, decades of suppression contributed to the disruption of ecological cycles and began to change the structure and composition of forests and rangelands, thereby making lands more susceptible to fire. Increasingly, the agencies have recognized the role that fire plays in many ecosystems and the role that it could play in the agencies’ management of forests and watersheds. The agencies worked together to develop a federal wildland fire management policy in 1995, which for the first time formally recognized the essential role of fire in sustaining natural systems; this policy was subsequently reaffirmed and updated in 2001. The agencies, in conjunction with Congress, also began developing the National Fire Plan in 2000. To align their policies and to ensure a consistent and coordinated effort to implement the federal wildland fire policy and National Fire Plan, Agriculture and Interior established the Wildland Fire Leadership Council in 2002. In addition to noting the negative effects of past successes in suppressing wildland fires, the policy and plan also recognized that continued development in the wildland-urban interface has placed more structures at risk from wildland fire at the same time that it has increased the complexity and cost of wildland fire suppression. Forest Service and university researchers estimated in 2005 that about 44 million homes in the lower 48 states are located in the wildland-urban interface. To help address these trends, current federal policy directs agencies to consider land management objectives—identified in land and fire management plans developed by each local unit, such as a national forest or a Bureau of Land Management district—and the structures and resources at risk when determining whether or how to suppress a wildland fire. When a fire starts, the land manager at the affected local unit is responsible for determining the strategy that will be used to respond to the fire. A wide spectrum of strategies is available to choose from, some of which can be significantly more costly than others. For example, the agencies may fight fires ignited close to communities or other high-value areas more aggressively than fires on remote lands or at sites where fire may provide ecological or fuel-reduction benefits. In some cases, the agencies may simply monitor a fire, or take only limited suppression actions, to ensure that the fire continues to pose little threat to important resources, a practice known as “wildland fire use.” The Forest Service and Interior agencies have initiated a number of steps to address issues that we and others have identified as needing improvement to help federal agencies contain wildland fire costs, but the effects of these steps on containing costs are unknown, in part because many of the steps are not yet complete. Dozens of studies by federal agencies and other organizations examining federal agencies’ management of wildland fire have repeatedly identified a number of similar issues needing improvement to help contain wildland fire costs. These issues generally fall into one of three operational areas—reducing accumulated fuels, acquiring and using firefighting assets, and selecting firefighting strategies. Recent studies have also raised concerns about the framework used to share the cost of fighting fires between federal and nonfederal entities. First, federal firefighting agencies have made progress in developing a system to help them better identify and set priorities for lands needing treatment to reduce accumulated fuels. Many past studies have identified fuel reduction as important for containing wildland fire costs because accumulated fuels can contribute to more-severe and more costly fires. The agencies are developing a geospatial data and modeling system, called LANDFIRE, intended to produce consistent and comprehensive maps and data describing vegetation, wildland fuels, and fire regimes across the United States. The agencies will be able to use this information to help identify fuel accumulations and fire hazards across the nation, help set nationwide priorities for fuel-reduction projects, and assist in determining an appropriate response when wildland fires do occur. According to Forest Service and Interior officials, the agencies completed mapping the western United States in April 2007; mapping of the eastern states is scheduled to be completed by 2008 and of Alaska and Hawaii by 2009. The agencies, however, have not yet finalized their plan for ensuring that collected data are routinely updated to reflect changes to fuels, including those from landscape-altering events, such as hurricanes, disease, or wildland fires themselves. Forest Service and Interior officials told us that they recognize the importance of ensuring that data are periodically updated and are developing a plan to operate and maintain the system, including determining how often data will be updated. The agencies expect to submit this plan to the Wildland Fire Leadership Council for approval in June 2007. Second, the agencies have also taken some steps to improve how they acquire and use firefighting personnel, aviation resources, and equipment—assets that constitute a major cost of responding to wildland fires—but much remains to be done. The agencies have improved their systems for dispatching and monitoring firefighting assets and for gathering and analyzing cost data. However, they have yet to complete the more fundamental step of determining the appropriate type and quantity of firefighting assets needed for the fire season. Over the past several years, the agencies have been developing a Fire Program Analysis (FPA) system, which was proposed and funded to help the agencies determine national budget needs by analyzing budget alternatives at the local level—using a common, interagency process for fire management planning and budgeting—and aggregating the results; determine the relative costs and benefits for the full scope of fire management activities, including potential trade-offs among investments in fuel reduction, fire preparedness, and fire suppression activities; and identify, for a given budget level, the most cost-effective mix of personnel and equipment to carry out these activities. We have said for several years—and the agencies have concurred—that FPA is critical to helping the agencies contain wildland fire costs and plan and budget effectively. Recent design modifications to the system, however, raise questions about the agencies’ ability to fully achieve these key goals. A midcourse review of the developing system resulted in the Wildland Fire Leadership Council’s approving in December 2006 modifications to the system’s design. FPA and senior Forest Service and Interior officials told us in April 2007 they believed the modifications will allow the agencies to meet the key goals. The officials said they expected to have a prototype developed for the council’s review in June 2007 and to substantially complete the system by June 2008. We have yet to systematically review the modifications, but after reviewing agency reports on the modifications and interviewing knowledgeable officials, we have concerns that the modifications may not allow the agencies to meet FPA’s key goals. For example, under the redesigned system, local land managers will use a different method to analyze and select various budget alternatives, and it is unclear whether this method will identify the most cost-effective allocation of resources. In addition, it is unclear how the budget alternatives for local units will be meaningfully aggregated on a nationwide basis, a key FPA goal. Third, the agencies have clarified certain policies and are improving analytical tools to assist agency officials in identifying and implementing an appropriate response to a given fire. Officials have a wide spectrum of strategies available to them when responding to wildland fires, some of which can be significantly more costly than others. For individual fires, past studies have found that officials may not always consider the full range of available strategies and may not select the most appropriate one, which would consider the cost of suppression; value of structures and other resources threatened by the fire; and, where appropriate, any benefits the fire may provide to natural resources. The agencies call a strategy that considers these factors the “appropriate management response.” The agencies updated their policies in 2004 to require officials to consider the full spectrum of available strategies when selecting one to use. Nevertheless, other policies limit the agencies’ use of less aggressive strategies, which typically cost less. The Forest Service and Interior agencies are working together to revise these policies—revisions that could, for example, allow different areas of the same fire to be managed for suppression and wildland fire use concurrently or allow a fire that was previously being suppressed to be managed instead for wildland fire use. The agencies are also continuing to refine existing tools, and to develop new ones, for analyzing both fuel and predicted weather conditions to model expected fire behavior, information that officials can use to identify appropriate suppression strategies; these tools are still being designed and tested. It is still too early to tell, however, to what extent the policy changes being considered or the new tools being developed will help to contain costs. Finally, we and others have also reported that the existing framework for sharing firefighting costs between federal and nonfederal entities insulates state and local governments from the cost of protecting homes and communities in or near wildlands, which may reduce those governments’ incentive to adopt building codes and land use requirements that could help reduce the cost of suppressing wildland fires. Federal agencies, working with nonfederal entities, have recently taken steps to clarify guidance and better ensure that firefighting costs are shared consistently for fires that threaten both federal and nonfederal lands and resources. In early 2007, the Forest Service and Interior agencies approved an updated template that land managers can use when developing master agreements—which establish the framework for sharing costs between federal and nonfederal entities—as well as agreements on how to share costs for a specific fire. Because master agreements are normally updated every 5 years, however, it may take several years to fully incorporate this new guidance. Although the new guidance states that managers must document their rationale for selecting a particular cost-sharing method, officials told us that the agencies have no clear plan for how they will provide oversight to ensure that appropriate cost-sharing methods are used. Despite steps taken to strengthen their management of cost-containment efforts, the agencies have neither clearly defined their cost-containment goals and objectives nor developed a strategy for achieving them—steps that are fundamental to sound program management. To manage their cost-containment efforts effectively, the Forest Service and Interior agencies should, at a minimum, have (1) clearly defined goals and measurable objectives, (2) a strategy to achieve the goals and objectives, (3) performance measures to track their progress, and (4) a framework for holding appropriate agency officials accountable for achieving the goals. First, although the agencies have established a broad goal of suppressing wildland fires at minimum cost considering firefighter and public safety and the resources and structures to be protected, they have established neither clear criteria by which to weigh the relative importance of these often-competing priorities nor measurable objectives by which to determine if they are meeting their goal. Without such criteria and objectives, according to agency officials we interviewed and reports we reviewed, officials in the field lack a clear understanding of the relative importance that the agencies’ leadership places on containing costs and, therefore, are likely to select firefighting strategies without due consideration of costs. Second, the agencies have yet to establish an overall cost-containment strategy. Without a strategy designed to achieve clear cost-containment goals, the agencies (1) have no assurance that the variety of steps they are taking to help contain wildland fire costs are prioritized so that the most important steps are undertaken first and (2) are unable to determine to what extent these steps will help contain costs and if a different approach may therefore be needed. Third, the agencies recently adopted a new performance measure—known as the stratified cost index—that may improve the agencies’ ability to evaluate their progress in containing costs, but the measure may take a number of years to fully refine. Also, although the agencies have in recent years improved their data on suppression costs and fire characteristics, additional improvement is needed. In particular, cost data for “fire complexes”—that is, two or more fires burning in proximity that are managed as a single incident—are particularly difficult to identify. Thus, the costs of many of the largest fires are not included in the index, limiting its effectiveness. Further, to date, the index is based solely on fires managed by the Forest Service. Forest Service researchers are currently developing, at Interior’s request, a similar index for fires managed by the Interior agencies, but it will be several years, at the earliest, before enough data have been collected for the index to be useful. In addition, because the stratified cost index is based on costs from previous fires—and because the agencies have only recently begun to emphasize the importance of using less aggressive suppression strategies—we are concerned that the index does not include data from many fires where less costly firefighting strategies were used. As a result, the index may not accurately identify fires where more, or more-expensive, resources were used than needed. According to Forest Service officials, data from recent fires will be added annually; over time, the index should therefore include more fires where less aggressive firefighting strategies were used. Finally, the agencies have also taken, or are beginning to take, steps to improve their oversight and accountability framework, although the extent to which these steps will assist the agencies in containing costs is unknown. For example, the agencies have issued guidance clarifying that land managers, not fire managers, have primary responsibility for containing wildland fire costs, but they have not yet determined how the land managers are to be held accountable for doing so. Rather, the agencies have taken several incremental steps intended to assist land managers in carrying out this responsibility—such as assigning “incident business advisors” to observe firefighting operations and work with fire managers to identify ways those operations could be more cost-effective, and requiring land managers to evaluate fire managers for how well they achieve cost-containment goals. The utility of these steps, however, may be limited because the agencies have yet to establish a clear measure to evaluate the benefits and costs of alternative firefighting strategies. Some past studies have concluded that the absence of such a measure fundamentally weakens the agencies’ ability to provide effective oversight. Continuing concerns about the cost of preparing for and responding to wildland fires have spurred numerous studies and actions by federal wildland fire agencies, but little in the way of a coordinated and focused effort to rein in these costs. Although the agencies have taken—and continue to take—steps intended to contain wildland fire costs, the effect of these steps on containing costs is unknown, in part because the agencies lack a clear vision for what they want to achieve. Without clearly defined cost-containment goals and objectives, federal land and fire managers in the field are more likely to select strategies and tactics that favor suppressing fires quickly over those that seek to balance the benefits of protecting the resources at risk and the costs of protecting them. Further, without clear goals, the agencies will be unable to develop consistent standards by which to measure their performance. Perhaps most important, without a clear vision of what they are trying to achieve and a systematic approach for achieving it, the agencies—and Congress and the American people—have little assurance that cost-containment efforts will lead to substantial improvement. Thus, to help the agencies manage their ongoing efforts to contain wildland fire costs effectively and efficiently, and to assist Congress in its oversight role, we recommended in our report that the Secretaries of Agriculture and the Interior work together to direct their respective agencies to (1) establish clearly defined goals and measurable objectives for containing wildland fire costs, (2) develop a strategy to achieve these goals and objectives, (3) establish performance measures that are aligned with these goals and objectives, and (4) establish a framework to ensure that officials are held accountable for achieving the goals and objectives. Because of the importance of these actions and continuing concerns about the agencies’ response to the increasing cost of wildland fires—and so that the agencies can use the results of these actions to prepare for the 2008 fire season—the agencies should provide Congress with this information no later than November 2007. In commenting on a draft of our report, the Forest Service and Interior generally disagreed with the characterization of many of our findings; they neither agreed nor disagreed with our recommendations. In particular, the Forest Service and Interior stated that they did not believe we had accurately portrayed some of the significant actions they had taken to contain wildland fire costs, and they identified several agency documents that they believe provide clearly defined goals and objectives that make up their strategy to contain costs. Although documents cited by the agencies provide overarching goals and objectives, we believe that they lack the clarity and specificity needed by their land management and firefighting officials in the field to help manage and contain wildland fire costs. Therefore, we believe that our recommendations, if effectively implemented, would help the agencies better manage their cost- containment efforts and improve their ability to contain wildland fire costs. Mr. Chairman, this concludes my prepared statement. I would be please 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 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 statement. David P. Bixler, Assistant Director; Ellen W. Chu; Jonathan Dent; Janet Frisch; Chester Joy; and Richard Johnson made key contributions to this statement. 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.

Annual appropriations to prepare for and respond to wildland fires have increased substantially over the past decade, in recent years totaling about $3 billion. The Forest Service within the Department of Agriculture and four agencies within the Department of the Interior (Interior) are responsible for responding to wildland fires on federal lands. GAO determined what steps federal agencies have taken to (1) address key operational areas that could help contain the costs of preparing for and responding to wildland fires and (2) improve their management of their cost-containment efforts. This testimony is based on GAO's June 2007 report, Wildland Fire Management: Lack of Clear Goals or a Strategy Hinders Federal Agencies' Efforts to Contain the Costs of Fighting Fires (GAO-07-655). The Forest Service and Interior agencies have initiated a number of steps to address key operational areas previously identified as needing improvement to help federal agencies contain wildland fire costs, but the effects on containing costs are unknown, in part because many of these steps are not yet complete. First, federal firefighting agencies are developing a system to help them better identify and set priorities for lands needing treatment to reduce fuels, but they have yet to decide how they will keep data in the system current. Second, federal agencies have taken some steps to improve how they acquire and use personnel, equipment, and other firefighting assets--such as implementing a computerized system to more efficiently dispatch and track available firefighting assets--but have not yet completed the more fundamental step of determining the appropriate type and quantity of firefighting assets needed for the fire season. Third, the agencies have clarified certain policies and are improving analytical tools that assist officials in identifying and implementing an appropriate response to a given fire, but several other policies limit the agencies' use of less aggressive firefighting strategies, which typically cost less. Fourth, federal agencies, working with nonfederal entities, have recently taken steps to clarify guidance to better ensure that firefighting costs are shared consistently for fires that threaten both federal and nonfederal lands and resources, but it is unclear how the agencies will ensure that this guidance is followed. The agencies have also taken steps to address previously identified weaknesses in their management of cost-containment efforts, but they have neither clearly defined their cost-containment goals and objectives nor developed a strategy for achieving them--steps that are fundamental to sound program management. Although the agencies have established a broad goal of suppressing wildland fires at minimum cost--considering firefighter and public safety and resources and structures to be protected--they have no defined criteria by which to weigh the relative importance of these often-competing priorities. As a result, according to agency officials and reports, officials in the field lack a clear understanding of the relative importance the agencies' leadership places on containing costs and, therefore, are likely to select firefighting strategies without due consideration of the costs of suppression. The agencies have also yet to develop a vision of how the various cost-containment steps they are taking relate to one another or to determine the extent to which these steps will be effective. The agencies are working to develop a better cost-containment performance measure, but the measure may take a number of years to fully refine. Finally, the agencies have taken, or are beginning to take, steps to improve their oversight and increase accountability--such as requiring agency officials to evaluate firefighting teams according to how well they contained costs--although the extent to which these steps will assist the agencies in containing costs is unknown.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Smithsonian Institution is a unique and complex organization. Congress created the Smithsonian in 1846 as an independent trust establishment of the United States. Congress did not establish the Smithsonian within any branch of the federal government, and it is not a federal agency unless Congress designates it as such for purposes of a particular law or a federal court determines it to be. The Smithsonian Act provided that the business of the Smithsonian be conducted by a board of regents, and that the Board be drawn from all three branches of government and the private sector. The Act delineates the structure and composition of the Board. Table 1 provides more information on the structure and current membership of the Board. The Board traditionally has elected the Chief Justice of the United States to be the Chancellor of the Board. The Chancellor presides over Board meetings and selected ceremonial occasions, and until recent changes to the role of the Chancellor, had several other leadership responsibilities. The Board is vested with governing authorities over the Smithsonian and considers matters such as the Smithsonian’s budgets and planning documents, new programs and construction proposals, appointments to Smithsonian advisory boards, and a variety of other issues facing the Smithsonian. The Board also has stewardship responsibilities, including ensuring that the Smithsonian’s facilities and collections are maintained, and ensuring that the Smithsonian has a funding strategy that provides sufficient funds to support these activities. In recent years, the National Academy of Public Administration, the Smithsonian, and we have reported on the deterioration of the Smithsonian’s facilities and the threat posed by this deterioration. For example, in September 2007, we reported that funding challenges at the Smithsonian were affecting facilities’ conditions and security, and endangering collections, and that the Smithsonian’s cost estimate for facilities projects had increased to $2.5 billion from $2.3 billion in April 2005. In that report, we recommended that the Board perform a comprehensive analysis of alternative funding strategies beyond principally using federal funds to support facilities and submit a report to Congress and the Office of Management and Budget describing a funding strategy for current and future facilities needs. The Smithsonian manages two different types of funds—federal appropriations and trust funds—which include revenue from donations, grants, revenue-generating activities, interest on investments, and other sources. In some cases, the Smithsonian’s policies related to activities involving the expenditure of federal funds has differed from its policies related to the expenditure of trust funds. For example, in 2006, we reported that the Smithsonian had elected to follow the Federal Acquisition Regulation (FAR) provisions for contracts involving the expenditure of federal funds, while for business contracts that involved neither the expenditure nor receipt of federal funds and for which the FAR is inapplicable, the Smithsonian had elected to follow commercial business practices. About two-thirds of Smithsonian employees, including executives, are paid with federal funds, while other employees are paid with trust funds. Federal employees are subject to the laws, regulations, and policies for federal employment, while trust employees are covered by Smithsonian policies for trust fund employment. Adding to the complexity of the organization, in 1998, the Board authorized the Secretary of the Smithsonian to reorganize the various business activities within the Smithsonian into a centralized business entity, Smithsonian Business Ventures (SBV). SBV’s mission is to generate revenue from business activities to support the Smithsonian’s mission. The Smithsonian’s business activities include a magazine and museum retail operations. The governance reform currently under way at the Smithsonian is not unique among nonprofit organizations, or among other major arts and educational institutions. In light of the Sarbanes-Oxley Act of 2002 and governance reform in the corporate world, awareness has grown regarding the need for improving governance practices in the nonprofit sector. Several major nonprofit organizations, such as the American Red Cross, the J. Paul Getty Trust, and the United Way of America, have recently undergone major governance reform. These efforts were initiated in response to similar problems that were identified at the Smithsonian regarding controls over executive compensation and expenses, and insufficient oversight and leadership by the boards of those institutions. For example, the J. Paul Getty Trust initiated its governance reform in response to similar criticism regarding executive compensation and expenses, limited board oversight of those expenses, and similar issues regarding weaknesses in conflicts-of-interest policies. We have found that governance and accountability breakdowns can result in a lack of trust from donors, grantors, and appropriators, which could ultimately put funding and the organization’s credibility at risk. Both the Smithsonian’s Governance Committee report, and the IRC’s report highlighted several issues and areas of concern related to governance of the Smithsonian and oversight of Smithsonian management. While the Board accepted the IRC’s report, it did not concur with all of the report’s findings. Both reports laid out recommendations to improve governance which were adopted by the Board in June 2007. Specifically, these reports highlighted: inadequate policies in place and insufficient oversight of and knowledge among regents concerning executive compensation, trust and federal pay systems, leave for senior executives, conflicts of interest regarding service on for-profit boards, travel expenses, event expenses, activities of SBV, and internal financial controls; a lack of critical information and relationships necessary to bring forward important issues and concerns and to support vigorous deliberation and well-reasoned decision making on the part of the Board, such as lack of access for senior management to the Board, too much control within the Secretary’s office regarding the information available to the Board and the Board’s agenda, and a lack of transparency and connection to stakeholders within the Smithsonian (such as museum directors and advisory boards) and to the public at large; and IRC’s finding that there was insufficient action on the part of the Board to demand critical information needed to conduct adequate oversight of the Smithsonian, which was linked to a number of issues, such as unclear roles and expectations for citizen, congressional, and ex-officio regents; a lack of engagement and participation by some regents; unclear responsibilities of Board committees and a lack of critical committees; a lack of diversity of skills and expertise needed to conduct adequate oversight; inflexible size and structure of the Board; and a lack of accountability of regents with regard to their performance and to fulfilling their fiduciary duties. The Board has implemented several executive reforms to address concerns about executive compensation, benefits, and expenses, and has established an overarching code of ethics applicable to everyone associated with the Smithsonian, but development of policies and internal controls for broader operational matters such as travel, event expenses, and contracting is still under way. Training and establishing accountability remain challenges. The recommendations covered in this section are shown in figure 1. Appendix II provides information on the status of all of the Governance Committee’s report recommendations. The Board has implemented reforms related to the Secretary’s compensation, executives’ compensation, executive leave policies, and conflict-of-interest policies. Regarding the Secretary’s compensation, the Board revised the process it used to establish compensation for the Secretary-elect (scheduled to assume office in July 2008). This reform was implemented to address concerns about the former Secretary’s compensation. According to the IRC, the former Secretary’s total compensation equaled $915,698 in 2007 and was troubling for two reasons. First, it included a housing allowance that reached $193,000 in 2007, which the IRC concluded did not in fact serve as a housing allowance but as a “packaging device” to provide the Secretary with additional salary. Second, the former Secretary’s starting base salary of $330,000 in 2000 was increased significantly in 2001—and reached $617,672 in 2007—based in part on compensation studies that the IRC concluded were not objective and were used primarily as a method of justifying substantial compensation increases. On March 15, 2008, the Board announced that it had selected a new Secretary of the Smithsonian. According to Smithsonian officials, the Secretary-elect’s base salary will be $490,000 as compared to the former Secretary’s 2007 base salary of $617,672. The Secretary-elect’s total compensation, including base salary and employer pension contributions, will be $524,000, considerably lower than the former Secretary’s 2007 total compensation of $915,698. According to a Smithsonian official, the new Secretary will not receive a housing allowance or any additional benefits beyond those provided to all senior trust Smithsonian employees. In setting this salary, the Board was guided by a compensation study that used a methodology that addressed many of the concerns the IRC had had about the previous compensation studies used to set the former Secretary’s salary. The Board also has reformed the Smithsonian’s executive compensation system by implementing what it refers to as a unified compensation philosophy. This effort involved establishing clear criteria to determine whether the compensation of each trust executive is market based or equivalent to the federal system. This reform grew out of concerns that the Smithsonian had separate employment systems governing its federal, trust, and SBV employees, and that the trust salaries for some positions—in areas such as finance and administration—were unnecessarily higher than those paid in much larger federal agencies. The Board determined that the Smithsonian should follow the federal guidelines for pay for senior-level positions except for limited instances where the job functions do not exist in the federal sector or there is not a candidate pool in the federal sector—in which case, compensation for the position should be market based. The Board also approved a plan to address the effects of applying the criteria. After applying the criteria, the Smithsonian determined that 38 of its executives were in positions that should follow a federal compensation approach. Of those 38, 19 had salaries above the federal pay cap. According to the plan, the salaries for these 19 positions will be brought in line with the federal pay cap within 5 years. A Smithsonian official stated that the implementation of this recommendation was extensively debated. According to a Smithsonian official, the 5-year transition plan was chosen to avoid the risk of having all of the affected executives leave immediately, which could hurt the Smithsonian; however, a Smithsonian official predicted that some of the affected executives may leave the Smithsonian due to the change in their salaries. The Board also implemented a recommendation to place all Smithsonian executives on the Smithsonian’s existing leave policy. This effectively addressed a concern that some Smithsonian executives were exempt from the generally applicable leave accrual system, and that as a result, the former Secretary and former Deputy Secretary were absent from the Smithsonian for about 400 and 550 workdays, respectively, between 2000 and 2006. On September 30, 2007, the Smithsonian transitioned all these executives to the existing trust leave policy that is equivalent to the federal leave policy for senior executives. The affected executives were provided with opening leave balances for annual and sick leave according to a formula. According to National Finance Center data, since the leave policy went into effect on September 30, 2007, 33 of the 34 executives had recorded some leave by February 16, 2008. The Board strengthened its policies related to conflicts of interest by prohibiting for-profit board service by its senior executives and requiring prior approval for service on nonprofit boards by any senior executives. The previous policy resulted in two senior executives, including the former Secretary, serving on for-profit boards, one of which had a contract with the Smithsonian; some regents were unaware of this board service. The Board took action on this issue by creating a conflicts-of-interest policy applicable to senior executives. In addition, the General Counsel now reports to the Board’s Audit and Review Committee on senior executives’ outside activities. Also, although the Smithsonian has individual codes of ethics for employees, volunteers, regents, and advisory board members, until the governance reform, it had no overarching code for the entire institution. The Board approved a Statement of Values and Code of Ethics in January 2008, which applies to everyone in the Smithsonian community. A few additional efforts to improve the ethics policy are planned, but not yet complete—for example, the creation of a conflicts database. However, after reviewing the new policies and ethics code and comparing them to current industry practices, we believe that the new policies and ethics code follow current industry practices. The Board has established some new policies related to travel and event expenses, and has initiated reviews to consider how to strengthen and improve the Smithsonian’s travel and event expense policies and contracting policies, including for SBV. The Board has also initiated a separate review of its internal controls in these areas and on an overall basis. In some cases, new policies have been established in the interim while the final policy is under development. The Smithsonian’s CFO stated that the teams addressing the Governance Committee’s recommendations in these areas have generally expanded the scope of work beyond what would be required to implement the recommendation to think about what else needs to be done, and the Board has been supportive of this approach. As a result, the implementation of some of these reforms has not yet been completed. Successfully implementing these reforms is likely to include challenges related to training and establishing accountability. The ongoing effort to reform the Smithsonian’s travel policies is in response to concerns about the former Secretary’s travel practices and expenses, including a provision in his employment agreement that authorized first-class air travel—and which he and the Board interpreted to include premium travel in other regards as well. In addition, the IRC pointed out that the former Secretary’s expenses were not reviewed for reasonableness and raised concerns about his chartering of a private jet, at a cost of $14,000, to travel to San Antonio, Texas, to receive an award and return to Washington, D.C., the next day to attend a Board committee meeting. The Board adopted interim policies on travel expenses in April 2007 and adopted them as standing policies in June 2007. Among other things, the standing policies subject all Smithsonian officials and employees to a single Smithsonian-wide policy that is compliant with federal travel regulations—whether the travel is paid for with trust or federal funds— and established that the Smithsonian should not pay or reimburse the cost of travel on chartered aircraft in the absence of demonstrated business necessity. In addition, according to Smithsonian officials, the Acting Secretary’s travel expenses are now approved by the CFO’s office prior to his travel. A team also is reviewing the Smithsonian’s travel policies, with a focus on clarifying the policies and procedures to make it easier for Smithsonian employees to understand and follow them. The effort also is focusing on establishing review and audit processes for travel and expense reimbursement to strengthen internal controls in this area. The Board also adopted some new policies on event expenses, while a team is undertaking a broad review of event expense policies. The Board undertook these actions in response to findings in the Inspector General’s report related to the former Secretary’s entertainment expenses. The issue of event expenses also was raised in late 2007 and early 2008, when the media and some members of Congress expressed concern about the reasonableness of the event expenses surrounding the departure of the former Director of the National Museum of the American Indian. The Board adopted policies that attempted to clarify this issue by stating that Smithsonian funds, including for trust events, should only be used for reasonable expenses in accordance with Smithsonian policies. In its ongoing review, a Smithsonian team has developed an approach to event expense policies that will divide Smithsonian events into three categories, from the most formal to the least formal, with clearly identified requirements for approvals and authorizations. The new policy will cover both regent events and other Smithsonian events. The team also decided that given the variation in size and mission of different Smithsonian museums, research centers, and programs, each may supplement the policy with additional expenditure and approval guidelines specific to their organization. The details of this framework, scheduled to be reviewed by the Audit and Review Committee in May 2008, have yet to be finalized. Under the leadership of the Board, the Smithsonian also is reviewing its contracting policies. This effort stemmed from concerns that the Smithsonian had entered into confidential business contracts that appeared to have been awarded in a manner not consistent with contracting standards generally applicable in the public sector. For the contracting review, a team has worked to formally document Smithsonian contracting policies and procedures, and is clarifying any exceptions to following the FAR. The team has drafted a contracting policy and is working to develop a set of handbooks to further explicate specific areas of contracting. Regarding SBV’s policies, a team has reviewed Smithsonian and SBV policies to determine which Smithsonian-wide policies are applicable to SBV and under which circumstances SBV should deviate from Smithsonian policies. This effort came out of concerns about the propriety of SBV policies and activities. When SBV was created in 1999 to consolidate and improve Smithsonian business activities, it was not subject to all Smithsonian policies. According to the CFO, the team that examined SBV’s policies found only three SBV policies that are not consistent with relevant Smithsonian-wide policies and they all involve financial or payroll systems SBV uses that differ from Smithsonian systems. The team has drafted a new process by which SBV can request an exception to Smithsonian policies that was scheduled to be implemented in April 2008. In addition, the Acting Secretary created a task force that recommended significant changes to SBV, such as restructuring and the creation of a uniform revenue-sharing formula. The Board approved these recommendations in January 2008. Another team, at the direction of the Board, is examining the appropriateness of Smithsonian internal controls across the Smithsonian’s operations. This reform effort relates to concerns about whether the Smithsonian had appropriate policies and an effective process for enforcing and monitoring compliance with its policies. Furthermore, a management letter from the Smithsonian’s external auditor based on the Smithsonian’s fiscal year 2006 financial statement audit cited inadequate accounting resources and staff as a “reportable condition,” an internal control weakness. The Smithsonian has defined internal control as a process designed to provide reasonable assurance of the Smithsonian’s ability to achieve and sustain effective and efficient operations, reliable financial reporting, and compliance with applicable laws, regulations, and policies. To implement this review of internal controls, the team identified a core set of 16 critical processes where there is financial risk— including processes related to travel and event expenses, contracting, SBV, and other areas such as financial reporting and federal and trust funds control—and developed a framework with which to analyze each process. The internal control framework for these reviews is closely aligned with the framework established by our Standards for Internal Control in Federal Government. In response to the outside auditor’s concerns about the CFO’s resources, the Smithsonian is in the process of a phased hiring of 10 additional accountants. According to the CFO, funding has been attained for 8 of the 10 positions and has been requested for the last 2 positions for fiscal year 2009. Effectively implementing the new policies and procedures developed during these review efforts is likely to depend on effectively training Smithsonian staff at all levels and on effectively establishing accountability, both of which may be challenging for the Smithsonian. The implementation of some of these reforms is scheduled to stretch beyond 2008; Smithsonian officials estimated that reforms related to travel expenses and SBV policies would be fully implemented in the third quarter of 2008, which will provide an important basis for taking further action to strengthen the Smithsonian’s internal controls. According to Smithsonian officials, the event expense policy and contracting reforms are scheduled to be fully implemented by the end of 2008. The internal control recommendations are scheduled to be approved by the end of 2008, with the implementation of the approved recommendations scheduled to take place in 2009. Several of these efforts are likely to lead to a level of standardization or requirements that did not exist before, which must be implemented by staff at many levels and throughout many of the Smithsonian’s museums, research centers, programs, and central offices. Smithsonian officials acknowledged that effectively training staff on some of the new policies is important and likely to be challenging. For example, according to Smithsonian officials, new requirements and standardization related to the changes in the Smithsonian’s events policy may cause confusion and resistance from some Smithsonian staff, which could make training challenging. According to a Smithsonian official, training is also important to the success of the travel policy reforms. This official stated that while the vast majority of Smithsonian staff are trying to follow the rules regarding travel, the rules are complicated, and Smithsonian staff who are creating travel requests at museums, research centers, or programs may not understand the complexity of the rules as they apply to specific situations. Establishing accountability mechanisms to monitor whether new policies are followed is also important for the success of these efforts—and likely to be an ongoing challenge. Accountability represents the processes, mechanisms, and other means by which an entity’s management carries out its stewardship and responsibility for resources and performance. Smithsonian officials emphasized that the teams undertaking the reviews of Smithsonian policies are considering how to best establish accountability processes and mechanisms to ensure compliance with new policies. However, the Smithsonian’s ongoing efforts to establish accountability for travel expenses illustrate challenges related to determining how to monitor the compliance of top executives and how to effectively establish audit processes given limited resources. To monitor the compliance of top executives, the CFO now approves the Secretary’s travel spending in advance, which did not happen before, and the undersecretaries’ offices review the appropriate directors’ travel in advance, as was always the case. Prior to the reforms, the Secretary’s anticipated travel expenses were not reviewed prior to travel. Under this change, the Secretary’s travel is being approved by a subordinate—the CFO. According Smithsonian officials, the Smithsonian decided on this policy because the CFO has direct access to the Board, and through informal benchmarking it found that some other federal agencies either provided the agency head with blanket travel authorizations, which the Smithsonian did not want to do, or had the agency head’s travel approved by the executive secretary, a position that does not exist at the Smithsonian. The CFO stated that to supplement this process, she is planning to hire someone to support posttravel audits of the Secretary, executives, and the entire Smithsonian. The Smithsonian has not yet determined the extent to which the Board will review the travel expenses of the Secretary and other executives. Although the Governance Committee’s recommendation in this area calls for the Audit and Review Committee to review the Secretary’s travel expenses and to report to the full Board at least annually on these expenses, the process by which this will occur on an ongoing basis has not yet been established. According to Smithsonian officials, the Board did review the Secretary’s travel in January 2008, and a team is considering a posttravel audit approach that would include 100 percent travel voucher audits for all senior executives with vouchers greater than $2,500. The team working on this issue also will recommend how much information from travel reviews or audits is to be provided to the Audit and Review Committee. The new processes are scheduled to be implemented by the end of the third quarter of 2008. According to officials at the J. Paul Getty Trust, who told us that the Trust faced some similar governance issues over the expenses of a previous chief executive officer, the Chair of the J. Paul Getty Trust’s Board now reviews the chief executive officer’s travel expenses on a quarterly basis. In addition, its audit committee receives quarterly reports on the travel expenses of the chief executive officer and nine senior directors. Another ongoing challenge for the Smithsonian is implementing effective accountability measures within limited resources. For example, the CFO stated that while the Smithsonian had a long-standing practice of quarterly posttravel compliance reviews of a sample of travel activity, the Smithsonian has not been able to complete these reviews on a quarterly basis since the second quarter of 2004—well prior to the governance problems identified by the Governance Committee. While the Smithsonian has completed assorted travel-related reviews, including checks for duplicative payments and senior executive travel reviews, it has not renewed its post-travel voucher audits. As described above, the outside auditor’s management letter that accompanied the Smithsonian’s fiscal year 2006 financial statement audit cited inadequate accounting resources and staff as a reportable condition, and a team is working to address this through hiring more accountants. Establishing accountability is especially important because among the governance problems identified by the IRC were that the Smithsonian did not comply with its existing policies and procedures with respect to accounting for expenses, and the former Smithsonian Secretary interpreted a Smithsonian policy authorizing his first-class air travel to qualify him for first class accommodations as well— despite Smithsonian policies to the contrary. The fact that the Inspector General found that the former Director of the Smithsonian’s Latino Center had violated Smithsonian policies related to contracting, acceptance of gifts from outside sources, and travel expenses, among other things, also illustrates the importance of establishing effective accountability mechanisms in these and other areas. The Board has completed the actions it proposed for improving its access to information and making its operations more transparent, but actions to improve communication and relationships with stakeholders are not fully implemented. Going forward, a challenge for the Board will be to ensure that all actions taken to improve the engagement of advisory boards and other stakeholders include a mechanism by which the Board can—on a regular basis—receive and consider unfiltered, needed information; take appropriate actions in response; and report its progress. The recommendations covered in this section are shown in figure 2. Appendix II provides the status of all of the Governance Committee’s report recommendations. The Board formally amended its bylaws to require attendance of the General Counsel and the CFO, or their designees, at Board meetings. Also, the reporting relationship for the Inspector General was changed from the Secretary to the Board, and the Audit and Review Committee’s charter was amended to reflect this change. These changes were in response to concerns that the Board was not developing relationships necessary to allow Smithsonian senior officials or staff to bring forward information of concern to them. Our review of Board meeting minutes shows that the General Counsel, CFO, and Inspector General have attended all full Board meetings since the changes were made and have provided information and raised concerns to the Board. Based on our interviews with the General Counsel, CFO, and Inspector General, as well as regents and other officials both before and after the changes were initiated, the changes have generally improved access and communication and strengthened reporting relationships and governance reform efforts. For example, the General Counsel and CFO have been working with the Board’s committees in carrying out governance reforms related to ethics and contracting policies, respectively. The Board also created an independent Office of the Regents with staff dedicated and reporting to the Board in order to better control the agenda of the Board and the level of information available to the Board. The regents now have a greater role in determining which matters warrant the Board’s time and attention, decisions that were previously largely made within the office of the former Secretary. This is an important change in the Board’s practice because it will serve to help prevent any future Secretary from attempting to control the level of information provided to the Board as the Governance Committee’s and IRC’s reports indicated the previous Secretary had done. The Acting Secretary designated the General Counsel as corporate secretary who, among other duties, officially records the minutes of all Board meetings—similar to practices of other nonprofit organizations. Since November 2007, minutes of most Board meetings, including committees, have generally been recorded by the corporate secretary or his staff and are more thorough than they were previously and include more context about information presented to the Board during the meeting. For example, the reports of Board committees are more detailed than previously. We also found that Board meeting minutes have been improved to capture more deliberation than they did previously, which will likely serve to help improve transparency of the Board’s actions. Although the Smithsonian is not subject to the Freedom of Information Act (FOIA), Smithsonian officials told us they follow the principles of FOIA when fielding the public’s requests for access to records. The Smithsonian created a FOIA policy in November 2007 to formalize and clarify its records access policy. This change came about in response to criticism that there was confusion as to which FOIA principles applied to the Smithsonian. According to the General Counsel, the Board adopted a FOIA policy to formally articulate and clarify the Smithsonian’s policy on public access to Smithsonian records. We compared the Smithsonian’s FOIA policy with FOIA itself and found that the Smithsonian’s policy is consistent. The Smithsonian articulates its public records’ policy and establishes exceptions or cases in which documentation would likely not be provided, for example, certain commercial or personal data. According to the General Counsel, contracts negotiated since this policy was created no longer contain blanket confidentiality provisions. Furthermore, the Smithsonian intends to remove its FOIA policy provision authorizing the Secretary to carve out additional exceptions. The formulation of this policy should result in less confusion regarding the public’s access to records and provide greater transparency. Finally, the Board created a Web page dedicated to governance to increase the public’s access to information and improve transparency. Information posted by the Board relates to its structure, membership, and functions. For example, the Board has posted minutes, committee assignments, reports to the Board, and a document tracking the governance reform efforts, which is updated monthly. These changes were made in response to criticisms about the lack of transparency regarding governance at the Smithsonian following the recent governance problems. The Smithsonian has improved the amount of governance information available to the public, and by comparison, generally has more governance content available to the public than some other nonprofit organizations’ Web sites. The Board also is planning to post additional information in an effort to improve the transparency of the Board’s policies and actions. For example, according to a Smithsonian official, the executive compensation study which describes the benchmarking used to determine the salary range for the new Secretary, committee meeting minutes, and information regarding criteria for regent nomination, eventually will be posted to the Web page. In one effort to improve governance through strengthened stakeholder relationships, the Board is studying how to improve the link between the Board and the Smithsonian’s 30 advisory boards, which include a national advisory board as well as advisory boards that focus on individual museums, research centers, or programs. As the Board’s study and recommendations on this issue have not yet occurred, it is too soon to fully evaluate the Board’s efforts or conclusions. Past efforts to enhance this relationship have been limited, and some directors and advisory board chairs expressed ongoing concerns about the relationship. Most advisory boards (except for those with mandated statutory authority) have no independent governance function, and all are subject to the authority of the Board. There is considerable variability among advisory boards, reflecting the differences in how the boards came into being, their missions, their bylaws, and the entities they serve. Their primary purpose is to provide advice, support, and expertise to the directors of museums, research centers, and programs, as well as to the Board and Secretary. For example, some advisory board chairs we spoke with assist their museums, research centers, or programs with acquisitions, program development, strategic planning, or fundraising, among other things. According to the Governance Committee’s report, the advisory boards provide a key link between the Board and the public and a direct connection to the museums. Some advisory boards include a regent, while most do not. The Board has not always fully implemented past recommendations to enhance the relationship between the Board and advisory boards. A 2002 internal Smithsonian study found that the advisory boards were an underutilized asset and recommended, among other things, that each advisory board should submit a report to the regents every 3 years on its museum or facility on a rotating basis, and the Board should respond in writing to these reports. In response to this recommendation, the Smithsonian implemented the practice of having a subset of advisory boards submit a paper to the Board for its meetings starting in September 2003, with the idea that each advisory board would report every 3 years. However, the second half of the internal recommendation, that the regents should respond in writing to the papers, was never implemented. The practice was discontinued after January 2007. Our work suggests a continued broad level of concern over the lack of engagement of the regents with advisory boards. Nine of the 10 advisory board chairs we spoke with stated that they had had little to no direct contact with the Board. Although 2 of the 10 advisory board chairs we spoke with were generally satisfied with the current level of interaction between the Board of Regents and the advisory boards, 6 of the advisory board chairs we spoke with were not. Some of the museum directors with whom we spoke also raised concerns about the current relationship between the advisory boards and the Board, and the majority of the museum directors see additional value in enhancing the relationship between the Board and the advisory boards. Negative effects of the current relationship described by several advisory board chairs or museum directors included concerns that the Board’s lack of understanding of individual museums, research centers, and programs reduces the Board’s ability to effectively oversee the prioritizing of the Smithsonian’s budget, limits the effectiveness of the Smithsonian’s fundraising efforts, and limits the Board’s ability to articulate a unifying vision for the Smithsonian to strengthen its mission and better leverage its future potential. According to Smithsonian officials, the Chair of Smithsonian’s National Board, which is a Smithsonian-wide advisory board, attends all Board meetings and to the extent that advisory boards interact with the National Board, is therefore an existing vehicle for communication between advisory boards and regents. However, most of the advisory board chairs we spoke with did not think that the National Board Chair served as a liaison between the advisory boards and the Board of Regents. The Smithsonian has taken some steps to rethink this relationship. In January 2008, the National Board changed the agenda of an annual meeting to which it invites all advisory board chairs to include roundtable discussions, a luncheon with the Acting Secretary, and a presentation by a regent. According to Smithsonian officials and the two advisory board chairs we spoke with about this meeting, the meeting was positive. However, the two advisory board chairs we spoke to stated that the meeting focused on enhancing the relationship among advisory boards rather than on what they saw as a remaining need to enhance the engagement of the regents with the advisory boards and the museums, research centers, or programs they represent. Going forward, according to a Smithsonian official, Office of the Regents’ staff will attend business meetings of the advisory boards to serve as direct liaisons to those boards and the regents. Four organizations we spoke with that have undergone governance reforms and that, like the Smithsonian, have a structure that includes a number of units, described to us various models they have developed to engage their advisory boards and obtain their input. For example, the United Way of America, which in reforming its governance in 2000 moved away from having members of a number of local affiliates as board members, now has a council of its chapter boards that provides advice to the chief executive officer and whose concerns are communicated to the board at an annual meeting. The American Red Cross holds an annual convention at which its chapter boards may interact with its governing board. American University has representatives from different constituents provide input to board committees. These representatives also may attend board meetings. After its governance reforms, the J. Paul Getty Trust, a much smaller organization, increased communication between its board and the four unit heads by inviting them to attend and participate in board meetings. A noticeable similarity of the way that these four organizations engage and obtain input from their constituent parts is that they all have a mechanism whereby the governing board engages in personal interaction with these constituent representatives on a regular basis. Directors and advisory board chairs we spoke with had a variety of suggestions for improving the relationship between the advisory boards and the Board. Some suggestions sought to help regents thoroughly understand each museum, research center, or program—for example, by having a regent serve on each advisory board or having a regent hold regular discussions with the director or advisory board chair. Other suggestions included inviting advisory board chairs to the Board’s meetings or having advisory board representation on the Board. Any actions taken to improve the relationship between the Board and the advisory boards will involve balancing the regents’ time demands with ensuring that the Board has a strong enough understanding and relationship with the museums, research facilities, and programs it governs to effectively prioritize the Smithsonian’s budget, encourage fundraising efforts, and strengthen the Smithsonian’s mission. The Board is currently developing a plan for an annual public meeting to enable interested stakeholders to address information and make inquiries directly to the Board. This change is being considered in response to criticisms about the lack of transparency regarding governance at the Smithsonian following the recent incidents of governance and accountability breakdowns. According to the Governance Committee’s report, this annual meeting should be an opportunity for the Board not only to disseminate information, but also for the Board to receive information and input from interested stakeholders including the public, Smithsonian staff, and others to help inform the Board’s decision making. Originally planned for June 2008, the Board’s Chief of Staff told us that, as of May 2008, plans have not yet been fully developed and, because the new Secretary’s term begins on July 1, the Board plans to hold the public meeting after the new Secretary has begun his service, at either the Board’s September 2008 or November 2008 meeting. The Board has enlisted a governance consultant to provide technical assistance in developing the meeting agenda and is planning for the meeting to focus on specific topics well-suited for stakeholder input, for example, strategic planning or the future of the Arts and Industries Building. Also in response to criticisms regarding a lack of communication and transparency at the Smithsonian, the Smithsonian’s Director of Communication and Public Affairs led a team to develop a strategy to increase available information about the Board’s and Smithsonian activities and operations to identified stakeholders, such as senior management, staff, and the public. The Governance Committee’s report directed that the communication strategy be modeled after best practices in the federal government, nonprofit organizations, and universities. The Governance Committee’s recommendations for the communication strategy appear to be in line with practices we have identified for federal agencies undergoing major transformations. For example, the Governance Committee recommended that the strategy include (1) mechanisms to foster communication between and among senior management and regents, staff, and other stakeholders; (2) a framework to ensure effective congressional outreach and information; and (3) a plan to ensure all stakeholder constituencies are routinely informed of important decisions and have opportunity to provide comments or information to the Board and management. Our work similarly suggests that an effective communication plan should reach out to all employees, customers, and stakeholders and seek to genuinely engage them; communication should facilitate a two-way exchange of information; and it is important for feedback from stakeholders to be considered, and appropriate actions made in response and progress reported. Originally scheduled to be complete in December 2007, the Smithsonian’s communication strategy was finalized and approved by the Board on May 5, 2008. Because this effort is not yet fully implemented, we were not able to assess the communication strategy in its entirety, and it remains to be seen how effective the communication strategy will be. However, the team has taken a number of steps thus far. For example, the team has defined stakeholders, analyzed existing communication processes, performed broad stakeholder surveys and analyses, and developed a communication plan. Officials told us that among issues the team is still considering is what information stakeholders most need. The team also is seeking to avoid duplication of efforts; for example, where there are already multiple avenues for receiving information, the team will consider whether tools such as a hotline or a public ombudsman are necessary. A challenge going forward will be to ensure that actions taken to improve communication with stakeholders include a mechanism by which the Board can—on a regular basis—receive and consider unfiltered, needed information; take appropriate actions in response; and report its progress. The Board has largely completed the actions it proposed for clarifying regents’ responsibilities and studying possible changes in its size and structure, but actions for assessing Board performance are still being developed. The Board has not yet developed a process for assuring transparency and accountability in selecting nonregents and using them to enhance governance. The Board is developing a self-assessment process to examine its performance, but it is not clear how the Board will hold regents accountable in the event of performance problems. The Board does not currently have plans to conduct a broader evaluation of its governance reform efforts after a suitable period of implementation to determine if they have been effective in addressing the governance and accountability breakdowns that occurred. The recommendations covered in this section are shown in figure 3. Appendix II provides the status of all of the Governance Committee’s report recommendations. As part of its governance reform efforts, the Board adopted a specific set of duties and expectations for all regents, which is a key step in governance reform. Previously, the roles and responsibilities of regents were not clearly and explicitly defined, which, in part, led to the lack of oversight and awareness evidenced in recent problems at the institution. Elements of the regents’ written duties and responsibilities, such as engaging in forthright discussions about the Smithsonian’s strategic and operational issues, are in accordance with current board duties of comparable organizations with established practices. While we did not evaluate the effectiveness of governance reforms at comparable organizations, many have highlighted the importance of clearly delineating roles and expectations of regents and of holding regents accountable for their individual performance. For instance, American Red Cross emphasized how this process of clarification has helped to create a culture of accountability among its board members, resulting in greater vigilance in their oversight activities. Through our interviews with regents and senior Smithsonian officials, these clarifications appear to have contributed to a greater awareness of the regents’ roles and responsibilities in overseeing the institution. While the initial set of written roles and responsibilities applied to all regents, in practice there have been differing expectations in the level of participation and involvement of citizen, congressional, and ex-officio regents. Previously, citizen regents were expected to chair committees and have historically had greater involvement on committees, and have often participated on multiple committees. Congressional regents have not been expected to chair committees, and some have not served on committees in the past. Furthermore, the Vice President, an ex-officio regent, has not participated in any Board meetings. However, according to the General Counsel, the regents are charged with a sole trust responsibility: to increase and diffuse knowledge among mankind. In discharging that responsibility, all regents are subject to the same fiduciary duties as other trustees: loyalty, prudence, and due care. The IRC recommended that congressional and citizen regents should accept a fiduciary relationship with the institution and devote the requisite time to carry out those duties. The IRC also recommended that the ex-officio regents continue to serve on the Board, but in an advisory role, without fiduciary duties to the institution. The Board has recently decided to expand the expectations regarding the duties and responsibilities of congressional regents—including expectations for them to serve on at least two committees and serve as committee chairs when needed, and equally carry the workload as that of citizen regents. Given their other duties as members of Congress and in order to fulfill their expanded roles and responsibilities, the Board envisions the regent liaisons playing a larger role in assisting the congressional regents in fulfilling their duties. In creating this expanded role for liaisons in the functioning of the Board, it will be important for the Board to clearly delineate what is expected of regent liaisons. The Board has not changed the role or expectations of the Vice President as a member of the Board, but sees value in retaining representation from the executive branch. Once the Board finalizes the expectations regarding the duties and responsibilities of its regents, a revised set of written roles and responsibilities will be included in the orientation program that is still under development. According to the Chief of Staff to the Board, implementation of the orientation program was not completed in time for the new regent, who began his term in March 2008. The Board also has clarified the duties of the Chancellor, who by tradition has been the Chief Justice, and created a Chair position to recognize that the Chair of the Board has more leadership responsibilities. Previously, the Smithsonian bylaws established the Chancellor as the Chair of the Board, although the Chair of the Executive Committee in practice performed many duties that would otherwise be expected of the Chair of the Board. The lack of clarity and specificity with regard to leadership on the Board and the limited engagement in Board activities that can reasonably be expected from the Chief Justice were factors that both the Governance Committee and IRC reported were associated with the Board’s lack of oversight. To further strengthen leadership, the Board also has recently decided to create a Vice Chair position. Although it is not yet clear how these changes will affect Board leadership, regents we interviewed expressed the belief that this structure would retain the value they perceived in having the Chief Justice’s involvement and also address the limitations on his involvement. The Chair, who was recently elected by the Board, is now expected to play a greater leadership and oversight role in the governance of the Board, including being the chief spokesperson for the Board, working with senior Smithsonian officials to communicate and oversee implementation of policies adopted and approved by the Board, and leading the Board in its annual evaluation of the Secretary’s performance and compensation. The Chancellor’s role includes presiding over Board meetings and selected official ceremonies. According to several regents we interviewed, the skill with which the current Chief Justice has led Board meetings was perceived to add tremendous value to the proceedings. According to some governance experts, this structure retains the potential for the magnitude of the Chief Justice’s office to suppress and discourage honest and candid deliberation due to the deference individuals may give the Chief Justice, which can hinder Board performance; although according to regents we interviewed, there is no indication that this has occurred. The Board has taken a number of steps to strengthen its committee structure, such as creating new committees, appointing new committee chairs, and directing all committees to review their charters. Previously, committees were not consistently examining their roles, responsibilities, and jurisdiction, and the June 2007 Governance Committee report raised concerns that some committees were not effectively carrying out their proper oversight functions as a result. Most committees have now completed this review. However, the review of the Executive Committee’s charter has not yet been finalized. The IRC’s report criticized the Executive Committee for taking certain actions independently of the Board as a whole, such as approving the compensation of the former Secretary, and then seeking approval of the full Board after the fact. While it is not unique for an executive committee to take certain actions or make decisions outside of the full board, experts we spoke with cited concerns when too much authority to make decisions is placed in the hands of just a few board members. Moreover, a January 2008 BoardSource report cited similar concerns and provided several options for reforming the committee, including increasing the size to avoid the risk of delegating decision-making powers to too small a group. Nonetheless, the Board has decided to maintain the current size and scope of responsibilities of the Executive Committee, but may recommend reconsideration at another time. The Board also has decided that the newly created Vice Chair of the Board will be a member of the committee, and the Board has made it a responsibility of the Governance and Nominating Committee to closely monitor the activities of the Executive Committee. It remains to be seen whether these steps will be sufficient to ensure that the Executive Committee does not begin to act in lieu of the full Board when it should and could be engaged. At the onset of its governance reform effort, the Board created new standing committees on governance and facilities that previously did not exist; however, the Board noted in the Governance Committee’s report that significant areas of Smithsonian activities were not within the oversight of any of the Board’s committees, including fundraising and development, most programmatic activities, and strategic planning. The BoardSource report also noted the need and potential for adding additional committees, and suggested enhancing the current committee structure by creating a committee on resource development to demonstrate the Board’s commitment to obtaining appropriate resources beyond federal allocations. The report also suggested establishing a strategic planning committee to lead the Smithsonian through the strategic planning process that would identify programmatic and fundraising goals. In addition, the report from the SBV task force that was issued in January 2008 also recommended creating a committee or subcommittee to focus on increased oversight of SBV programs. As a result of these reports, the Board has decided to create new committees on strategic planning and programs, and advancement. Since these committees have just been created, it remains to be seen how they will improve the Board’s engagement in the Smithsonian’s strategic planning and budget formulation processes and change its role in raising funds for advancement and development. The Board has addressed issues regarding the need for additional expertise by increasing the use of nonregents on committees, though some issues are still under consideration regarding the appropriate selection and use of nonregents. The IRC’s report noted concern that the Board may have needed expertise in some areas—such as financial or accounting expertise—and that this contributed to the lack of oversight of executive compensation and expenses. According to some governance experts and the BoardSource report, bringing in nonregents with specific expertise to be part of Board committees can be effective in providing an independent and different perspective and in “doing the work” of the committee. Comparable organizations also recruit nonboard committee members to provide advice and different perspectives. For instance, officials from the United Way of America stated that half of its board’s committees have nonboard members in addition to board members. Table 2 shows the increase in the use of nonregents on the Board of Regents’ committees as well as the relative workload changes for citizen and congressional regents. While using nonregents permits the Board to increase its knowledge base without changing its size or structure, no formal process exists for the identification and selection of nonregents, and certain policies regarding the appropriate role of nonregents are still under development. Nonregents are currently recruited and vetted through informal channels. For example, regents may reach out within their particular field or professional network for recommendations or referrals for experts in a particular discipline. The full Board then approves the appointment of nonregents. According to the Chief of Staff to the Board, the Governance and Nominating Committee is considering policies and processes regarding the use of nonregents. For example, one option under consideration is to look to first recruit nonregent expertise from the advisory boards within the Smithsonian before looking outside the institution. In addition, the Governance and Nominating Committee is still considering whether and how nonregents should take on leadership roles in the committees. The Board has decided that no major structural changes should be made to the Board’s composition. Many have suggested that the Board’s composition contributed to governance breakdowns because of concerns about a lack of engagement of some regents and concerns of whether the Board is large enough to house the diversity of skills and expertise needed to effectively carry out its oversight activities. The BoardSource report reinforced these concerns and found that the statutorily required structure and composition of the Board can, in fact, create limitations for the Board with regard to evenly spreading its workload, and adding a diversity of skills and expertise. Furthermore, the Board has no authority in recruiting and appointing congressional and ex-officio regents, which can limit its ability to add needed expertise within its current structure. Our analysis of the criteria developed for citizen regents finds that the criteria are consistent with current accepted practices, and include such things as whether individuals can serve in leadership roles, whether they have well- rounded experience in multiple fields, and whether they have specific expertise needed on the Board and are appropriate for the Smithsonian’s specific needs. However, in selecting congressional regents, it is unclear whether the President Pro Tempore of the Senate and the Speaker of the House—who appoint congressional members—consider such criteria when selecting congressional regents. The BoardSource report suggested four options for the Board to consider that included making no major structural changes to the Board and a range of increases in the size of the Board either through adding more citizen regents, decreasing the number of congressional regents, or both. The report noted that any changes to the Board’s composition regarding its size or representation would require legislative action. All four options would maintain representation from all three branches of government, and thus retain different expectations for citizen, congressional, and ex-officio regents. Literature we reviewed and governance experts we spoke with indicated that it is not necessarily the particular size or structure of the board, but rather a board’s high level of engagement and participation, and a broad diversity of skills and expertise that seem to drive effective governance. Experts we spoke with pointed to examples of successful boards of many sizes and structures. In theory, boards with ex-officio and other governmental members can still be effective, but their effectiveness depends on having clear and specific expectations of the level of commitment and contribution board members can realistically make. Moreover, some experts we interviewed held the view that major structural changes may not be the most effective approach when considering governance reform, and that there is some evidence—though not conclusive—that reforms aimed at changing the “culture” of a board to be more participatory and accountable are ultimately more effective at improving governance. The J. Paul Getty Trust, which, according to officials, faced many of the same issues regarding inadequate oversight of executive compensation and expenses, did not make significant structural changes to its board, but rather focused on instilling a culture of accountability. Although we did not assess the effectiveness of their reforms, officials involved with the board indicated that these changes resulted in major improvements from their perspective with regard to their board’s engagement and accountability. According to the Chief of Staff to the Board, the Board expects that further clarification of duties and expectations of all regents—such as increasing the participation level of congressional regents in committees and distributing the workload equally among the citizen and congressional regents—and increased use of nonregents to address the need for diverse expertise and skills in committees will adequately address the major governance issues regarding size and structure facing the Board. Furthermore, as previously mentioned in this report, staff liaisons for congressional regents—who, according to the BoardSource report and to regents we interviewed, have been viewed as an important conduit for the congressional regents to keep them abreast of the activities of the Board— also are envisioned to play a greater role in assisting congressional members in taking on more responsibilities. However, these changes have just been instituted, and thus it remains to be seen whether the Board’s actions will be sufficient to ensure that all regents are fully engaged and held accountable for fulfilling their roles and expectations. The Board is in the process of developing a self-assessment process to examine its performance, which is not expected to be finalized and implemented until June 2008. Previously, the Board lacked a formal and regular assessment of its performance to determine its effectiveness in governance and oversight of Smithsonian management. Our review of standards of practice for nonprofit boards indicates that implementing a regular and consistent self-assessment process is critical to improving individual performance and contribution to a governing board. If a board does not assess its performance, it is missing a key opportunity for input from its own members for improving its operations and governance policies. A self-assessment of the board, committees, and individual members enables a board to identify areas for improvement in the board’s operating procedures, its committee structure, and its governance practices. The Board has drafted a self-assessment questionnaire to facilitate the evaluation process and help the Board understand what it does well and what needs to improve. However, the draft questionnaire does not fully address evaluation of performance against the full range of regent expectations, such as the Board’s role in the Smithsonian’s strategic planning process. The self-assessment process will need to be further developed to reflect changes to expectations for congressional regents and their liaisons. According to the Chief of Staff to the Board, the Board is currently considering changes to the draft assessment tool to reflect these concerns. Other organizations go beyond self-assessments and can remove board members whose performance is inadequate or not up to expectations. For instance, American University told us that its Board of Trustees conducts an individual and peer assessment every 3 years (board members have 3- year terms), at the conclusion of a member’s term, before reappointment. Board members whose terms are up for renewal complete a self- assessment form, and their colleagues on the board also assess the board members’ performance, using a different assessment form. If a board member has not performed up to expectations, he or she will not be nominated for re-election. A similar practice was instituted at the United Way of America in its governance reform, where officials told us there have been cases where a board member was removed because the member was not attending meetings and fulfilling board duties and obligations. In other organizations, boards retain the authority to remove board members for cause. For example, the board of the Legal Services Corporation, which is a federally chartered nonprofit organization consisting of 11 bipartisan board members, has the authority to remove its members for cause, such as persistent neglect of duties, by a vote of at least 7 members. While board members are appointed by the President with the advice and consent of the Senate, neither the President nor the Senate has the power to remove the Legal Services Corporation board members. Although the Smithsonian Governance and Nominating Committee can examine and determine the level of interest of a regent in continuing his or her service and weigh the interest of other regents before calling on a vote for the regent’s renomination, the Board has no authority to remove regents for cause, such as persistent neglect of duties during a regent’s term. The Smithsonian’s General Counsel told us that the Board itself cannot remove regents—only Congress can take action to remove a regent. In our interviews with Smithsonian officials, it is unclear what actions the Board could or would take in the event of persistent neglect of duties by any of its regents. Removal of a regent has occurred at least once in the history of the Smithsonian, but not in recent memory. It remains to be seen how the Board will proceed with its self-assessment process, and a key challenge for the Board will be how to hold all regents accountable for individual performance. Moreover, no mechanism is planned to evaluate the implementation and effectiveness of the governance reforms after enough time has passed for the Smithsonian to operate in a fully reformed environment. Literature we reviewed indicated that while self assessments are valuable and important, they are limited to the views of those being surveyed, and a governing board should occasionally solicit the viewpoints of stakeholders and others close to the governance process to continuously search for ways to improve. Another approach to performance assessment is bringing in outside consultants to interview board members and present results. Current practices include appointing an independent task force or commission to interview board officers and others in an institution every few years concerning the board’s strengths and weaknesses, and what the board could do to empower staff and advisory boards to fulfill their responsibilities more effectively. One governance expert we interviewed commented that boards undergoing governance reform should undertake a thorough, independent, postgovernance reform review to evaluate the effectiveness of governance changes. Although most of the organizations we spoke with that have recently undergone governance reform have not yet performed a comprehensive, postgovernance reform assessment, American University officials told us that the university is planning to conduct a review of its governance reform in a 5-year period to assess whether its governance practices and structure are effective. Given the extent and pace of changes occurring at the Smithsonian, as well as other transformations of the institution, including the hiring of a new Secretary and significant reforms to SBV, among other things, it is likely that many governance reforms will not be completely implemented for some time, and the effectiveness of some reforms will only be evident over a longer period of implementation. The Smithsonian Institution relies significantly on funding from taxpayers and donors, and as such, effective governance and accountability are key to maintaining trust and credibility. Governance and accountability breakdowns can result in a lack of trust from donors, grantors, and appropriators, which could ultimately put funding and the organization’s credibility at risk. The Smithsonian’s Board of Regents has taken many steps to implement governance reforms since June 2007 to address several of the problems that led to the incidents that caused concern about governance and accountability. The Board has reformed executive compensation and benefits, initiated reviews of the Smithsonian’s policies and internal controls, enhanced the access of key stakeholders to the Board, increased transparency, and clarified the roles and responsibilities of regents. We acknowledge and recognize the efforts that have been made by the Board and Smithsonian staff in confronting these governance issues. However, we also note that there are some areas where reforms have yet to be developed, or where improvements to the transparency and accountability mechanisms of the Board could be taken further. For example, reforms related to enhancing the Board’s relationships with important stakeholders, including museum advisory boards and the public, remain under consideration, and current efforts have yet to fully develop mechanisms by which the Board can receive and consider unfiltered, needed information from these stakeholders on a regular basis. Without such mechanisms, these efforts may not have the desired impact of creating an environment for governance that is inclusive of the broad diversity of activities and viewpoints of stakeholders within and outside of the Smithsonian. Furthermore, while the Board is still considering how it can best recruit and use nonregent experts—potentially using advisory board members—there is currently little transparency as to how nonregent experts on committees are to be selected, used, or evaluated. Moreover, while the Board has made strides in defining and refining the roles and responsibilities of regents, it remains unclear what actions the Board can take to hold its regents and their liaisons accountable in the event that they do not fulfill their roles and expectations. Finally, while the Board and the Smithsonian as a whole are currently focused on extensive governance reforms, and the Board is tracking the implementation of these reforms through a scorecard that is posted on the Smithsonian’s Web site and updated monthly, no mechanism is planned to evaluate the implementation and effectiveness of these reforms after enough time has passed for the Smithsonian to operate in a fully reformed environment. Over the long term, focusing on regular and continuous improvements in these areas could help to enhance the credibility of and the public’s trust in the Board, as well as its current governance reform efforts. We are making the following four recommendations to the Board of Regents to strengthen its governance reform efforts: In implementing the Governance Committee’s recommendations related to stakeholder relationships, the Board of Regents should develop a regularly occurring mechanism that ensures an understanding of and meaningful consideration by the Board of the key concerns of advisory boards and other stakeholders, and a formal means by which the Board follows up on those concerns. To provide more transparency into the use of nonregents, the Board should clarify and make public the process used to select nonregents for service on its committees, the roles and expectations for nonregents, and how nonregents’ performance will be evaluated. To improve the accountability of regents in fulfilling their newly clarified roles and responsibilities, the Board should evaluate what actions it can take in the event of persistent neglect of duties by any regents or their liaisons. To ensure that the multiple governance and management reform efforts underway are effective in addressing the issues that led to governance and accountability breakdowns, and also to ensure that the Board is focused on continuous improvement of the governance and management practices at the Smithsonian, the Board should plan to have an evaluation of its comprehensive governance reform efforts conducted after a suitable period of operation in the reformed environment. We provided a draft of this report to the Smithsonian Board of Regents and the Smithsonian Institution for their official review and comment. Both the Board and the Smithsonian concurred with all our recommendations. In addition, they provided technical clarifications to the draft which we incorporated into the final report, where appropriate. Regarding our recommendations, both the Board and the Smithsonian stressed the importance of enhancing relationships with stakeholders and agreed that these relationships and related communication can be improved. The Board and the Smithsonian underscored that they are working together to enhance these relationships and communication— particularly with advisory boards. In addition, the Smithsonian provided examples of recent efforts to enhance communication with stakeholders. Although all recommendations are directed at the Board, the Smithsonian noted its role in helping the Board implement the recommendations related to improving stakeholder relationships and ensuring that sound governance is a priority in Smithsonian operations. The Board highlighted the importance of making the selection process for nonregents transparent and holding all regents accountable for their performance. The Board’s comments to our report can be found in appendix III and the Smithsonian’s comments to our report can be found in appendix IV. We are sending copies of this report to the appropriate congressional committee. We are also sending this report to the Chair of the Smithsonian Institution’s Board of Regents and the Acting Secretary of the Smithsonian Institution. We will make copies available upon request. In addition, this report will be available at no cost on the GAO Web site at http://www.gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. If you or your staff have any questions about this report, you may contact me at (202) 512-2834 or at [email protected]. Major contributors to this report are listed in appendix V. To determine the extent to which the Smithsonian Institution’s Board of Regents’ (Board) actions have addressed issues related to executive compensation, travel, and internal control and other policies, we interviewed senior Smithsonian Institution (Smithsonian) management officials and regents and reviewed Smithsonian and other documents. Specifically, we met with regents, the Acting Secretary, the Chief Financial Officer, Director of Government Relations, Chief of Staff to the Board of Regents, Director of Human Resources, and other senior officials and staff to obtain the implementation status of the recommendations relating to these areas. We also reviewed Smithsonian and other supporting documents, including the report from the Smithsonian Business Ventures Task (SBV) Force, the PricewaterhouseCoopers unified executive compensation study, and the Mercer Human Resource Consulting executive compensation study that was used in the search process for the new Secretary. We reviewed the Smithsonian worksheets used to create leave balances for all executives transitioning to a leave policy and National Finance Center records to validate that all these executives are now recording leave. We reviewed internal Smithsonian documents describing ongoing efforts related to reviewing travel and event expenses, contracting policies, SBV’s policies, and its internal control review, and we reviewed Smithsonian directives relevant to each of these areas. We met with the Inspector General to discuss ongoing efforts of this office to review the travel expenses of Smithsonian executives and reviewed Inspector General reports in this area. Furthermore, we also reviewed GAO’s prior work on these issues, including travel expenses, contracting, and internal controls, and we reviewed the policies of the comparable organizations described below in relation to these activities. To determine whether the Board has addressed issues related to improving information available to the Board, and transparency and communication concerning the Board and Smithsonian operations, we reviewed Smithsonian laws, policy directives, and other documentation. We interviewed senior Smithsonian management officials, including three undersecretaries or acting undersecretaries, directors of all Smithsonian’s museums, including the Director of the National Zoological Park, and one research center director, to discuss issues related to their understanding of Board functions and their level of communication with the Board. To assess how the Board has improved transparency, we reviewed the Board’s Web page and policies and procedures related to providing information to the public, including its Freedom of Information Act policy, and compared it to the Act. We interviewed key Smithsonian officials, including the Chief of Staff to the Board of Regents, Acting Secretary, the Director of External Affairs, and the Director of Communications and Public Affairs to learn the status of the Board’s plans to improve transparency. We also met with the General Counsel, the Chief Financial Officer, and the Inspector General to assess the level of communication and access between the Board and key Smithsonian officials, before and after governance changes. We reviewed the Board’s meeting minutes and supporting documents, including revised bylaws and position descriptions to determine the extent to which information regarding the Board’s decisions was made available to the public. We met with chairs of selected advisory boards to obtain their perspective of the Board’s interaction and communication with them. We interviewed 10 science, arts, history and culture, and research-oriented advisory boards to obtain a nongeneralizable representation. To assess the Board’s efforts at improving communication with other stakeholders, we reviewed GAO’s work on federal agency communication strategies. To determine the extent to which the Board has addressed issues related to roles and responsibilities, size and structure, and performance of the Board, we reviewed Smithsonian and other documents to assess current board practices and the Board’s progress towards implementing governance reform efforts. To examine the roles and responsibilities of the Board, we looked at relevant laws pertaining to the creation and operation of the Smithsonian Board of Regents and reviewed Smithsonian documents, including Board bylaws and written set of the Board’s and its committees’ duties and responsibilities. To assess the size, composition, and structure of the Board, we reviewed a recent BoardSource report that was commissioned by the Board to examine possible options for the Board’s size and structure. To assess the extent the Board has addressed issues related to its performance assessment, we examined relevant Smithsonian documents, including a draft board assessment instrument, compiled current governance practices from several sources, and interviewed key Smithsonian officials. We interviewed all of the current citizen regents, except the most recently appointed regent, three former citizen regents, and four congressional regents and the primary staff liaisons to the remaining two congressional regents. We also obtained a written response from the Chief Justice to questions we provided. We interviewed senior Smithsonian officials, including the Chief of Staff to the Board of Regents and General Counsel to obtain their perspective and information on the status of the governance reform efforts. To identify current nonprofit governance practices, we reviewed literature on corporate and nonprofit governance, including literature from organizations such as the American Association of Museums, BoardSource, Council on Foundations, Independent Sector, the Museum Trustee Association, and The Conference Board. We also reviewed GAO’s work on governance of several organizations, including the John F. Kennedy Center for the Performing Arts, Legal Services Corporation, and Federal Deposit Insurance Corporation. We identified and interviewed governance experts on nonprofit governance, including academics, to obtain independent views on the Smithsonian’s governance problems and whether recent governance changes will address those problems. The governance experts we interviewed included four governance or museum experts who advised the Smithsonian during its governance review, as well as six that we identified through a literature search or were referred to us by other experts in the field. To perform all of our work on all of the above objectives, we also met with officials from several institutions that had some similarity to the Smithsonian and that had recently undergone governance reforms. We focused on organizations that had had similar governance problems, conducted a governance review, and changed their practices or structure; organizations that had a structure that consisted of a central or national governing body with multiple programming units; and organizations with similar missions and stewardship challenges. We met with officials from American University, American National Red Cross, J. Paul Getty Trust, and United Way of America, who had in-depth knowledge and contributed to governance reform efforts at the respective organizations. We also met with officials from the National Trust for Historic Preservation, an organization that, according to officials, initiated governance reform without having experienced similar governance challenges. We reviewed recently enacted legislation relating to governance for one of the organizations. While we did not evaluate the effectiveness of the governance reforms efforts at these comparable organizations, we reviewed and analyzed documents from these organizations relevant to their governance reform efforts. We conducted this performance audit from May 2007 to May 2008 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. II: GAO’s Assessment of s of May 2008) Completed (the recommendtion has een implemented) Under dy (implementtion of the recommendtion i nder frther dy) Stepken (tepve een tken to implement the recommendtion, but more work i needed) We confirmed that the executive compensation process that was followed to set the salary range for the next Secretary’s compensation package was refined to address many of the IRC’s concerns about the previous compensation process, but we did not validate the extent to which this process follows best practices. In addition Andrew Von Ah, Assistant Director; Shane Bechtold; Seth Dykes; Delwen Jones; Jennifer Kim; Margaret McDavid; Kim McGatlin; Susan Michal-Smith; Amanda Miller; Sara Ann Moessbauer; Stanley Stenersen; and Alwynne Wilbur made key contributions to this report.

The Smithsonian Institution's governing body, the Board of Regents (Board), has developed a set of actions to address governance and accountability breakdowns that came to light in 2007. These actions were aimed at problems in three main areas: (1) executive compensation, benefits, ethics, and operational policies and controls; (2) flow of information to the Board, transparency of Board operations, and relationship with stakeholders; and (3) the Board's responsibilities, structure, and performance. GAO was asked to assess the extent of the Board's progress in each of these areas. GAO obtained information and data from the Board's regents, Smithsonian executives, and other stakeholders and also analyzed other organizations whose boards had faced similar governance challenges. The Board has implemented several reforms related to executive compensation and benefits, but the development of policies for broader operational matters such as travel, event expenses, and contracting is still under way. Actions implemented include a revised salary range for the Smithsonian's Secretary-elect and a unified compensation policy for other executives. The Smithsonian is reviewing policies related to travel and other matters, including internal controls. Effectively implementing the new policies and procedures developed during these reviews is likely to depend on effectively training staff and establishing accountability, both of which may be challenging due to a level of standardization and requirements that did not exist before. The Board has completed the actions it proposed for improving its access to information and making its operations more transparent, but actions to improve communication and relationships with stakeholders are less far along. The Board now has avenues for obtaining information directly from senior officials rather than through the Office of the Secretary, and it has taken such steps as creating a Web page to better publicize its operations and decisions. The Board is studying how to improve links with its 30 advisory boards and has developed an overall strategy for communicating with the larger network of stakeholders, but neither action is far enough along to assess its potential for addressing past problems. The Board has largely completed the actions it proposed for clarifying regents' responsibilities and studying possible changes in its size and structure, but actions for assessing Board performance are still being developed. The Board altered its committee structure but decided that more fundamental changes in its size and composition were unnecessary. To provide further expertise where necessary under the existing structure, the Board is encouraging the addition of nonregents to committees. Thus far, however, the Board has not developed a process for assuring transparency and accountability in selecting nonregents and using them to enhance governance. The Board is also developing a self-assessment process, but it remains to be seen how the Board will hold regents accountable if they neglect their duties. Given the extensiveness of actions taken and still under way, it is likely that the effectiveness of some changes will only be evident over a longer time. The Board does not currently have plans to conduct a broader evaluation of its governance reform actions after such time has passed to determine if the actions taken have addressed governance and accountability problems which led to its reform actions.

You are an expert at summarizing long articles. Proceed to summarize the following text: The No Child Left Behind Act of 2001, which reauthorized the Elementary and Secondary Education Act (ESEA), is designed to improve the education of all students and the quality of teachers. NCLBA requires that all teachers of “core academic subjects”—defined to mean English, reading or language arts, mathematics, science, foreign languages, civics and government, economics, arts, history, and geography—be “highly qualified.” To be highly qualified, teachers (1) must have at least a bachelor’s degree, (2) be certified to teach by their state, and (3) demonstrate subject matter competency in each core academic subject that they teach. A teacher’s options for demonstrating subject matter competency vary according to whether the teacher is new and the grade level being taught. New elementary school teachers must demonstrate subject matter competency by passing a rigorous state exam in the basic elementary school curriculum; new middle or high school teachers may establish that they are highly qualified by either taking a rigorous state exam or successfully completing a degree (or equivalent credentialing) in each core academic subject taught. In addition, NCLBA allows current teachers to demonstrate subject matter competency based on a “high objective uniform state standard of evaluation.” For example, under these uniform state standards, a combination of experience, expertise, and professional training could be used to meet the NCLBA subject matter competency requirements. Education has issued guidance to states on how to apply NCLBA requirements to all teachers, including special education teachers. According to Education’s January 2004 guidance, special education teachers who provide instruction in core academic subjects, such as teachers in self-contained classrooms, are required to comply with the NCLBA subject matter competency requirements. In contrast, those special educators who do not provide instruction in core academic subjects, such as those who provide consultative services to highly qualified general educators, do not have to comply with the NCLBA teacher requirements. In addition, Education’s March 2004 guidance provided additional flexibility on the implementation deadline and competency requirements for some special education teachers. Specifically, the guidance stated that educators in eligible rural areas who are highly qualified in at least one core academic subject they teach would have 3 additional years to demonstrate subject matter competency in other academic areas. The guidance also states that teachers who provide instruction in multiple core academic subjects will be able to demonstrate their subject matter competency through one process under their states’ uniform standards, such as taking a single test that covers multiple core academic subjects. IDEA is the primary federal law that addresses the unique needs of children with disabilities, including, among others, children with specific learning disabilities, speech and language impairments, mental retardation, and serious emotional disturbance. The law mandates that a free appropriate public education be made available for all eligible children with disabilities, ensures due process rights, requires an individualized education program (IEP) for each student, requires the inclusion of students with disabilities in state and district wide assessment programs, and requires the placement of students in the least restrictive environment. Under IDEA, states are required to establish special education teacher requirements that are based on the highest requirements in the state for personnel serving children and youth with disabilities. Congress is considering including new special education teacher qualifications in the reauthorized IDEA. Under H.R. 1350, a new definition of “highly qualified,” as it refers to teachers, would be added with the same meaning as in NCLBA. In contrast, S. 1248 would add an extensive definition of “highly qualified” with respect to the qualification of educational personnel, while taking into account differences between special education and general education teachers. For example, under S. 1248, special education teachers who consult with secondary school core academic subject teachers for children with disabilities would need to be fully certified in special education and demonstrate the knowledge and skills necessary to teach students with disabilities, to be highly qualified. In addition, S. 1248 proposes to extend the deadline for meeting the highly qualified teacher requirements by 1 year—to school year 2006- 2007. Two offices within the Department of Education are responsible for addressing special education teacher qualifications: the Office of Elementary and Secondary Education and the Office of Special Education Programs. The enactment of NCLBA significantly changed the expectations for all teachers, including those instructing students with disabilities. For example, states are now required to report on the qualifications of their teachers and the progress of their students. OESE has assumed responsibility for developing policies for improving the achievement of all students and the qualifications of teachers. In addition, the office provides technical and financial assistance to states and localities, in part so they can help teachers meet the new qualification requirements. For example, in fiscal year 2003, OESE provided funding to state and local education agencies through its Improving Teacher Quality state grant program. OSEP is responsible for providing leadership and financial resources to help states and localities implement IDEA for students with disabilities and their teachers. These responsibilities include awarding discretionary grants and contracts for projects designed to improve service provision to children with disabilities. In 2003, OSEP provided funding to 30 states through the State Improvement Grants program. OSEP also supports research on special education through centers such as the Center on Personnel Studies in Special Education. In the 2002-2003 school year, all states required that special education teachers have a bachelor’s degree and be certified to teach—two of the three NCLBA teacher qualification requirements—and half required special education teachers to demonstrate competency in core academic subjects, which is the third requirement. In the 26 states that did not require teachers to demonstrate subject matter competency, state-certified special education teachers who were assigned to instruct core academic subjects might not be positioned to meet the NCLBA requirements. In 31 states that offered alternative routes to teacher certification, certification requirements for alternative route and traditional teacher preparation program graduates followed a similar pattern, with half meeting two of three NCLBA teacher requirements. Every state required special education teachers to hold at least a bachelor’s degree and to be certified by their states before teaching, according to our survey results and reviews of Education documents and state Web sites. States varied in whether they offered one or more types of teaching certificates for special educators. Specifically, 30 states established a single certification for special education teachers that covered kindergarten through 12th grade, according to survey respondents. The remaining 22 states offered two or more certifications. For example, some states offered different certifications for teachers of elementary, middle school, and high school students. In addition, some states certified special education teachers to serve students with specific disability categories such as hearing impaired and emotionally disturbed, and/or with broader disability categories, such as mild, moderate, and severe special needs. Finally, several states certified their special education teachers for specific instructional roles such as general special education teacher, resource room teacher, or collaborative teacher. During the 2002-2003 school year, 24 states, the District of Columbia, and Puerto Rico required special education teachers to demonstrate some level of competency in the core academic subjects that they wished to teach at the time of their initial certification by having a degree or passing tests in the academic subjects that they wished to teach. Teachers in these states are better positioned to meet NCLBA’s teacher requirements. However, the level of competency required varied by state and in some cases may not meet NCLBA competency level requirements. The rest of the states did not have any such requirements. (See fig. 1.) In states that did not have these requirements, the certified special education teachers who were assigned to instruct core academic subjects might not be positioned to meet the NCLBA requirements. To meet NCLBA teacher requirements, these teachers would need to demonstrate subject matter competency by the end of the 2005-2006 school year. The extent to which special education teachers were required to meet NCLBA subject matter competency requirements depended upon their instructional roles, which could sometimes be difficult for prospective teachers to determine. Special education teachers often attained their certification prior to being hired by local school districts for specific grade levels, subjects, or instructional roles. Therefore, these individuals might not be positioned to meet NCLBA teacher requirements for their future instructional roles. Furthermore, any special education teacher who was assigned to teach a different subject from one year to the next might meet subject matter competency requirements one year but not the next. According to Education officials, these challenges are not specific to special education teachers and will require school districts to be more mindful of teacher qualifications, including subject matter mastery, when assigning teachers to various teaching roles. According to survey respondents, 31 states provided alternative routes to certification for prospective special education teachers. States have developed such routes to meet specific teacher shortages as well as to allow professionals in related fields to become teachers. The alternative routes to certification programs that we reviewed were generally administered by the state education agencies, often through institutions of higher education. However, this was not always the case: In Maryland, for example, one county contracted with Sylvan Learning Center and the New Teacher Project to provide its alternative route to certification program. Most of the states that provided alternative routes to certification required that the graduates from such alternative route to certification programs fulfill the same certification requirements as graduates from traditional special education teacher preparation programs, such as having a bachelor’s degree and passing teacher licensing examinations. The primary difference between alternative route programs and traditional teacher preparation programs was the extent to which teaching candidates received practical teaching experience prior to attaining full state certification. In general, prospective teachers in alternative route to certification programs were required to receive more practical teaching experience before being certified than were teachers in traditional programs. For example, candidates in an alternative route to certification program in Illinois were required to complete a 1-year mentored teaching internship, while most traditional certification programs for special education teachers required teaching candidates to complete a 9- to 18-week supervised student teaching assignment. This additional teaching experience has been required because individuals in some alternative programs have not received courses in pedagogy and instructional techniques. (See app. I for state special education alternative route to certification program contact information.) State officials indicated that implementing the core academic subject competency requirements of NCLBA would be difficult and cited factors that have facilitated or impeded application of this requirement to special education teachers. State officials identified several key facilitators, including having funds available to dedicate to special educators’ professional development and having preexisting or ongoing efforts to develop subject matter competency standards for special educators. State officials and national education organizations’ representatives also cited several factors that impeded meeting the subject competency requirements, including uncertainty about how to apply the law to special education teachers in some circumstances, and the need for additional assistance from Education in identifying implementation strategies. Survey respondents, as well as state officials and national education organizations’ representatives we interviewed, reported that the availability of professional development funding and the flexibility to use funds were essential in helping teachers meet the NCLBA subject matter competency requirement. For example, officials in 19 states reported helping special education teachers by allocating some of the states’ professional development money to financial aid for those seeking to enhance their knowledge in a core academic subject, such as by pursuing a degree. In addition, states can use their professional development funds to create alternative routes to certification. This could result in developing a cadre of special educators who would already have expertise in a core academic subject area. Survey respondents described several state assistance initiatives that were designed to help special education teachers meet the subject matter competency requirements. For example, 17 survey respondents reported holding workshops for special education teachers on specific academic subjects, and a few states held review sessions to prepare teachers for states’ academic content exams. In addition, respondents from 7 states reported providing sample test questions to help teachers prepare for subject matter competency tests. Nineteen survey respondents reported that their states had established partnerships with institutions of higher education to develop and implement strategies to assist special education teachers. For example, Arkansas collaborated with state colleges and universities to develop dual-certification programs for special educators. Officials we interviewed from 2 of 6 states said that they expected their uniform state standards of evaluation would make it easier for their experienced teachers to meet NCLBA subject matter requirements. Specifically, they asserted that these competency standards would allow states and territories to design alternative methods for evaluating teachers’ knowledge of the subject matter they teach, other than having a degree or passing subject matter tests in a core academic subject. According to officials in 2 of the 6 states we interviewed, their alternative methods of evaluating teachers’ subject matter competency would take into account both a teacher’s years of experience and factors such as participation in professional development courses. A few state officials and national education organizations’ representatives we spoke to commented that the flexibility to design alternative methods for evaluating teachers’ subject matter knowledge provided more options for making subject matter competency assessments of experienced special education teachers. State officials we interviewed and surveyed reported being concerned about how difficult meeting the subject matter competency requirements might be for special educators providing instruction, given that their roles may require them to teach at multiple grade levels or multiple subjects. State officials told us that because of special educator shortages, special education teachers’ instructional roles might vary. For example, some special educators might not have to meet subject matter competency requirements when they were hired, but subsequently might have to meet subject matter competency requirements for one or more core academic subjects, depending upon their instructional roles. Education has issued guidance that says that teachers instructing core academic subjects must demonstrate subject matter competency. This guidance applies to all teachers, including special education teachers. However, Education officials told us that the assessment level of the student being taught was a consideration in determining the application of the NCLBA subject matter competency requirement. The inclusion of the assessment levels in determining how to apply the NCLBA requirements may explain some of state officials’ uncertainty regarding the application of the requirement to special education teachers. About half of the state officials and national education organizations’ representatives we interviewed reported that states needed more assistance on how to implement NCLBA teacher requirements for their special education teachers. For example, some state officials from Oklahoma and South Dakota reported being uncertain how to apply the requirements to the unique situations in which special education teachers provide instruction. Officials in these states reported that they were unclear whether a teacher providing instruction in core academic subjects to high school age students who are performing at the elementary level would need to meet elementary or high school level subject competency requirements (See table 1 for examples of the application of NCLBA requirements to special educators’ instructional roles). Officials from half the states we surveyed indicated that they did not believe the law provided enough flexibility for teachers to meet the subject competency requirements. A few state officials we interviewed, particularly those with a large percentage of rural districts, such as those in South Dakota and Arkansas, mentioned this perceived lack of flexibility as a key concern. In particular, these officials indicated that because their special education teachers often teach multiple subjects, they would have to attain multiple degrees or pass several subject matter tests to meet the subject matter competency requirement. Recent Education guidance issued after this survey was concluded gives states more time to help all teachers, including special education teachers who teach core academic subjects, in small, rural school districts, meet the requirements. Under this new guidance, teachers in eligible rural school districts, who are highly qualified in at least one subject, will have 3 years to become highly qualified in the additional subjects they teach. State officials reported concerns about their states’ ability to meet the federal timelines for implementing the NCLBA teacher requirements for special education teachers. Officials from 32 states reported that the time frames were not feasible for implementing the requirements. This included 15 states that had established subject matter competency requirements for their special education certification. However, depending on the specific state certification requirements, teachers in these states may still be required to do additional work to meet the subject matter competency requirements of NCLBA. In addition, some state officials reported that their states were not positioned to meet federal deadlines because some institutions of higher education had not aligned their programs with NCLBA requirements. For example, officials in 31 states reported that that current special education teacher preparation programs hindered implementation of NCLBA requirements, primarily because these programs did not emphasize majors or concentrations in core academic subjects. Given these conditions, state officials, in 3 of the 6 states we visited, reported the need for additional assistance in identifying strategies to meet the timelines for meeting requirements. Education also noted that the challenge facing states is developing new mechanisms to make sure that all teachers of core academic subjects are able to demonstrate appropriate subject matter mastery. Some state officials and national education organizations’ leaders also cited concerns that special education teachers currently teaching might leave the field rather than take exams or return to school to take the courses needed to demonstrate subject matter competency. Thirty-two survey respondents expressed concern that the potential flight of special education teachers would hinder efforts to implement the requirements. Finally, state education officials reported uncertainty over how to reconcile requirements of the two laws that appear to be inconsistent and thus could impede implementation of NCLBA. These officials reported that they were unsure as to which act—IDEA or NCLBA—should take precedence in establishing personnel requirements for special education teachers. For example, under IDEA, a student’s IEP could require that he be taught mathematics at a functional level 3 years below his chronological age, and under IDEA a certified special education teacher would be qualified to provide this instruction. However, under NCLBA, a teacher might not be qualified to instruct this student without first demonstrating subject matter competency in mathematics. According to Education officials, the requirements would depend in part on the assessment level of the students being taught. At the same time, Education officials noted that NCLBA teacher requirements apply to all teachers, including special education teachers. As a result of this uncertainty, some of the state special education officials we interviewed and surveyed said that they had decided to wait for further guidance or assistance before beginning to implement any NCLBA requirements for special education teachers. Education officials reported that they were aware that some states had expressed uncertainty about how to implement NCLBA’s teacher requirements. Moreover, Education officials noted that states that wait for further guidance could hinder their special education teachers’ ability to meet the subject matter competency requirements by the end of the 2005-2006 school year. Education has provided a range of assistance, such as site visits, Web- based guidance, and financial assistance, to help states implement the highly qualified teacher requirements. However, department coordination related to the implementation of NCLBA’s teacher requirements for special education teachers has been limited. OESE has taken the lead in providing this guidance, with support from offices such as the Office of General Counsel and the Office of the Secretary. OSEP played a limited role in these efforts. Further, departmental coordination among Education’s offices was limited with respect to OSEP’s involvement in other key teacher quality initiatives. Because of this, Education may not have been in a position to be fully apprised of how special education concerns could affect implementation of the NCLBA teacher requirements. However, Education officials told us that they included OSEP by contacting OSEP staff to clarify IDEA substantive issues. Further, Education officials told us they have recently added OSEP to the department’s teacher quality policy team. However, Education currently does not have plans to develop written policies and procedures for coordination among its offices. According to Education officials, OESE took the lead in providing assistance to states concerning the NCLBA teacher requirements, with some support provided by offices including OSEP, the Office of the Secretary, the Office of the Undersecretary, the Assistant Secretary of Elementary and Secondary Education, and the Office of General Counsel. One of OESE’s key efforts to provide technical assistance to states was the Teacher Assistance Corps initiative, which sent teams of experts to states to provide clarification and guidance on implementing NCLBA teacher requirements. According to Education, these teams have been responsible for sharing promising strategies, providing advice on compliance issues, and assisting state officials in setting and meeting teacher quality goals. The teams have also gathered feedback from states on their concerns about implementing the teacher requirements. Team members have included lead officials from OESE and general counsel, individuals with expertise on issues of concern to particular states, higher education representatives, and education officials from that state. Education officials told us that OSEP staff did not participate in these visits, but two state officials with expertise in special education participated in some visits. OESE also offered states other types of assistance. OESE created a teacher quality newsletter, and the Office of the Under Secretary created and then updated the No Child Left Behind Toolkit for Teachers booklet, to help teachers understand the law in general, the highly qualified teacher requirements, and to explain which teachers need to meet the NCLBA requirements. However, while the tool kit provided detailed information pertaining to general education teachers, it provided limited information for special education teachers. According to OESE officials, the office had also been developing a Web site on promising practices for implementing the NCLBA teacher quality requirements and had plans to feature special education on the site. However, at the time of our interviews, OESE did not have a timeline for when this Web site would be available. Finally, OESE also provided financial assistance to states through Improving Teacher Quality state grants; states could use this financial assistance to help special education teachers meet NCLBA teacher requirements. The enactment of NCLBA significantly changed the expectations for all students and their teachers in the nation’s schools and increased the need for OESE and OSEP to coordinate their efforts. NCLBA covers to a greater extent than did previous educational legislation the groups that have historically been the primary responsibility of OSEP—students with disabilities and their teachers. Moreover, NCLBA established qualifications for all teachers, including special education teachers, who provide instruction in core academic subjects such as English, language arts, mathematics, and science. As state education officials began implementing NCLBA subject matter competency requirements, they sought guidance from OSEP, their primary source of information on special education issues. However, OSEP officials told us that they had generally referred these officials to OESE or to the NCLBA Web site. OSEP officials told us that they were waiting until IDEA is reauthorized to develop their own guidance on special education teacher quality requirements. However, during this time NCLBA requirements applied to special educators teaching core academic subjects, and several state officials told us they needed clarification of the guidance on these requirements. Coordination between OSEP and OESE has generally been limited. For example, OSEP commented on the teacher quality policies and initiatives that OESE developed, but generally was not involved in the initial development of these policies. Education officials told us that OSEP was included in the implementation of the teacher requirements, noting that they contacted this office to clarify IDEA substantive issues and that OSEP officials reviewed NCLBA guidance. OSEP did not participate in OESE’s Teacher Assistance Corps visits to states and generally was not involved in the analysis of the information that was collected from these visits. OESE officials told us that they did not believe that states would benefit from OSEP’s participation in these visits, because the focus of the visits was on meeting the NCLBA requirements, not IDEA requirements. In addition, Education told us that there were no written policies or procedures to assist OESE and OSEP in coordinating the development and implementation of its teacher quality policies for special education teachers. Finally, these officials did not indicate that Education was planning to develop such policies. In March 2003, Education formed a teacher quality policy team under the auspices of the Office of the Under Secretary and included other key offices in Education such as the Office of the Secretary, the Office of General Counsel, and OESE. This team, run by OESE, has focused on NCLBA implementation related to teacher qualifications, and special education teacher issues have been among the topics most frequently discussed. OSEP was not a member of this team until April 2004, when Education officials told us that OSEP had become a part of the team. NCLBA is a complex law with new requirements that hold states, districts, and schools accountable for ensuring that their teachers meet specific qualifications. Further, the law applies to all teachers, including special education teachers, resulting in states and districts having to reassess how they certify and assign special education teachers, as well as provide professional development geared toward helping teachers meet requirements. State officials reported the need for assistance on how to meet NCLBA requirements, with Education also noting the need for states to have more information on strategies to meet requirements. Because half of the states do not have subject matter competency requirements as part of special education certification, these states in particular are challenged with developing strategies to help their teachers meet NCLBA requirements. Without additional assistance on such strategies, special education teachers may not be positioned to meet requirements by the end of 2005- 2006 school year. In addition, several state education officials cited the need for additional clarification on the application of the NCLBA subject matter competency requirement to special education teachers in special circumstances, for example those providing instruction to high school age students who are performing at the elementary level. Without additional assistance from Education to resolve state concerns related to special education teacher qualification issues, some states might not be able to determine how to focus their resources to ensure that their teachers meet the act’s requirements. NCLBA covers to a greater extent than did previous elementary and secondary education acts the groups that have historically been the primary responsibility of OSEP—students with disabilities and their teachers. OESE has assumed primary responsibility for implementing NCLBA, including provisions applying to special education teachers. OESE has generally not relied on OSEP staff or information produced by OSEP to develop policy or guidance. Consequently, OESE may not have fully benefited from OSEP’s expertise to inform its NCLBA discussions on policies and guidance related to special education teacher issues and requirements. Although Education has recently added OSEP to its NCLBA teacher quality policy team, overall NCLBA coordination efforts among Education offices have not been formalized in writing to ensure appropriate and continuing involvement of these offices. As a result, the department may not fully address states’ needs for information and assistance on the implementation of NCLBA requirements for special education teachers. To better address states’ concerns about their special education teachers being positioned to meet NCLBA teacher requirements, we recommend that the Secretary of Education provide additional assistance to states on strategies to meet the requirements and clarification of subject matter competency requirements for special education teachers. To continue to improve policy development and technical assistance that Education’s offices provide to states on NCLBA requirements, we recommend that Education formalize in writing coordination efforts between OESE and OSEP. For example, such efforts could include defining how OSEP’s expertise and staff would be involved in developing NCLBA policies and guidance related to special education teachers and in providing technical assistance to states. We provided a draft of this report to Education for review and comment. In their comments, Education officials noted that they believed their guidance was clear but recognized that states were still struggling to identify strategies to meet requirements. Education officials provided new information in their comments on the draft that indicated improved coordination among those Education offices that are involved in NCLBA policy development and guidance. Consequently, we modified the report on both these topics to reflect Educations’ comments. Education officials also provided technical comments that we incorporated into the report where appropriate. Education’s comments are reproduced in appendix II. Given the difficulties states are experiencing in implementing the law and the level of uncertainty reported by state officials, we believe that additional assistance needs to be provided by Education to help states implement the requirements. In Education’s comments, the department noted that states were having difficulty implementing NCLBA teacher requirements. Education officials highlighted assistance they provided and their willingness to provide additional technical assistance, depending on what states need. We believe Education could help states by identifying strategies to help states meet requirements, especially those states without subject matter competency requirements for their special education teachers. In addition, Education noted in its comments that guidance on how to apply the NCLBA subject matter competency requirement for special education teachers instructing high school age students functioning at elementary school levels was not different from guidance for all teachers. However, Education officials have also said that the assessment level of a student could be considered in determining how to apply the NCLBA teacher requirements. We encourage Education to provide assistance to explain the requirements, particularly as they relate to unusual circumstances involving varying student assessment levels. We have modified the report to reflect Education’s comments. We continue to believe that improved coordination is needed. However, we modified the report to reflect Education’s recent addition of OSEP to its teacher quality policy team. We acknowledge Education’s effort in this regard and encourage the department to formalize its coordination policies by putting them in writing. We believe that formalizing coordination efforts will ensure that the different offices continue to be involved in developing NCLBA policies and guidance related to special education teachers. Copies of this report are being sent to the Secretary of Education, relevant congressional committees, and other interested parties. We will also make copies available to others upon request. In addition, the report will be made 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. Other contacts and major contributors are listed in appendix III. In addition to those named above, Emily Leventhal, Benjamin Howe, Ron La Due Lake, Luann Moy, Jean McSween, Bob DeRoy, Bryon Gordon, Behn Kelly, and Amy Buck made key contributions to the report.

During the 2001-2002 school year, more than 400,000 special education teachers provided instructional services to approximately 6 million students with disabilities in U.S. schools. Two federal laws contain teacher qualification requirements that apply to special education teachers: the No Child Left Behind Act (NCLBA) and the Individuals with Disabilities Education Act (IDEA). Given the committee's interest in issues related to highly qualified special education teachers, we are providing information about (1) the state certification requirements, including the use of alternative certification programs, for special education teachers, and how they relate to NCLBA requirements; (2) the factors that facilitate or impede state efforts to ensure that special education teachers meet NCLBA requirements; and (3) how different offices in the Department of Education (Education) assist states in addressing NCLBA teacher requirements. In the 2002-2003 school year, all states, the District of Columbia, and Puerto Rico required that special education teachers have a bachelor's degree and be certified to teach--two of NCLBA's teacher qualification requirements--and half required special education teachers to demonstrate subject matter competency in core academic subjects, which is the third requirement. Specifically, 24 states, the District of Columbia, and Puerto Rico required their teachers to demonstrate some level of subject matter competency by having a degree or passing state tests in the core academic subjects that they wished to teach. Teachers of core academic subjects in the remaining states that did not have such requirements might not be positioned to meet the NCLBA requirements. To meet NCLBA teacher requirements, teachers would need to demonstrate competency in core academic subjects by the end of the 2005-2006 school year. State education officials reported that the availability of funds to support professional development facilitated implementation of the NCLBA teacher requirements, while other factors, such as uncertainty about how to apply the subject matter competency requirement to special education teachers, impeded implementation. State education officials and national education organizations' representatives we interviewed cited the need for more assistance from Education in explaining NCLBA's teacher requirements and identifying implementation strategies. Education has provided a range of assistance, such as site visits, Web-based guidance, and financial assistance, to help states implement the highly qualified teacher requirements. However, department coordination related to the implementation of NCLBA's teacher requirements for special education teachers has been limited.

You are an expert at summarizing long articles. Proceed to summarize the following text: Over time, the Congress has established about 80 separate programs to provide cash and noncash assistance to low-income individuals and families. Means-tested programs are restricted to families or individuals who meet specified financial requirements and certain other eligibility criteria established for each program. The financial requirements restrict eligibility to families and individuals whose income falls below defined levels, and in some cases, whose assets—such as bank accounts and the value of automobiles—also fall below defined levels. Nonfinancial requirements restrict eligibility to specified categories of beneficiaries, such as pregnant women, children, or individuals with disabilities. Federal, state, and local governments expended a combined total of nearly $400 billion on the approximately 80 means-tested programs in fiscal year 1998. Medicaid accounted for 45 percent of the expenditures. Twenty- seven of the 80 programs, representing 97 percent of the total expenditures, had expenditures of over a billion dollars each (see table 1). Means-tested programs provide assistance in eight areas of need: (1) cash assistance; (2) medical benefits; (3) food and nutrition; (4) housing; (5) education; (6) other services, such as child care; (7) jobs and training; and (8) energy aid. Ten of the 11 programs on which our review focuses accounted for 74 percent of the total expenditures for means-tested federal programs in fiscal year 1998 (see table 2). Table 3 provides an overview of the populations targeted by these programs and the types of assistance that they provide. The 11 means-tested programs that we included in our review were enacted over time to serve various populations and achieve various objectives. For example, in 1937, the Public Housing program was created to provide adequate temporary shelter to families who could not afford housing; Medicaid, in 1965, to provide medical assistance for low-income families with children and aged, blind, and disabled individuals; and SCHIP, in 1997, to provide health insurance coverage to uninsured low- income children from families who do not qualify for Medicaid. In some cases, the unique financial rules that apply to a particular program may be related to the purpose of that program and reflect its goals or objectives. For other programs, this may not be the case and the differences in eligibility standards across programs may stem from decisions made at different times by different congressional committees or federal agencies. In addition to offering a wide variety of benefits and services, means- tested programs vary in the extent to which they guarantee that funds for services will be available. For some programs such as Food Stamps and SSI, federal funds are available to provide benefits to all eligible applicants. Other programs such as TANF and SCHIP have a fixed amount of federal funds available. Moreover, some of the programs require state and other nonfederal matching money (e.g., Medicaid and SCHIP), while others are fully funded with federal dollars (e.g., LIHEAP and WIC). An individual low-income family is likely to be eligible for and participate in several means-tested programs. For example, as shown in figure 1, families receiving TANF generally also receive Medicaid, food stamps, and school meals. Smaller percentages of these families receive assisted housing, WIC, and LIHEAP. The need for welfare simplification has been voiced recurrently over a period of many years. While this concept covers a broad range of potential objectives, a key aspect has been the need to simplify financial eligibility rules. Means-tested programs have been established over time to meet the needs of various target populations. However, policy experts and researchers have concluded that the complexity and variations in programs’ financial eligibility rules have had unanticipated but detrimental consequences for both program administration and family access to assistance. On the administrative side, they have argued that the financial eligibility rules have increased substantially the staff resources needed to determine eligibility and benefit levels, and thereby increased the costs of administering programs. With regard to families’ access to programs, they maintained that the rules have often resulted in confusing families about their eligibility for programs and contributed to the creation of a service delivery system with many separate entry points that is often difficult and burdensome for families to navigate. Numerous studies and reports since the late 1960s have called for the overhaul or repair of the nation’s assistance programs that serve low- income families and individuals. For example, a Presidential committee recommended in 1977 that a total effort to reform welfare was needed because of the inequities and administrative “chaos” created by a plethora of inconsistent and confusing programs. During the1980s, we issued several reports on welfare simplification. One of these reports surveyed the states to identify what they viewed as the major obstacles to their efforts to achieve service integration. Of the 25 obstacles identified, the one cited most frequently (42 states) was that different programs use different financial eligibility requirements. In 1991, the National Commission for Employment Policy recommended that agencies administering public assistance programs should develop a common framework for streamlining eligibility requirements, formulating standard definitions, and easing administrative and documentation requirements. In 1990, the Congress authorized the creation of the Welfare Simplification and Coordination Advisory Committee to examine four major assistance programs: Food Stamps, Aid to Families with Dependent Children, Medicaid, and housing assistance programs. The Congress mandated the committee to identify barriers to participation in assistance programs and the reasons for those barriers. In June 1993, the committee recommended that the numerous programs that currently serve needy families be replaced with a single family-focused, client-oriented, comprehensive program. Recognizing that it would take time to implement its primary recommendation, the Commission made 14 interim recommendations to the Congress, including the following: Form a work group of the chairs of the relevant congressional committees to ensure that all legislative and oversight activities involving public assistance programs are coordinated. Establish uniform rules and definitions to be used by all needs-based programs in making their eligibility determinations. Streamline the verification process. Permit the sharing of client information among agencies to streamline eligibility determination processes and reduce duplication of related activities. In 1995, the Institute for Educational Leadership, based on its examination of the executive and legislative structures that federal means-tested programs are built upon, urged the administration to create a Family Council. One of the stated goals of such a council was to have been proposing changes to eligibility requirements, definitions, financing and administrative requirements, data collection and reporting requirements, and performance standards that were inconsistent, incoherent, and confusing. Moreover, in a 1995 report to the Congress, we concluded, in part, that the inefficient welfare system is increasingly cumbersome for program administrators to manage and difficult for eligible clients to access. Just as the need for simplification of financial eligibility rules has been acknowledged, there has also been a general recognition that achieving substantial improvements in this area is exceptionally difficult. For example, implementing systematic changes to the federal rules for human service programs can be challenging because jurisdiction for these programs is spread among numerous congressional committees and federal agencies. Substantial variations exist in the financial eligibility rules across selected means-tested federal programs. The primary sources of these variations are generally at the federal level, although for several programs such as TANF and Medicaid states and localities have some flexibility in setting financial eligibility rules. Variations exist among the programs in the financial rules regarding the types and amounts of income limits. Differences also exist among these programs with regard to whose income is counted, what income is counted or excluded, and whether certain expenses—such as child care costs—are deducted in calculating income. In addition to income tests, programs impose different limits on the assets that an individual or family may hold in order to receive benefits. Asset tests are further complicated because of the differences in how the equity in vehicles is treated when determining assets. The first and most basic difference among programs is the variation in type of income limits used for determining program eligibility. Income limits for most of the 11 programs reviewed used a percentage of the federal poverty guideline or an area’s median income. For example, the School Meals program uses a percentage of the poverty guideline to set benefit eligibility while the housing programs use percentage of area median income to determine eligibility. The programs not only differed in the type of income limit but also in the actual level of income. For example, the maximum allowable gross monthly income for food stamps for a family of three is $1,585 nationwide, whereas, the maximum allowable gross monthly income for subsidized child care—which is based on state median income—is $4,494 in the state of Connecticut (the state with the highest median income). For all 11 programs except TANF, federal laws and regulations have set some income limit. The most common type of income limit used among these programs is some percentage multiple of the federal poverty guideline, updated annually in the Federal Register by the Department of Health and Human Services (HHS). However, the percentage of the guideline used varies among programs. (See table 4 for a comparison of the type of limits used among the 11 programs.) Programs also vary in setting the income limits that are used to determine eligibility. While some of the programs provide states with options in setting income limits others do not. For example, LIHEAP and WIC provide states the option of choosing between two types of income limits. In the case of TANF, states are given full discretion in how they establish eligibility, including choosing both the type and level for their income limit. For Medicaid, while the federal government requires that states provide Medicaid to individuals who fall into certain categories and whose income and resources fall below certain limits, states may, in some circumstances, set more generous income limits and create different categories so that additional individuals may receive coverage. In addition, in some instances, states are given options to set income limits by the federal statute or regulation. For example, while the law sets the maximum income limit for child care funds at 85 percent of a state’s median income, several states have set their limits far below the allowable federal limit. Whose income is counted and whether any exclusions or deductions are made can affect a family’s income eligibility for the different programs. In general, the programs varied in whose income is counted in determining eligibility. There is no single definition of “family” or “household” used by means-tested federal programs. Federal rules generally govern whose income should be used to determine eligibility. In some programs, the definition of the household unit reflects the program’s service focus, and in these instances the income of people with whom the applicant shares certain expenses are included in the calculation. The LIHEAP program, for example, defines household as members purchasing energy together. Similarly, the Food Stamp statute identifies the household as the income unit and defines a household as people who purchase food and prepare meals together. Certain programs provide states with some discretion in defining a family. For example, the SCHIP regulation identifies the family as the income unit but allows the states to decide how that should be defined. Regulations for the Low-rent Public Housing and Housing Choice Voucher programs set forth some examples of families but allow public housing agencies to determine if any other group of persons qualify as an eligible family. Table 5 summarizes household unit definitions for each of the 11 programs. Programs also differ in how they treat earned income for the purposes of eligibility determination. Those programs that emphasize a transition to economic self-sufficiency sometimes treat earned income favorably for program eligibility purposes to provide an incentive for clients to continue to work. In TANF, for example, almost all states disregard some income; that is, they allow TANF recipients to earn a given amount of their earned income either as a percentage of earnings (between 20 and 50 percent), or a set dollar amount (between $90 and $250) or both, without any reduction in their benefits. In Medicaid, while some states have the same disregards used in TANF, other states have more generous disregards. See table 6 for the earned income disregards used by various programs. In calculating applicants’ income levels to determine eligibility, some programs also have provisions to deduct certain types of expenses. These deductions include allowances for certain medical, shelter, or child care expenses of applicants. In other programs, no deductions or exclusions may apply. Some states have the same child care deductions in their TANF and Medicaid programs. Housing Choice Voucher and Low-rent Public Housing programs share many but not all of the same rules and regulations. Both programs have a child care deduction for children under 13 and an adult dependent care deduction for expenses over 3 percent of a family’s income. Table 7 illustrates programs’ different handling of payments for child care as a deduction from income. While several programs have specific rules regarding assets and set limits on the amount of certain assets that clients can hold, most programs have no restrictions on assets at all. Assets are generally defined to include cash held in checking and savings accounts, individual retirement accounts, 401Ks, and other accounts that can be readily transferred into cash. Federal rules and regulations set assets limits for several programs, but states do have discretion in certain cases. Vehicle asset rules exist in some of the 11 programs and these rules vary, not only across programs, but across states as well. In some programs, a vehicle used to access work may be disregarded; in other programs, a certain portion of the value of the vehicle may be disregarded. For example, in the SSI program, the first $4,500 in current market value is excluded. If it is used for employment or daily activities, used to obtain medical treatment, or has been modified for use by or for transportation of a handicapped person, the vehicle’s value is completely excluded. The vehicle asset test for food stamps is set at $4,650. However, a recent change allows states to apply their TANF vehicle asset test for food stamp eligibility and benefit determination, as long it is at least as generous as the Food Stamp rule. For TANF, many states exclude the entire value of one vehicle; one state excludes the value of all vehicles, and one state has no asset test at all. In states that impose a vehicle asset test for TANF, three states (Louisiana, Oregon, and Wisconsin) allow up to $10,000 in equity value and one state (Wyoming) disregards up to $12,000 in trade-in value. Table 8 displays the general assets limits as well as the vehicle asset rules, if any. Variations in financial eligibility rules and the multiplicity of agencies that administer programs at the state and local level have contributed to the formation of administrative processes that involve substantial complexity and duplication of staff efforts. In spite of the variations in financial eligibility rules, the states we reviewed have established joint eligibility determination processes for certain programs. While the processes for determining eligibility were coordinated for selected programs, state and local staff reported that the variations and complexities of certain financial rules in these programs created considerable difficulties in determining eligibility and calculating benefit levels. With regard to the other programs in these states, eligibility is determined separately for each program. As a result, applicants must visit multiple offices and repeatedly provide much of the same information to apply for assistance from these other programs. While data generally are not available on the specific costs of determining eligibility and calculating benefit levels for the 11 programs we reviewed, evidence suggests that these costs are substantial. In all five states we visited, joint application processes have been established for some programs, ranging from three programs in Kentucky to six programs in Nebraska. These processes enable an applicant to complete a single application for multiple programs. A single caseworker can determine for which programs the client is eligible and then calculate benefit amounts. The caseworker uses one or more automated systems to perform these tasks and generally needs to input application information only once into the automated systems. As shown in table 9, all five states have joint eligibility determination processes for TANF, Food Stamps, and Medicaid. In Nebraska, applicants can complete a joint application for these three programs and Child Care, SCHIP, and LIHEAP. (How these states have used computer systems to establish joint application processes is discussed later in the report.) Even though the determination of eligibility in these programs has been coordinated, state and local officials told us that variations in these programs’ financial eligibility rules, as well as the sheer complexity of the rules in certain programs, create substantial difficulties or added work for caseworkers in determining eligibility and benefit levels. With regard to variations in rules, the aspects most commonly cited as troublesome for caseworkers include differences in rules about household units, income limits, countable and excludable income, and asset limits. For example, differences in the definition of a household unit affect eligibility decisions because family members are treated differently across programs. In the Food Stamp program, a household generally consists of all the persons who purchase food and prepare meals together. In TANF, the family is the household unit (which states define) but generally includes only dependent children, their siblings, and the parents or other caretaker relatives. Consequently, a family member may be a part of a household in one program, treated as a separate family in another program, and ineligible for benefits in another program. If caseworkers do not establish the correct household for a program, errors in eligibility or benefit levels can result. State and local officials believed that establishing a uniform definition of household unit would reduce both the work required of caseworkers and the possibility of errors. The problems encountered by caseworkers were attributed primarily to the complexity of the financial eligibility rules for certain programs, especially Food Stamps and Medicaid. State and local officials identified the following areas as especially difficult and error-prone in the Food Stamp program: (1) determining household composition, (2) determining whether the value of a household’s assets is less than the maximum allowable, and (3) calculating the amount of a household’s earned and unearned income and deductible expenses. For example, with regard to the last of these areas, Food Stamp rules require that net monthly income be calculated by allowing up to six possible deductions from gross monthly income. The six allowable deductions are a standard deduction, an earned income deduction, a dependent care deduction, a medical deduction, a child support deduction, and an excess shelter cost deduction. Errors in calculating any one of these complicated deductions has resulted in inaccurate eligibility determinations or food stamp benefit levels. Such errors can lead to overpayments or underpayments to clients, and delays in processing of applications and disbursement of benefits. Moreover, states with high error rates can receive federal sanctions or be required to take steps to improve program administration. Our prior work identified the complexity of Food Stamp eligibility rules as a problem and recommended that USDA develop and analyze options for simplifying the rules for determining eligibility and benefit levels. State officials also pointed to various complexities associated with determining eligibility for Medicaid. Unlike the TANF and Food Stamp programs, Medicaid eligibility encompasses many categories of individuals. Among the states we visited, the number of eligibility categories varied from approximately 30 in Nebraska to about 100 in California. The rules and methodologies used to determine eligibility vary for many of these categories. Medicaid eligibility rules often include different income thresholds for children of different ages in the same family, and different rules for determining the eligibility of parents. Consequently, multiple tests may be used in determining eligibility for each member of a family, resulting in different outcomes for members of the same family. State and local officials told us that because of the complex financial rules in Medicaid, caseworkers are often frustrated; it is also more difficult for caseworkers to learn their jobs and perform them well. While joint eligibility processes have been established for some programs in the states we reviewed, eligibility for other programs is generally determined separately. For example, as shown in table 10, public housing agencies administer housing programs and SSA administers SSI in each state. In addition, in general, health departments determine eligibility for WIC and SCHIP; school districts administer School Meals; and community- based organizations administer LIHEAP. In some instances, caseworkers from different programs have been co- located at one location such as a one-stop center, but eligibility for these programs continues to be determined separately. For example, in San Mateo County, California, caseworkers for the Human Services Agency determine eligibility for the Food Stamp, Medicaid, TANF, Child Care, Low-rent Public Housing, and the Housing Choice Voucher programs. While one caseworker can assist clients in applying for TANF, Medicaid, and Food Stamps, these clients must meet separately with different caseworkers to apply for any of the other programs. The separate eligibility processes in the states we reviewed involve a substantial duplication of administrative functions and impose demands on the time and resources of applicants. For example, a family in these states that wanted to apply for all 11 programs would need to complete anywhere from 6 to 8 applications and visit up to six offices. These applications require applicants to repeatedly provide much of the same information. Our analysis of the application forms in Utah showed that at least 90 percent of the information collected by the applications for each of the following programs—SCHIP, LIHEAP, WIC, and School Meals—was collected on the joint application for TANF, Food Stamps, Medicaid, and Child Care. In fact, no new information was obtained on the SCHIP and LIHEAP applications. These separate applications generally ask for similar information collected on the joint application, such as household composition, employment status, and earned and unearned income. The annual costs to the federal government for administering means- tested programs are significant and eligibility determination activities make up a substantial portion of these costs. The federal government provides funds to states and localities for administering most of the means-tested programs and the percentage of the administrative costs borne by the federal government varies by program. The programs vary in the types of activities included in the administrative cost category. For example, in some cases these activities include outreach to potential program participants and service providers, preparation of program plans and budgets, travel, and quality assurance. As shown in table 11, in fiscal year 1998, the estimated federal costs for program administration in the 11 programs totaled over $12.4 billion. This constitutes about 4 percent of total expenditures for benefits in these programs. Federal agencies generally do not require states to report the costs for specific activities related to eligibility determinations. While data are not generally available on the specific costs of determining eligibility and calculating benefit levels for all of the 11 programs we reviewed, evidence suggests that these costs are substantial. In the Food Stamp program, for example, federal costs for eligibility determinations are in excess of $1 billion annually and account for over half of overall administrative costs. Moreover, while the states we visited did not routinely collect data on the costs associated with determining eligibility, we obtained some information on these costs for certain programs in California. For one calendar quarter—the fourth-quarter of 2000—California was able to provide data on expenditures for eligibility determination activities: $183 million in staff costs for Medicaid eligibility determinations, $106 million for food stamps, and $71 million for TANF, according to state officials. These figures include both federal and state costs. Overall, federal, state, and local entities have made limited progress in simplifying or coordinating eligibility determination processes. Several of the states we visited realigned some of the financial rules, yet this approach has been used to a limited extent. Another approach is to take advantage of the capabilities of computer systems. The state and localities we reviewed used computer systems both to establish joint eligibility determination processes for some programs and in a few cases to share data across agencies to coordinate eligibility determination processes. However, state and local officials in all five states said that much more should be done to simplify the financial eligibility rules and eligibility determination processes across programs but cited various obstacles to achieving further progress. In some cases, states have used the flexibility allowed under federal law to simplify or realign their financial eligibility rules. This has occurred in at least three ways. First, some states have used options established in federal law to extend eligibility automatically for one program based on an applicant’s participation in another means-tested program—a provision referred to as “categorical eligibility.” Second, at least one state has attempted to use a federally established option to create a Simplified Food Stamp program that aligns the financial eligibility rules for Food Stamps and TANF. Third, the states we visited have used the flexibility allowed under TANF to change provisions of their TANF financial eligibility rules to realign them with those of other programs. Provisions allowing categorical eligibility have been implemented by states in several programs. For example, the 1972 amendments to the Social Security Act gave states the authority to make SSI recipients automatically eligible for Medicaid. States that use this authority pay SSA to incorporate Medicaid-required questions in the SSI application process and establish an automated linkage between the SSI and Medicaid programs. As a result, clients who are approved for SSI are automatically enrolled in Medicaid and are not required to apply for Medicaid benefits. As of February 2001, 32 states—including three states we visited (California, Delaware, and Kentucky)—and the District of Columbia have linked their Medicaid programs with SSI. Federal law also gives states the option of establishing categorical eligibility to LIHEAP applicants who are receiving SSI, TANF, or Food Stamps. However, according to one agency official, while one of the states we visited (Nebraska) uses this option, most states do not. Many of the potential beneficiaries of the LIHEAP program are elderly or others who are not using public assistance programs. To avoid the perception that LIHEAP is a public assistance program, states are required to offer LIHEAP services through an alternative approach; most of the states we visited used community-based organizations to administer the program. School districts may also use direct certification to enroll school-aged children into the School Meals program. Direct certification is a method of eligibility determination that does not require families to complete school meals applications. Instead, school officials use documentation obtained directly from the local or state human services agency that indicates that a household participates in TANF or Food Stamps as the basis for certifying students for free school meals. While all of the states we visited used direct certification as a means to identify and enroll children in the School Meals program, not all school districts or schools within the states used the process. According to a recent USDA study, approximately 35 percent of students approved for free meals are certified through direct certification. The Simplified Food Stamp Program, an option created by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), was another effort to streamline program administration. The simplified program option was to be a vehicle for creating conformity between TANF and the Food Stamp program by merging the programs’ rules into a single set of requirements for individuals receiving both types of assistance. Specifically, the program allows states to establish eligibility and benefit levels on the basis of household size and income, work requirements, and other criteria established under TANF, food stamps, or a combination of both programs—as long as federal costs are not increased in doing so. As of February 2001, while several states had used some features of the Simplified Food Stamp program, only one state had attempted to implement a more extensive version of the program. In our January 1999 report, we found that the two most frequent reasons given by states for not implementing the simplified program were as follows: (1) it would result in increased caseworker burden and (2) the cost neutrality provision restricted the states’ options for simplifying the program. States have also sought to realign their financial eligibility rules by taking advantage of their flexibility under TANF. For example, Nebraska changed its TANF (1) assets limits to mirror those for Medicaid, (2) earned income disregards to mirror those for Food Stamps, and (3) client reporting requirements to mirror those for Food Stamps. A Nebraska state official told us that these changes resulted in simplifying the financial rules to ease eligibility determination processes for caseworkers and reduce complexities for clients being served. Delaware broadened eligibility for food stamps by creating categorical eligibility for food stamps through the TANF program. During the application process, clients are asked if they are interested in two specific TANF program components, pregnancy prevention and family planning services. Some clients who may have been determined financially ineligible for food stamps, but indicated an interest in either TANF service, received categorical eligibility for food stamps. However, in the near future, states will not have the authority to more broadly confer categorical eligibility to TANF clients. With recent changes in Food Stamp regulations, effective September 30, 2001, states will be restricted to conferring categorical eligibility to TANF clients with incomes at 200 percent of the federal poverty level or below. States have considerable flexibility to streamline eligibility processes in their Medicaid for children and SCHIP programs. According to a recent survey, many states have taken steps to streamline and simplify their child health coverage programs. These activities have been driven, to a large extent, by the emphasis on designing easy, family-friendly application systems for new SCHIP programs, coupled with the federal requirement to coordinate these new programs with Medicaid. The survey found that most states have taken steps to simplify the application process for child health coverage. For example, of the 32 states that implemented separate SCHIP programs, 28 states use joint applications for Medicaid and SCHIP. Moreover, 39 states and the District of Columbia have eliminated face-to-face interviews and 10 states allow self-declaration of income in both their Medicaid for children and SCHIP programs. In addition, most states have made efforts to expand income-eligibility for children and simplify eligibility rules. For example, between November 1998 and July 2000, the number of states that covered children under age 19 in families with income at or below 200 percent of FPL increased from 22 to 36. Finally, 41 states and the District of Columbia have dropped the asset test in both their Medicaid for children and SCHIP programs. States are increasingly relying on computer systems to establish joint processes for determining eligibility or to share data across agencies to facilitate the verification of data needed to determine client eligibility. However, in some cases states have encountered difficulties in expanding joint eligibility processes due to factors such as limitations in the abilities of caseworkers to master the eligibility rules for so many programs. The federal government has played a key role in facilitating the automation of means-tested programs. Three of the federal government’s major programs for needy families—TANF, Food Stamps, and Medicaid— have historically relied on state-run automated systems to help determine applicants’ eligibility and the amount of assistance each client should receive. In the past, the Congress authorized several agencies to reimburse states for a significant proportion of their total costs to develop and operate automated eligibility determination systems for these programs. For example, in 1980, the Congress authorized USDA’s Food and Nutrition Service, which oversees the Food Stamp program, to reimburse states for 75 percent of their costs for planning, designing, developing, and installing automated eligibility systems and 50 percent of the costs to operate these systems. To obtain enhanced funding for AFDC automated systems, states had to meet the requirements for a Family Assistance Management Information System (FAMIS), a general system design developed by HHS to improve state administration of the AFDC program. Because eligibility for Medicaid and Food Stamps was linked to eligibility for AFDC, most of the AFDC systems also covered Medicaid and Food Stamps. While the federal government generally no longer provides for enhanced levels of matching funds for systems development, the federal government continues to be a major funder of new computer systems for human services. For example, Texas has budgeted more than $289 million over a 6-year period to develop a new automated system for its human services department that would support the determination of eligibility for approximately 50 programs. The federal share (obtained from HHS and USDA) is projected to be about 51 percent of the total amount. Some of the states we reviewed have developed computer systems that have enabled them to expand the number of programs for which eligibility can be jointly determined. For example, Nebraska developed the Nebraska-Family On-Line Client User System (N-FOCUS), which contains the eligibility rules for TANF, Food Stamps, Medicaid, SCHIP, and Child Care. A separate computer system is used to determine eligibility for LIHEAP. These computer systems enable a single worker to jointly determine eligibility and calculate benefit levels for all of these programs. However, since these computer systems are not completely interfaced, caseworkers must sometimes enter client information more than once. In Delaware, caseworkers use the Delaware Client Information System II (DCIS II) to determine eligibility and benefit levels for TANF, Food Stamps, Medicaid, and SCHIP. Caseworkers use a separate computer system to determine eligibility and benefit levels for Child Care. These computer systems enable a single caseworker to determine eligibility jointly for five programs. In contrast to Nebraska, the different computer systems in Delaware are interfaced, which allows caseworkers to switch between systems and transfer data from one system to another, thereby eliminating the need to re-enter the same information in multiple systems. While their computer systems have resulted in streamlining the eligibility determination processes for clients, no data were available to determine whether these initiatives had generated any administrative cost savings. In addition to supporting joint eligibility determination processes, computer systems are being used to share client data across certain agencies to obtain information needed for determining eligibility. For example, when families in Delaware apply for TANF cash assistance, they are informed on their applications that the state department of health and social services may contact other persons or organizations to obtain the proof necessary in determining eligibility and benefit levels. The department of health and social services has automated links to share client information with other state agencies, including the department of Labor, the Divisions of Public Health and Motor Vehicles, and the child support enforcement agency. While computer systems can facilitate efforts to coordinate eligibility determination processes, states encountered limitations in system capabilities. For example, Nebraska officials told us that because of the variations in programs and financial rules, “workarounds” had been developed to help caseworkers overcome some systems-related problems. Workarounds are instructions to staff for specific situations in which a worker has to intervene manually in the eligibility determination process. While Nebraska’s N-FOCUS system provided automated support for 26 programs and the policies and rules built into the system to support all these programs, slow processing times had resulted. In addition, caseworkers were frustrated because the system was inflexible and did not cover all possible client household situations, which sometimes resulted in inaccurate eligibility determinations. Later, when the N-FOCUS automated system was modified by reducing technical complexities, it resulted in quicker processing times of client data, more flexibility for caseworkers in using the automated system, and greater responsibilities for caseworkers to know their programs. Caseworkers told us that the changes were helpful improvements. Nonetheless, some caseworkers expressed concern that program complexities, high caseloads, and time constraints made it difficult to learn the eligibility rules with their varying criteria and financial rules. Through discussions with federal, state, and local officials, and a review of literature in the area, we identified a number of obstacles that hinder efforts to make further progress in streamlining or coordinating processes for determining eligibility. In general, these have been longstanding obstacles. Key obstacles to efforts to simplify or realign financial eligibility rules include program cost implications, restrictive federal laws and regulations, the need for collaboration of multiple executive branch agencies and legislative committees, and differences in goals and purposes of some federal programs. Program cost implications is a major obstacle to efforts to simplify or realign financial eligibility rules. Financial eligibility rules serve to target and limit benefits to those considered in need and also to ration federal and nonfederal dollars. Yet, modifying financial eligibility rules for purposes of simplifying them or making them more consistent across programs can result in changes to the number of people who are eligible for assistance or the benefit levels they receive. For example, if such rule changes have the effect of raising income eligibility limits, more people will be eligible for assistance and program costs will tend to increase. On the other hand, if such rule changes have the effect of lowering income eligibility levels, some people will no longer be eligible for assistance from certain programs. Among means-tested programs, pressures in recent years have generally been to increase coverage, such as by loosening financial eligibility standards. As we have seen, much of the variation in financial rules derives from federal statutes and regulations. For the 11 programs we reviewed, most program requirements were set in statute. Agency regulations also provide annual guidance such as income thresholds used to establish eligibility and benefit amounts. State officials believe that because of federal statutes and regulations they had very little flexibility in aligning financial eligibility rules across programs. Such alignment can involve standardizing various types of rules, including those pertaining to income limits, whose income is counted, what income is counted, and deductions from income. While states have aligned some financial rules to simplify their TANF, Food Stamp, and Medicaid rules, most of these changes were modest and officials were frustrated by federal barriers that prevented better aligning the financial rules across programs. For example, officials in two states told us that they believed the federally established income limits in the Food Stamp program (130 percent of federal poverty guidelines) were set too low. They explained that although their states had the flexibility to lower their TANF and Medicaid income limits to match the limit for food stamps, this option was not appealing because it would result in decreased participation in TANF and Medicaid. The division of legislative and executive responsibility, while allowing multiple points of access for members of Congress, interest groups, and the affected public, can be an obstacle to states’ ability to pursue system integration. Making systematic changes to programs’ financial eligibility rules can be very difficult, because it would generally require the collaborative efforts of multiple congressional committees (in the case of laws) or multiple federal agencies (in the case of regulations). Several reviews of the legislative and executive governance mechanisms that affect program direction at the federal level have been conducted in recent years. One study found that primary responsibility for most of the approximately 80 major programs that assist low-income families and individuals resides in 19 congressional committees and 33 subcommittees. For the 11 programs in our review, we identified 9 committees and 6 appropriations subcommittees with legislative responsibility for the programs. In addition, the 11 programs spanned 3 executive branch departments and 1 independent agency. The different purposes of the various means-tested programs and the lack of overarching goals also create a barrier to administrative streamlining. For example, state and local officials frequently cited the Food Stamp program rules as overly complex and rigid, with too much emphasis on quality control. The officials were concerned that quality control in the program focused, to a great extent, on detailed financial matters such as small amounts of overpayments and underpayments, timeliness of changes in income, and recalculation of benefit levels. The officials believe that while a focus on financial integrity through process and payment accuracy was important, too much attention on quality control has contributed to increased program complexities, decreased program participation, and high administrative costs. In comparison, the states receive block grants from the federal government to operate TANF programs and have significant autonomy in these programs. In the states we visited, officials told us that the flexibility in TANF provided them the opportunity to develop more effective cash assistance programs than existed prior to welfare reform. The officials believed that having greater flexibility in other means-tested programs such as Food Stamps would further their efforts to streamline eligibility determination processes. Over a period of more than 60 years, a large number of means-tested programs have been established to meet diverse goals and serve the needs of different populations of low-income families and individuals. However, when viewed from a service provider’s or client’s perspective, the existing processes for determining eligibility and calculating benefit levels in the 11 means-tested programs we reviewed are often cumbersome to administer and burdensome for families who apply for assistance. The variations and complexity of these programs’ financial eligibility rules, as well as the fact that numerous agencies administer the programs, have contributed to the formation of these cumbersome processes. There has been a long history of calls for the need to simplify eligibility rules and processes for means-tested programs. While there have been some efforts to make such improvements, little progress has been achieved overall. This limited progress reflects the broad scope and complex intricacy of the obstacles that confront any efforts to make large-scale improvements in this area, including the difficulty of grappling with the cost implications of changing financial eligibility rules. For example, the Simplified Food Stamp program was designed to allow states to align the TANF and Food Stamp programs’ rules but few states have implemented this option. Most states have not used the Simplified Food Stamp program, in large part, because they viewed the program’s requirement for cost neutrality within any fiscal year as being too restrictive. Many federal, state, and local officials recognize that additional efforts to simplify or coordinate eligibility determination processes are needed. However, a lack of information on the likely consequences of such efforts hinders further steps to improve the administration of means-tested federal programs. While many of these officials believe that administrative cost savings could be achieved from improved coordination or simplification, data are not available to evaluate the potential savings from such actions. Given the paucity of data on the costs of determining eligibility and calculating benefit levels in the existing system, it is difficult to quantify the costs of the variations and complexity of financial eligibility rules. Yet these costs appear to be substantial and even increases in efficiencies of the processes of 10 to 20 percent could potentially save billions of dollars. Moreover, the simplification of eligibility rules and processes offers the prospect of reducing burdens on caseworkers and applicants. On the other hand, simplifying financial eligibility rules could potentially result in increased program costs. To facilitate further progress in this area, information is needed about the effects of changes in financial eligibility rules and procedures on program and administrative costs, and access to programs by families and individuals. This information could be instrumental in designing a system for administering means-tested programs that is less costly to taxpayers, less onerous for workers, less frustrating for applicants, and that potentially reduces improper payments in federal programs. The Congress should consider authorizing state and local demonstration projects designed to simplify and coordinate eligibility determination processes for means-tested federal programs. Such projects would provide states and localities with opportunities to test changes designed to simplify or align the financial eligibility rules for programs, increase the number of programs for which eligibility can be determined jointly, and expand data sharing across agencies to facilitate eligibility determinations. Once authorized, states and/or localities could submit proposals for demonstration projects and relevant federal agencies working in a coordinated manner could review them, suggest modifications as needed, and make final approval decisions. Demonstration projects would include waivers of federal statutes and regulations as needed and deemed appropriate. While our review covered 11 means-tested federal programs, we are not suggesting that the demonstration projects must include all of these programs or exclude others. Consistent with a focus on citizen- centered government, states should be given the opportunity to try various approaches aimed at streamlining or simplifying eligibility determination processes that consider all feasible programs. Projects must be given sufficient time to be fully implemented and must include an evaluation component. Cost neutrality would be most desirable for federal approval of these projects. However, projects should not be rejected solely because they are unable to guarantee cost neutrality over the short run. It would be expected that, over a period of time, state and federal efforts to streamline eligibility determination processes would create administrative cost savings that could help offset any increased program costs. The Office of Management and Budget and the Departments of Agriculture, Health and Human Services, and Housing and Urban Development provided written comments on a draft of this report. These comments are presented and evaluated below and are reprinted in appendix II through appendix V. The agencies generally agreed with the report’s findings. The draft version of the report contained a recommendation to the Director of OMB to develop legislative proposals that would authorize state and local demonstration projects designed to simplify and coordinate eligibility determination processes for means- tested federal programs. In its comments, OMB indicated its support for program simplification but did not indicate that it would implement the recommendation. OMB agreed with our assessment of the longstanding obstacles to program simplification. However, OMB said that legislative authority for demonstration projects may not be necessary for states to pursue many simplification strategies because many programs, such as Food Stamps, already have significant waiver authority, and many states have not fully utilized the flexibility they have in programs such as TANF, Medicaid, and SCHIP. We agree that states have substantial flexibility in some programs; our report provides examples of how some states have used this flexibility to coordinate financial rules or processes. Our proposal for the authorization of demonstration projects is motivated primarily by the need to obtain more detailed and systematic information about the effects of various simplification strategies on key factors such as program and administrative costs. These demonstration projects would provide states with whatever additional waiver authority is needed and appropriate. OMB acknowledged that demonstration projects could be helpful in achieving sweeping standardization across programs, particularly if current waiver authority in certain programs, such as HUD’s rental assistance programs, is not designed to achieve such sweeping standardization. OMB added that program reauthorization also presents an opportunity to propose changes to program rules that may more immediately and effectively address simplification. We agree that program reauthorization presents a good opportunity to address simplification, especially on a program-specific basis. However, demonstration projects would provide the ability to make comprehensive changes in a multiplicity of programs to coordinate eligibility rules and processes, and to obtain information about the effects of these changes. OMB also expressed concern about the implications of program simplification on program costs and argued that simplification should not be a license to expand eligibility and increase spending beyond current levels. OMB questioned whether we potentially overestimate the administrative cost savings that would result from program simplification, which may underestimate the significance of program cost implications. We agree that there is a lot of uncertainty about the cost implications of program simplification. We believe that demonstration projects could provide useful empirical evidence about the potential for administrative cost savings and the ability to limit program cost increases. Finally, OMB maintained that if demonstration projects are authorized, the review of state proposals for such projects would most appropriately be lead by a federal agency such as HHS, in collaboration with other federal agencies, rather than by OMB as we had originally recommended. We believe that whatever federal agency or agencies were to be designated as the lead, the critical factor would be to establish a coordinated federal review process that facilitates efficient state and local interactions with the federal government. USDA commented that the report has made a noteworthy effort to compare the key variations in financial eligibility rules among the eleven federal programs reviewed. With regard to food stamps, USDA stated that making legislative changes during reauthorization would be a better approach to streamlining and simplifying Food Stamp program rules than mounting a series of demonstration projects. We agree that reauthorization presents an opportunity for simplifying Food Stamp rules and have recommended this in an earlier GAO report. USDA also provided additional information about the use of direct certification in the School Meals program and categorical eligibility for WIC, which we added to the report. HHS said in its comments that this is a very important report that verifies the lack of standardization and complexity of applying for means-tested programs. However, HHS added that in recommending demonstration projects, the report does not offer any suggestions on how to build upon or make this new initiative more productive than past efforts. We agree that the report does not address in a detailed and thorough manner the issues regarding how such demonstration projects should be designed and implemented. We believe that these issues would be best addressed with input from diverse stakeholders, especially the various federal and state agencies that have longstanding experience administering and overseeing these means-tested programs. HHS noted that while considerable progress has been made in developing joint application processes, there has recently been a recognition that this model has limitations. HHS explained that increasing numbers of Medicaid-eligible persons come from working families not eligible for other programs. HHS added that it is important to strive to effectively reach and serve both this population and the population eligible for multiple programs, so it continues to work on both joint and single- purpose application processes. We agree with HHS that both types of application processes have appropriate uses. HHS also said that the report did not acknowledge sufficiently the progress in simplifying eligibility determination that has been made in SCHIP. In response, we added a section to provide information on state efforts to streamline and simplify administrative processes for SCHIP and Medicaid programs for children. In addition, HHS questioned whether our review of Medicaid, which focused on TANF-related Medicaid groups and policies, should also have included SSI-related groups and policies. Because the primary focus of our review was on means-tested programs commonly used by low-income families and children, the report does not include a discussion of SSI- related groups and policies. Finally, HHS commented that states have significant flexibility to expand and simplify eligibility for Medicaid to coordinate with other programs that serve low-income families. In its comments, HUD agreed that simplification of the financial eligibility and benefit rules for means-tested federal programs is needed and said that the department is interested in exploring participation in a demonstration program in this area. HUD also noted that it has an effort underway—the Rental Housing Income Integrity Initiative—that has a major goal of simplifying cumbersome income and rent policies in public and assisted housing programs. HUD also provided estimates of administrative costs for housing assistance programs and the percentage of TANF recipients receiving housing assistance; we revised the report to incorporate these estimates. We also received technical comments on a draft of this report from the Departments of Agriculture, Health and Human Services, and Housing and Urban Development, the Social Security Administration, and three of the five states discussed in the report—Delaware, Nebraska, and Utah—and we incorporated these comments where appropriate. As agreed to with your staff, unless you publicly release its contents earlier, we will make 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 Subcommittee on Human Resources, House Committee on Ways and Means; the Director of the Office of Management and Budget; the Secretary of Health and Human Services; the Secretary of Agriculture; the Secretary of Housing and Urban Development; the Acting Commissioner of Social Security; other interested congressional committees; and interested parties. Copies will be made available to others upon request. The report is also available on GAO’s home page at http://www.gao.gov. Please contact me on (202) 512-7215 if you have any questions about this report. Other GAO contacts and staff acknowledgments are listed in appendix VI. In conducting our review, we obtained and analyzed information from a variety of federal, state, and local sources. At the federal level, we interviewed officials at three departments (Agriculture, Health and Human Services, and Housing and Urban Development) and two agencies (Centers for Medicare and Medicaid Services and the Social Security Administration). We visited five states and generally met with officials of state, local, and community-based organizations in two cities in each state—one urban location and one rural community. Our fieldwork was performed in three counties (Contra Costa, San Mateo, and Placer) in California; Georgetown and Wilmington, Delaware; Louisville and Barren County, Kentucky; Omaha and Crete, Nebraska; and Salt Lake City and Logan, Utah. In selecting the states for our fieldwork, we sought to include states (1) that had undertaken welfare simplification or service integration initiatives, (2) with combined welfare and workforce agencies, (3) that had enhanced automated systems for eligibility determinations and benefit level calculations, (4) with state-supervised and county-administered welfare systems, and (5) that were geographically diverse. To obtain data on the extent to which Temporary Assistance for Needy Families (TANF) families participate in multiple means-tested federal programs, we reviewed and analyzed the results of two national Bureau of the Census surveys: The March 2000 supplement of the Current Population Survey (CPS) — The survey has information on TANF families’ participation in multiple federal programs, is conducted monthly of about 47,000 households, and is designed to be a nationally representative sample of the country. The total response rate for the March 2000 CPS supplement was about 86 percent. The Survey of Income and Program Participation (SIPP)—A nationally representative sample of approximately 20,000 households, SIPP consists of information on social and demographic characteristics for each person in the household. SIPP contains other household data in areas such as labor force activity, income, assets and liabilities, postsecondary education, private health insurance coverage, pension plan coverage, and participation in selected means-tested federal programs. To determine the extent and sources of variation in financial eligibility rules among the 11 programs, we reviewed relevant federal statutes and regulations, as well as the 2000 Green Book (Committee on Ways and Means, U.S. House of Representatives) and the 2000 Catalog of Federal Domestic Assistance (published by the Office of Management and Budget and the General Services Administration). We also reviewed information contained in CRS’ December 1999 report, Cash and Noncash Benefits for Persons With Limited Income: Eligibility Rules, Recipient and Expenditure Data, FY 1996-FY 1998. We discussed the financial eligibility rules with federal program officials and reviewed relevant documents such as program handbooks and policy guidance. In addition, during our site visits we met with state officials, local office managers, and eligibility workers to obtain their views on variations in financial eligibility rules. To obtain information about how the variation in financial eligibility rules and other factors affects the administrative processes for determining eligibility, we discussed these issues with state and local eligibility workers and supervisors to obtain their views. During these meetings, staff assisted us in identifying rule differences and the extent to which these variations affected the eligibility determination processes. We also reviewed state-prepared documents such as memorandums, discussion papers, and reports. We met with experts in the areas of means-tested federal programs and eligibility simplification and with advocacy groups to obtain their views on how the variations in financial rules impacted clients and their efforts to access benefits and services. We also conducted a content analysis of the multiple applications used by different programs in Utah to determine the amount of overlap in questions. To determine how federal, state, and local agencies have sought to streamline or coordinate eligibility determination processes, we met with federal program officials to discuss their efforts to simplify eligibility and work more closely with other departments and agencies. In addition, we reviewed statutes, program guidance, and other documents that identified actions to streamline and coordinate at the federal level. As part of our fieldwork, we met with state and local officials to discuss their efforts to simplify eligibility determination processes. We discussed some of these streamlining efforts with frontline workers, including eligibility workers and supervisors. We also reviewed documents obtained at these meetings, such as reorganization strategies and other state and local planning documents. To obtain estimates of federal costs for program administration, we used administrative cost data from federal agency sources for programs where such data were available: TANF, Food Stamps, Medicaid, School Meals, Housing Choice Voucher, Low-rent Public Housing, and SSI. For the other programs, we developed estimates of federal administrative costs as follows. For the WIC program, overall administrative cost data available from the agency includes nutrition education and assessment costs as part of the administrative cost category. To develop our estimate, we computed and removed the amount (two-thirds of the costs) associated with nutrition assessment activities and attributed the remainder to general administration. For the Child Care program, eligibility determination data are gathered separately from administrative cost data by the states. To make a fiscal year 1998 estimate we developed separate estimates for eligibility determination costs and other administrative costs and added the components together. For the LIHEAP and SCHIP programs, the maximum allowable administrative cost percentage (10 percent) was applied to the separate appropriations for 1998 where administrative costs could be applied. Our work was done between September 2000 and August 2001 in accordance with generally accepted government auditing standards. The following people also made important contributions to this report: George Erhart; Sheila Nicholson; Mikki Holmes; Daniel Schwimer; and Barbara Alsip. Child Care: States Increased Spending on Low-Income Families (GAO- 01-293, Feb. 2, 2001). Food Stamp Program: States Seek to Reduce Payment Errors and Program Complexity (GAO-01-272, Jan. 19, 2001). Food Assistance: Activities and Use of Nonprogram Resources at Six WIC Agencies (GAO/RCED-00-202, Sept. 29, 2000). Benefit and Loan Programs: Improved Data Sharing Could Enhance Program Integrity (GAO/HEHS-00-119, Sept. 13, 2000). Welfare Reform: Improving State Automated Systems Requires Coordinated Federal Effort (GAO/HEHS-00-48, Apr. 27, 2000). Welfare Reform: States’ Experiences in Providing Employment Assistance to TANF Clients (GAO/HEHS-99-22, Feb. 26, 1999). Welfare Reform: Few States are Likely to Use the Simplified Food Stamp Program (GAO/RCED-99-43, Jan. 29, 1999). Medicaid: Early Implications of Welfare Reform for Beneficiaries and States (GAO/HEHS-98-62, Feb. 24, 1998). Welfare Programs: Opportunities to Consolidate and Increase Program Efficiencies (GAO/HEHS-95-139, May 31, 1995). Means-Tested Programs: An Overview, Problems, and Issues (GAO/T- HEHS-95-76, Feb. 7, 1995) Welfare Simplification: States’ Views on Coordinating Services for Low- Income Families (GAO/HRD-87-110FS, Jul. 29, 1987). Welfare Simplification: Thirty-Two States’ Views on Coordinating Services for Low-Income Families (GAO/HRD-87-6FS, Oct. 30, 1986). Welfare Simplification: Projects to Coordinate Services for Low-Income Families (GAO/HRD-86-124FS, Aug. 29, 1986). Needs-Based Programs: Eligibility and Benefit Factors (GAO/HRD-86- 107FS, Jul. 9, 1986).

About 80 means-tested federal programs assisted low-income people in 1998. GAO reviewed 11 programs that assisted families and individuals with income, food, medical assistance, and housing. Despite substantial overlap in the populations they serve, the 11 programs varied significantly in their financial eligibility rules. At the most basic level, the dollar levels of the income limits--the maximum amounts of income an applicant can have and still be eligible for a program--vary across programs. Beyond this, differences exist in the income rules, such as whose income and what types of income are counted. The variations and complexity of the federal financial eligibility rules, along with other factors, have led to processes that are often duplicative and cumbersome for both caseworkers and applicants. Overall, federal, state, and local entities have made little progress in simplifying or coordinating eligibility determination processes. States realigned some of the financial rules, but only to a limited extent. Another approach uses computer systems to establish joint eligibility determination processes that a single caseworker can administer. Efforts to simplify or better coordinate eligibility determination processes confront many obstacles, including restrictive federal program statutes and regulations. In addition, program costs may rise if financial eligibility rules are changed.

You are an expert at summarizing long articles. Proceed to summarize the following text: As we reported in September 2004, improvements in information technology, decreasing data transmission costs, and expanded infrastructure in developing countries have facilitated services offshoring. Offshoring is reflected in services import data because when a company replaces work done domestically with work done overseas, such as in India or China, the services are now being imported from overseas. For example, when a U.S.-based company pays for a service (such as computer and data processing services in India), the payment is recorded as a services import (from India in this example). BEA reports data on trade in services that are frequently associated with offshoring. BEA’s trade in services data consist of cross-border transactions between U.S. and foreign residents and comprise five broad categories of services. One of these five categories of services is “other private services,” which includes key sectors associated with offshoring under the subcategory of BPT services. In 2003, BPT services accounted for $40.8 billion or 48 percent of U.S. imports of “other private services,” which totaled $85.8 billion. (See fig. 1.) U.S. data on BPT services differentiate between affiliated and unaffiliated trade. Affiliated trade occurs between U.S. parent firms and their foreign affiliates and between foreign parent firms and their affiliates in the United States; while unaffiliated trade occurs between U.S. entities and foreigners that do not own, nor are owned by, the U.S. entity. In 2003, total U.S. imports of affiliated BPT services accounted for approximately $29.9 billion, or about 73 percent of all U.S. imports of these services. BEA does not disaggregate affiliated trade by country, in particular types of services, due to its concerns about the accuracy and completeness of data firms’ report. Total U.S. imports of unaffiliated BPT services amounted to approximately $11.0 billion in 2003, or about 27 percent of the total unaffiliated U.S. imports of BPT services. According to U.S. data, the growth of U.S. trade in BPT services has been rapid. For example, from 1994 to 2003, total unaffiliated U.S. imports of these services more than doubled. In addition, U.S. exports of unaffiliated BPT services almost doubled during the same period. To report data on trade in BPT services, BEA conducts mandatory quarterly, annual, and 5-year benchmark surveys of firms in the United States. In administering its services surveys, BEA seeks to collect information from the entire universe of firms with transactions in BPT services above certain threshold levels for the period covered by each survey. The mailing lists for the surveys include firms in the United States that have previously filed a survey and other firms that BEA believes may have had transactions in the services covered by the survey. The mailing lists of firms receiving surveys are derived, in part, from U.S. government sources, industry associations, business directories, and various periodicals. Firms receiving the surveys are required to report transactions above a certain threshold value, which BEA believes, in theory, captures virtually the entire universe of transactions in the services covered by its surveys. Those firms with transactions falling below the threshold value are exempt from reporting data by type of service, but they are asked to voluntarily provide estimates of the aggregate value of their transactions for all services covered by the survey. The trade data that BEA produces help government officials, business decision makers, researchers, and the American public to follow and understand the performance of the U.S. economy. For example, analysts and policy makers use U.S. trade data to assess the impact of international trade on the U.S. balance of payments and the overall economy. In addition, U.S. trade data are used by trade policy officials to negotiate international trade agreements. U.S. data show a significantly smaller volume of trade in BPT services between India and the United States than Indian data show. BEA data on U.S. imports of unaffiliated BPT services from India indicate that U.S. firms import only a small fraction of the total that India reported in exports of similar services to the United States. In addition, this gap has grown between 2002 and 2003. This gap does not exist just for U.S. and Indian data. A similar gap also exists between other developed countries’ import data and Indian export data. BEA data show a rapid increase in U.S. imports of unaffiliated BPT services from India. For 2002, the total unaffiliated U.S. imports of BPT services from India totaled approximately $240 million. For 2003, the total unaffiliated U.S. imports of BPT services from India increased to about $420 million. India reports exports to the United States of similar services of about $6.5 billion for 2002 and $8.7 billion for 2003. Thus, the value of the gap between U.S. and Indian data in 2002 was approximately $6.2 billion and, in 2003, was about $8.3 billion, an increase of about one-third. (See fig. 2.) RBI, which is India’s central bank, is responsible for reporting official Indian data on trade in services. However, RBI data on trade in services incorporate the data collected by India’s primary information technology association—the National Association of Software and Service Companies (NASSCOM). To improve the completeness of the data NASSCOM provides to RBI, NASSCOM includes data on the software services exports it receives from an Indian government program, the Software Technology Parks of India (STPI). While RBI does not provide country-specific data on India’s exports of services to the United States, NASSCOM’s data do provide a country-specific breakdown. Thus, the data cited above for India come from NASSCOM. According to a recent RBI report, a technical group recommended in 2003 that RBI compile data on software and information technology exports through quarterly surveys, and through a comprehensive survey to be conducted every 3 years. The first of these studies was released in September 2005, as our report was being finalized, and provides data on Indian exports of computer services for 2002. The 2005 RBI report showed that India reported approximately $4.3 billion in computer services exports to the United States and Canada for 2002 (2003 data have not yet been provided). Although RBI’s report did not provide an estimate of the U.S. share of these exports, on the basis of NASSCOM’s estimate that 80 to 85 percent of exports to North America were destined for the United States in 2002, we estimate that India exported approximately $3.5 billion in computer services to the United States. Those examining trends in offshoring often compare U.S. and Indian data series; however, there are at least five factors that make this comparison difficult and affect the difference between U.S. and Indian data. These factors relate to (1) the treatment of services provided by foreign temporary workers in the United States; (2) the definition of some services, such as computer programs embedded in goods and certain information technology-enabled services; (3) the treatment of transactions between firms in India and the overseas offices of U.S. firms; (4) the reporting of country-specific data on trade in affiliated services; and (5) the sources of data and other methodological differences in the collection of services trade data. According to U.S. and Indian officials, U.S. and Indian data differ in their treatment of salaries paid to certain temporary foreign workers providing services to clients in the United States. U.S. data do not include such salaries as cross-border trade in services. The United States only includes the salaries paid to temporary foreign workers who have been in the United States less than 1 year and are not on the payrolls of firms in the United States. However, Indian data do include, as Indian exports, the value of services provided by Indian workers employed in the United States for more than 1 year, according to Indian officials. The U.S. approach accords with the international standards of IMF. According to BEA and international standards, cross-border trade in services occurs between residents of a country and nonresidents, or “foreigners,” and residency of a temporary foreign worker employed abroad is based, in part, on the worker’s length of stay in the country. Therefore, according to these standards, if a temporary foreign worker stays or intends to stay in the United States for 1 year or more, that worker is considered a U.S. resident, and the value of the work performed is not included in U.S. import data. The treatment of services provided by temporary foreign workers in the United States is likely a significant factor contributing to the difference between U.S. and Indian data, according to Indian officials. Some Indian officials estimated that in past years, approximately 40 percent of India’s exports to the United States of services corresponding to BPT services were delivered by temporary Indian workers in the United States. For example, for 2002, RBI found that approximately 47 percent of India’s global exports of computer services occurred through the on-site delivery of services by temporary Indian workers. U.S. and Indian data differ, in part, due to differences in how both countries count services trade. India counts as trade in services certain transactions in software that are classified as trade in goods in U.S. data. For example, Indian data on trade in services include software embedded on computer hardware, which the United States classifies as trade in goods. Consistent with internationally recommended standards, the United States does not separate the value of embedded software that is physically shipped to or from the United States from the overall value of the media or computer in which it is installed. Thus, the value of such software is not recorded as trade in services but is included in the value of the physical media and hardware–-which are counted as trade in goods in U.S. data. We were not able to determine the extent to which this factor contributes to the difference in U.S. and Indian data because we found no estimates of the proportion of embedded software in Indian data on services exports to the United States. Indian officials stated that the difference in the treatment of embedded software likely does not significantly contribute to the difference in data because India exports a relatively low value of embedded software. For example, according to Indian officials, the portion of India’s global services exports delivered through physical media and hardware accounts for 10 to 15 percent of the total value of India-reported exports of services corresponding to BPT services. U.S. and Indian data also differ in how they define services in their respective data series. Unlike BEA, RBI and NASSCOM do not report data under the category of BPT services. RBI officials stated that it reports trade data on services similar to BPT services under the category of Software Services. RBI does not report a breakdown of its data on software services into subcategories of services. According to a NASSCOM official, NASSCOM classifies its trade data on services that most closely correspond to BPT services under Information Technology and Information Technology-Enabled Services (IT-ITES). The subcategories of services under this classification do not directly correspond to the subcategories of BPT services, but are similar. For example, under its IT- ITES classification, NASSCOM reports data on IT Services and Software, while BPT services include computer and data processing, and database and other information services. However, NASSCOM includes data on certain information technology-enabled services, such as certain financial services, that are not included in BEA’s definition of BPT services, but are recorded separately. Although these categories roughly compare, a reconciliation of these subcategories has not yet been done. Thus, we were not able to determine the extent to which these definitional differences contribute to the difference between U.S. and Indian data. The treatment of services involving the overseas offices of U.S. firms by BEA and India is another factor explaining some of the difference between U.S. and Indian data. Unlike the United States, India counts the sales of services from firms in India to U.S.-owned firms outside the United States as exports to the United States. U.S. data do not count such sales as U.S. imports of services from India, because BEA considers the overseas offices of U.S. firms to be residents of the countries where they are located rather than residents of the country of the firm’s owners. The U.S. approach is consistent with international standards. U.S. and Indian officials could not provide us an estimate of the extent to which the treatment of transactions involving the overseas offices of U.S.- owned firms contribute to the difference in U.S. and Indian data. However, one high-level Indian official stated that it is likely a significant factor. The reporting of affiliated trade in services differ in U.S. and Indian data. BEA reports country-specific data only for unaffiliated U.S. imports of BPT services, while Indian data include both affiliated and unaffiliated trade in services but do not separate the two. BEA reports detailed data only for unaffiliated trade because it has concerns about the accuracy and completeness of the data that firms report about affiliated trade in BPT services by country. For example, multinational firms with global offices may find it difficult to establish where, between whom, and what type of services have been transacted; and report these data along national lines to a statistical agency. BEA does collect data on overall affiliated services trade, but it reports only the total value across all countries due to its concerns about the reliability of how companies are allocating these totals to specific countries. In addition, due to concerns over the reporting burden on U.S. companies, BEA collects less detailed data on affiliated transactions than on unaffiliated transactions. U.S. data on overall affiliated trade across all countries show that a significant majority of total U.S. imports of BPT services take the form of trade between parents and affiliates. For example, for 2003, approximately three-quarters of all U.S. imports of BPT services—about $29.9 billion— represented trade within multinational firms. If U.S.-Indian trade in these services reflects this overall share of trade through affiliates, then unreported affiliated trade with India may be much larger than the unaffiliated trade that is reported. Therefore, the lack of reported data on affiliated imports of BPT services contributes to the difference in data. There are differences in the sources of data the United States and India use to collect data on trade in services, which may contribute to overcounting or undercounting of services trade. While both BEA and NASSCOM prepare estimates of cross-border trade in services by surveying qualifying firms, U.S. and Indian data differ in the universe of such firms covered by their survey methodologies. The universe of firms in India exporting services is relatively easily identified because these firms have an incentive to report data on their exports of services and tend to be concentrated in certain industries. For example, firms exporting software services are required to report export data to the government of India’s STPI program. STPI requires firms to report these data in order to comply with India’s foreign exchange controls and to qualify for certain tax incentives and infrastructure benefits. To improve the completeness of its own survey data from its member firms, NASSCOM incorporates information on other exporters collected under the STPI program prior to providing these data to RBI. In addition, services exporting firms tend to be concentrated in certain industries. For instance, according to Indian officials, NASSCOM surveys its member firms in India to collect the annual dollar value of these firms’ exports. The member firms that NASSCOM surveys number approximately 900 and, according to a NASSCOM official, these firms contribute a large share of India’s total exports of these services. In addition, RBI has begun its own comprehensive survey of companies, which according to RBI, covered all of the identified companies engaged in software and IT services exports activities. RBI identified these companies on the basis of lists provided by NASSCOM, STPI, and the Electronics and Computer Software Export Promotion Council (ESC). In contrast to how India identifies firms exporting services, BEA does not have an easily available list of services importers. Instead, it must identify firms from public sources. BEA acknowledges that its survey methodology may contribute to the undercounting of U.S. imports of services due, in part, to the difficulty it faces in identifying the universe of services importers. The firms in the United States that BEA surveys to estimate U.S. imports are in many different industries and number in the thousands. Thus, BEA notes that it is difficult to establish and maintain a comprehensive mailing list for all U.S. firms importing services from foreign sources, particularly if the group of firms that import services changes substantially from year to year. In addition, maintaining accurate coverage using surveys is particularly difficult when there is rapid growth in the activity, as is the case with BPT services imports from India. Under BEA regulations, BEA exempts smaller importers from reporting their imports. Instead, it estimates these imports on the basis of a sample. If the value of smaller transactions is higher than BEA assumes in its estimation procedures, then imports of services would be understated. BEA, therefore, may undercount the total value of U.S. imports of services. The data collection entities–-BEA and NASSCOM–-also differ significantly in mission and scope. BEA is the U.S. agency charged with collecting, analyzing, and reporting official statistics on a broad range of U.S. imports and exports of services. BEA is regarded as a leading statistical organization, and it provides both statistical concepts and best practices to other countries and statistical organizations worldwide. NASSCOM is not a government statistical agency. It is a private trade association that represents the interests of the software and services industry in India, and data collection is but one element of a broader mission that focuses on representing that industry. Recently, RBI has recognized a need to reexamine the current methodology on the collection of software exports data, and is utilizing a methodology to collect services data in accordance with IMF standards. As a U.S. government agency, we were not able to fully review India’s methodologies, but we did further examine in the next section of this report the challenges BEA faces in collecting services statistics. BEA faces challenges in collecting services import data, including identifying the full universe of services importers. To test its survey coverage, we provided BEA with lists of firms that we identified from public sources as likely importing BPT services from India. Although the BEA mailing lists included most of the firms we identified, they did not include all of these firms. In addition, BEA may be undercounting imports because it is challenging to identify all of the applicable surveys to send to firms. BEA also has not always received quality survey responses from firms. BEA has taken action to improve survey coverage and responses through outreach to survey respondents and by attempting to collaborate with other federal agencies, but it has not been able to access data that could assist in identifying the universe of firms importing services. Services offshoring presents its own challenges for statistical agencies. As previously discussed, identifying services importers becomes difficult if the group of firms and individuals importing services changes over time, or if there is a rapid increase in services imports. In the case of BPT services, both the United States and India have reported a rapid increase of exports to the United States and BEA may be undercounting U.S. firms importing such services from India due to this growth. (See fig. 3.) BEA acknowledges that it is able to identify a higher proportion of U.S. exporters than U.S. importers. This is because exporters tend to be large firms providing one particular type of service and are concentrated in certain industries, while importers vary in size and industry affiliation. Thus, BEA officials expressed concern that they are not able to identify and survey small firms that import BPT services infrequently, and are potentially undercounting U.S. trade in these services. To test for potential undercounting of U.S. imports, we provided BEA with lists of firms that we identified through publicly available sources as likely to be importing BPT services from India. BEA then (1) reviewed its mailing lists of firms that were sent surveys to verify that it had previously identified and surveyed these firms and (2) verified whether the firms we identified reported imports from India. Table 1 shows the following: BEA had included in its mailing lists 87 of the 104 firms we identified as likely importing BPT services from India; thus, BEA did not send surveys to 17 of these firms. After further analysis, BEA added 13 of these firms to its mailing lists and has sent them surveys, thus improving the universe of services importers. Of the 66 affiliated firms that received surveys, 48 firms received the quarterly survey for affiliated imports; thus, BEA did not send 18 affiliated firms this quarterly survey, although they received other surveys. Of the 21 unaffiliated firms that received surveys, 6 received the quarterly survey for unaffiliated imports; thus, BEA did not send 15 unaffiliated firms this quarterly survey, although they received other surveys. BEA may miss some BPT services imports because it is difficult to identify the total number of surveys that apply to all of the services transactions for which each firm was qualified. On the basis of the review of our lists, it appears that some of the firms that BEA identified in at least one of its comprehensive mailing lists were not on the mailing lists for other surveys that we expected. These firms likely had transactions covered by surveys other than the one they received. For example, several companies we identified as having an affiliate office in India did not receive one of the surveys for affiliated transactions, although these firms received a survey for unaffiliated transactions. With respect to BEA’s effort to verify whether firms that we identified actually reported imports from India, of the 51 firms responding to the quarterly surveys, 15 firms indicated imports from India. Thus, 15 of the 104 firms we identified on the basis of public-source data as likely importing BPT services from India, reported those imports to BEA. High-level BEA officials indicated that it is possible that companies are not reporting country information because they fall below the survey exemption levels and, thus, were not required to provide such detailed data to BEA. BEA requests firms falling below survey exemption levels to voluntarily report aggregate transactions for all countries combined, without a country- specific breakdown. While these results cannot be generalized, they confirm the challenges of collecting services import data. However, they do not provide an indication of the magnitude or extent of these challenges. In addition, our lists of firms were based on a review of multiple sources of publicly available information. Without directly surveying each firm, however, it is not possible to confirm that they actually purchased BPT services from India. BEA is addressing concerns related to the identification of U.S. importers, the undercounting of services, and the administration of its surveys. For example, BEA contracted with a private firm to undertake an external review of its data sources and methods of identifying these services importers. The review will examine the extent of undercounting in both affiliated and unaffiliated services transactions, including the possible sources of undercounting, and any additional methods or sources of information that will improve survey coverage. The goals of this effort include identifying the extent of qualified firms that are not currently on the survey mailing lists, and to improve the estimates of international transactions. BEA expects the results of this review early in fiscal year 2006. BEA also has made efforts to ensure that firms receive the surveys for which they are qualified. BEA routinely sends surveys to firms that may be exempt from reporting in order to make a determination that they are still exempt. In addition, firms having transactions in services not covered in the surveys they receive are required to request additional surveys from BEA. In order to report data on trade in services, BEA needs to receive accurate and complete survey responses. However, BEA notes that the information it receives from firms on their affiliated imports of particular types of services has not proved sufficiently reliable to support the release of country-level estimates. As previously discussed, BEA is able to report overall affiliated trade for specific countries, but it is not able to report BPT trade for specific countries. This is because BEA has concerns over the quality of responses it receives from firms when they allocate affiliated imports to detailed types of services. Global firms may have difficulty accurately attributing services exported to the United States when their operations are spread across multiple countries. In addition, a high-level BEA official said that firms may not fully report all of their affiliated transactions for which they should report. This official noted that these reporting difficulties may reflect business record-keeping practices, which are intended to meet financial reporting requirements, rather than government surveys. In order to address these challenges, BEA is taking action to improve the quality of survey responses and to overcome the difficulty of reporting detailed data on affiliated imports of services. For example, an examination of BEA’s data on affiliated transactions is a component of BEA’s contract with a private firm that is conducting an external review of BEA’s data sources and methods of identifying services importers. In addition, BEA has requested Census to conduct an external review of its survey forms and instructions, and to make recommendations that would improve clarity and promote accurate reporting. BEA is also performing its own review of its surveys to determine the clarity of survey instructions and is providing training to survey recipients on how to complete the surveys accurately. In addition, to improve the quality of its data on affiliated services imports, including affiliated imports of BPT services, BEA is considering collecting data on both affiliated and unaffiliated transactions on the same survey form. BEA is also considering expanding the types of affiliated BPT services for which it requests data to match the detailed data it collects on unaffiliated imports of BPT services. BEA is currently negotiating access to data from other federal agencies to expand its existing sources of data and to improve its survey coverage, but BEA has been unable to access this data from other federal agencies. According to BEA officials, other federal agencies, such as Census, possess data that could assist BEA in preparing its estimates of trade in services, including information on firms in the United States that could be importing services. For example, Census surveys firms to collect data of firms’ business expenses, which include the purchase of BPT services. These surveys may be useful to identify importers because large purchasers of services may also be importing these services. The survey data that Census currently collects are not directly useful for BEA because the data on business expenses do not separate domestic from international expenses and do not distinguish between affiliated and unaffiliated transactions. However, BEA would get name and addresses of potential services importers. In addition, BEA could potentially request that Census add questions to one or more of the surveys that Census administers in order to identify services importers. However, BEA currently faces legal restrictions in gaining access to data utilized by Census. Although federal laws allow such data sharing between Census and BEA, BEA is generally restricted from gaining access to federal tax information that Census obtains from the Internal Revenue Service. According to BEA officials, BEA is negotiating with Census and the Internal Revenue Service to gain access to sources of data to improve its mailing lists. The large difference between U.S. and Indian data on BPT sources makes the analysis of the extent of offshoring more difficult. Some of this difference in data can be attributed to varying definitions of BPT services, but some also appears to be due to incomplete U.S. data. BEA has been seeking various ways to improve the overall quality of U.S. services trade data, but our test of whether they had identified BPT service importers indicated that they were not identifying all U.S. importers of services. Given the importance of this category of data in understanding the extent of offshoring of services, a subject of continuing public and congressional concern, we believe that additional efforts to strengthen the quality of U.S. services data are merited. We are recommending that the Secretary of Commerce direct BEA to systematically expand its sources of information for identifying firms to survey. BEA should consider ways to improve its identification of the appropriate survey forms to send to firms and the information requested about services imports, particularly with regard to affiliated imports. We also recommend that the Secretary direct BEA to pursue additional company information from previous Census surveys and consider requesting Census to add questions to future surveys to help identify services importers. The Department of Commerce provided written comments on the draft report, which are reproduced in appendix II. Commerce concurred with our recommendation that BEA should strive to improve its coverage of services imports. In particular, Commerce agreed that BEA should pursue additional company information from Census. Commerce also provided technical comments, which we incorporated into the report as appropriate. Following the receipt of agency comments from Commerce, RBI publicly released a report outlining a new methodology to compile services export data in accordance with IMF standards. Although RBI’s new survey methodology conforms more closely to IMF standards for defining international transactions in services, differences between U.S. and Indian data remain due to a variety of factors we discuss in this report. For example, the RBI report acknowledges that Indian data include not only exports of computer-related services but also exports of ITES. Since the primary objective of RBI’s survey was to collect data on software exports in conformity with IMF’s definition of computer services, RBI’s survey data exclude data from companies exclusively exporting ITES, and include only data on computer services. However, RBI’s report does not indicate that RBI’s survey methodology addresses other factors contributing to the difference between U.S. and Indian data. For example, it appears that RBI’s survey data include the earnings of foreign temporary workers employed abroad without taking into account their length of stay or intention to remain abroad. RBI estimated this on-site work to account for approximately 47 percent of India’s total worldwide exports, although some portion of this total may include services provided by temporary Indian workers employed abroad for over 1 year. In addition, RBI’s report does not indicate that sales of embedded software are excluded from RBI’s survey data. We are providing copies of this report to interested congressional committees and the Secretary of Commerce. Copies will be 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 Mr. Yager on (202) 512-4128. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other GAO contacts and staff acknowledgments are listed in appendix III. This report discusses (1) the extent of the difference between U.S. and Indian data on trade in business, professional, and technical (BPT) services, (2) the factors that explain the difference between U.S. data on imports of BPT services and India’s data on exports of those same services, and (3) the challenges that the United States has faced in collecting services data. To obtain information on the extent of the difference between U.S. and Indian services trade data, we analyzed and compared U.S. and Indian data and interviewed U.S. and Indian government officials from the relevant agencies, including the U.S. Bureau of Economic Analysis (BEA), and the Reserve Bank of India (RBI). RBI relies on a trade association, the National Association of Service and Software Companies (NASSCOM), to collect data on these services. Although we reviewed NASSCOM's survey form and discussed with a NASSCOM official the collection of their statistics, NASSCOM did not provide us with their methodology for ensuring the reliability of their data. Therefore, we were not able to independently assess the quality and consistency of their data. However, for the purposes of this report, we found these data to be sufficiently reliable for reporting the difference in the official U.S. and Indian trade data in BPT services. To determine the factors that explain the difference in U.S. and Indian trade data, we reviewed official methodologies, interviewed relevant officials, and conducted a search of available literature. We reviewed documentation and technical notes from BEA and RBI to determine the U.S. and Indian methodologies for collecting and reporting trade in services data and to assess the limitations and reliability of various data series. We discussed these topics with BEA officials. In addition, we traveled to India to interview RBI officials and NASSCOM representatives and to obtain documentation on the collection and limitations of Indian data. We also interviewed a range of U.S. and Indian businesses in India that supply trade data to the United States and India to determine how they report data. We performed a literature search and obtained information from the Brookings Institution, the Institute for International Economics, and the Organization for Economic Co-operation and Development (OECD). To determine the international standards for collecting and reporting trade-in-services data, we reviewed relevant documentation from international organizations, including the International Monetary Fund and the United Nations. In September 2005, as our report was being finalized, RBI released a report entitled “Computer Services Exports from India: 2002-03,” which discusses the methodology and results of a comprehensive survey that RBI conducted to collect data on India’s “computer services” exports for 2002 in conformity with the International Monetary Fund’s Balance of Payments Manual, 5th edition (1993). The RBI report provides information about RBI’s survey methodology, including the number and types of companies surveyed and the information sought through the survey. In addition, the report outlines recommendations for RBI to collect data on software and information technology exports through representative quarterly surveys and a comprehensive survey every 3 years. We incorporated this additional information from the RBI report where appropriate. To examine the coverage of BEA’s surveys for collecting trade-in-services data, we supplied BEA with lists of U.S.-based companies we identified as likely importers of services from India to compare with its mailing lists. We developed two lists. The first list included the names and addresses of companies in the United States with affiliate offices in India that are likely importing BPT services from India through affiliates. The second list included the names and addresses of companies that are likely purchasers of services through unaffiliated parties in India. We identified these companies through publicly available sources, including public media, company filings with the Securities and Exchange Commission, annual reports of companies, the list of NASSCOM member companies, and lists of companies compiled by information technology interest groups. Our lists of firms are not necessarily representative of all U.S. firms importing from India, and we do not generalize our results. We asked BEA to compare these lists with the following mailing lists for affiliated and unaffiliated surveys to identify how many companies it was surveying: We requested that BEA provide us with the number of companies from both lists that BEA was able to identify and not identify on its corresponding mailing lists. For companies that received a survey, we asked BEA to identify the number of these companies that responded to the survey and provided information on purchases from India. For companies that were not on any mailing list, BEA was asked to identify (1) whether the firms were excluded from its mailing list because they were assumed to be below exemption levels for the particular survey, (2) whether the firms are on BEA’s current mailing list for the particular survey, and (3) whether the firms are listed on other BEA mailing lists. We discussed the results of this review with BEA officials. To assess the challenges the United States has faced in collecting and reporting data on trade in services, we reviewed relevant BEA documentation and interviewed BEA officials. We reviewed BEA documentation to determine BEA’s data limitations and to assess the challenges BEA faces in collecting and reporting U.S. data on trade in services. To determine the challenges of expanding BEA’s survey coverage through interagency data sharing we interviewed officials at BEA and the U.S. Census Bureau (Census), and we reviewed Census documentation. We also interviewed BEA officials to discuss these identified challenges and to determine the plans and actions BEA has taken to improve the quality of U.S. data. Finally, we interviewed Internal Revenue Service (IRS) officials to gain an understanding of IRS policy on restricting access to federal tax information that the IRS provides to Census. We performed our work from March 2005 through September 2005 in accordance with generally accepted government auditing standards. In addition to the person named above, Virginia Hughes, Bradley Hunt, Ernie Jackson, Sona Kalapura, Judith Knepper, Robert Parker, Cheryl Peterson, and Tim Wedding made major contributions to this report.

Trade in business, professional, and technical (BPT) services associated with offshoring needs to be accurately tracked, but a gap exists between U.S. and Indian data. The extent of and reasons for this gap are important to understand in order to address questions about the magnitude of offshoring and to analyze its future development. Under the authority of the Comptroller General of the United States, and as part of a body of GAO work on the issue of offshoring of services, this report (1) describes the extent of the gap between U.S. and Indian data, (2) identifies factors that contribute to the difference between the two countries' data, and (3) examines the challenges the United States has faced in collecting services trade data. GAO has addressed this report to the congressional committees of jurisdiction. The gap between U.S. and Indian data on trade in BPT services is significant. For example, data show that for 2003, the United States reported $420 million in unaffiliated imports of BPT services from India, while India reported approximately $8.7 billion in exports of affiliated and unaffiliated BPT services to the United States. At least five definitional and methodological factors contribute to the difference between U.S. and Indian data on BPT services. First, India and the United States follow different practices in accounting for the earnings of temporary Indian workers residing in the United States. Second, India defines certain services, such as software embedded on computer hardware, differently than the United States. Third, India and the United States follow different practices for counting sales by India to U.S.-owned firms located outside of the United States. The United States follows International Monetary Fund standards for each of these factors. Fourth, BEA does not report country-specific data for particular types of services due to concerns about the quality of responses it receives from firms when they allocate their affiliated imports to detailed types of services. As a result, U.S. data on BPT services include only unaffiliated imports from India, while Indian data include both affiliated and unaffiliated exports. Fifth, other differences, such as identifying all services importers, may also contribute to the data gap. The U.S. Bureau of Economic Analysis (BEA) has experienced challenges in identifying all U.S. services importers and obtaining quality survey data from importers. To test BEA's survey coverage, GAO provided BEA with lists of firms identified from public sources as likely importers of BPT services from India. The results of this test showed that some services importers were not included in BEA's mailing lists. However, BEA has taken action to address these challenges, including collaborating with other federal agencies, such as the U.S. Census Bureau and the Internal Revenue Service, to better identify firms to survey. However, data-sharing restrictions hamper BEA's efforts.

You are an expert at summarizing long articles. Proceed to summarize the following text: Historically, the American governance system, divided into federal, state, and local jurisdictions, does not provide a natural vehicle for addressing public policy issues from a regional, multijurisdictional perspective. The autonomy of local jurisdictions and competing priorities within and among them can make regional coordination difficult. Efforts that seek to overcome these challenges to coordinate regionally must take into account the different operational structures and civic traditions of states and municipalities. For example, states differ in their relationship to local governments and their promotion of regional infrastructures. Local municipalities differ in their history of multijurisdiction cooperation. Some local jurisdictions have histories of mutual aid agreements and working together, while in other regions federal homeland security programs may be bringing partners together across jurisdictions to conduct planning efforts for the first time. As used in this report, regional coordination refers to the use of governmental resources in a complementary way toward goals and objectives that are mutually agreed upon by various stakeholders in a region. Regional coordination can also help to overcome the fragmented nature of federal programs and grants available to state and local entities. Successful coordination occurs not only vertically among federal, state, and local governments but also horizontally within regions. The effective alignment of resources for the security of communities could require planning across jurisdictional boundaries; neighboring jurisdictions may be affected by an emergency situation in many potential ways, from implementation of mutual aid agreements, to accepting evacuated residents, to traffic disruptions. Our work has previously noted the concerns of state and local governments about fragmented federal grant programs with burdensome application processes that are complicated by the inconsistency across programs. State and local governments manage multiple funding sources for distinct but often similar purposes. For instance, GAO identified 25 emergency preparedness programs that provided funding to the NCR. The short history of regional coordination for homeland security is characterized by attempts of federal, state, and local governments to overcome a fragmented federal grant system and local jurisdictional barriers to assess needs, fill gaps, and plan for effective prevention and emergency response. GAO has consistently called for the development of a truly national, rather than purely federal, strategy. For example, in testimony given in 2003, GAO highlighted multiple barriers to addressing one basic area of preparedness—interoperable communications systems—including the lack of effective, collaborative, interdisciplinary, and intergovernmental planning. Another GAO study of bioterrorism preparedness found that although progress had been made in local planning, regional planning involving multiple municipalities, counties, or jurisdictions in neighboring states lagged. In July 2002, the President issued the National Strategy for Homeland Security, which emphasized a shared responsibility for security involving close cooperation among all levels of government. To enhance emergency preparedness, the strategy called for systems that avoid duplication and increase coordination to better align public and private resources for homeland security. With the creation of DHS and the development of the National Strategy, the federal government has developed several programs and provided financial assistance to improve state and local governments’ ability to prevent and respond to the threat of terrorism. These grant programs demonstrate a variety of approaches. For example, all states are eligible for the State Homeland Security Grant Program to update and implement their state Homeland Security Strategy. The UASI provides support to metropolitan areas designated by DHS as high-threat areas. The funds are distributed based on a formula that considers critical infrastructure, population density, assessment of threats, and other factors. DHS’ UASI program combines the elements of threat-based assessment and funding with regional planning. UASI programs must create a working group with representation from the region that will be responsible for coordinating development and implementation of program elements. Before funding can be distributed, DHS also requires each UASI program to develop and submit a strategic plan that outlines the region’s common goals, objectives, and steps for implementation. The strategy is intended to provide each program with direction for enhancing regional capability and capacity to prevent and reduce vulnerability. UASI funds can be used to purchase a range of goods and services to enhance the preparedness of first responders, including approved equipment, preparedness plans, exercises, and training. Other federal programs that require regional coordination may be instructive for homeland security. In the area of transportation planning, the federal government has required states to establish MPOs to address regional transportation impact and needs. Established in response to federal planning requirements dating back to 1962, MPOs are multijurisdictional regional bodies composed of local elected officials and public agency representatives who review and approve transportation investments in metropolitan areas as a condition for federal highway and transit funding. In the area of environmental planning, the Clean Water Act directs EPA to develop plans for attaining or maintaining water quality in an estuary system. Congress established EPA’s National Estuary Program in 1987 to improve the quality of estuaries of national importance. To be selected for the National Estuary Program, estuaries must be nominated by state governors and demonstrate existing regional infrastructure with the capacity to fulfill the requirements of the Clean Water Act. As corroborated by officials with whom we met, collaborative regional organizations that include a wide range of stakeholders from multiple jurisdictions and disciplines contribute to successful regional coordination for a variety of public programs. In addition, effective strategic planning that includes measurable objectives appropriately aligned with resources is necessary for fostering regional approaches that enhance emergency preparedness and achieve other public goals. The application of standards, where existent, to the planning process can help to define and measure a baseline status (e.g., a baseline of preparedness), a desired level of performance (e.g., preparedness levels that are to be achieved), and a gap between the baseline and desired level that would be the focus of a program’s efforts. When regional organizations are structured so that they include a wide range of stakeholders and promote collaborative decision making, they can advance regional coordination by creating a forum for those stakeholders to build rapport, solve problems regarding issues of mutual concern, and engage in information and resource sharing. Collaborative problem identification and problem solving promotes cooperation in planning efforts to address public problems. Collaborative decision making can encourage decisions that preclude one party from dominating decisions about problems, potential solutions, programmatic goals and objectives, and funding allocations; instead, such decisions are made with input from many. Emergency management, transportation, and estuary program officials reported that regional organizations enabled their regions to work together on a variety of emergency preparedness, environmental, and transportation issues. In the emergency preparedness area, the UASI working group in the NCR has achieved multijurisdictional agreement on regional plans that contain 21 specific efforts to be funded in equipment, training, exercises, and planning to improve the NCR’s preparedness regionwide, not just to benefit individual jurisdictions. Also in the NCR, the Metropolitan Washington Council of Governments promotes collaborative transportation decision making by requiring the majority of the area’s multijurisdictional transportation planning board to support a transportation plan that specifies projects to be funded that are intended to address the region’s traffic congestion and air quality problems—seen as being among the worst in the nation. The region’s long-range transportation improvement plan contained agreements on such projects as road improvements associated with rebuilding the Woodrow Wilson Bridge. Similarly, the Tampa Bay Estuary Program has restored a net increase of about 850 acres of sea grasses on the Tampa Bay seabed since the program’s inception, or about 6 percent of the 14,000 total acreage to be restored. Collaborative decisions made by many stakeholders represented in regional organizations can formulate mutually agreed-upon responses to public policy problems. The collaborative experiences we observed in the Dallas-Fort Worth area provided examples of how regional organizations can aid in solving problems. For example, the Dallas-Fort Worth’s Regional Emergency Managers Group has served as a forum for the region’s emergency preparedness officials to analyze, plan for, and make decisions about various regional initiatives, such as improving interjurisdictional communications interoperability. Within this group, an associated subgroup explored technical issues related to communications interoperability. The Regional Emergency Managers Group evaluated technology options and is creating a regional purchasing plan to facilitate the purchase of interoperable communications equipment. Without interoperable radios and other communications equipment, police and fire departments in different jurisdictions cannot easily communicate when responding to an emergency. Collaborative efforts through regional organizations can also result in the integration of plans and programs that are implemented by individual jurisdictions. In Dallas-Fort Worth, local first responder agencies built upon the established working relationships and their trust of the local council of governments to enhance regional coordination of homeland security. For example, the City of Dallas contracted with the North Central Texas Council of Governments (NCTCOG) to facilitate the development of the UASI strategy. In addition, most of the jurisdictional and private sector stakeholders had their own emergency preparedness plans that were not integrated. Acting upon a request from local officials, NCTCOG initiated a process to coordinate and integrate these various plans that reflected the NCTCOG’s reputation as an impartial and fair arbiter. The resulting plan identifies the roles of the various first responder agencies across jurisdictional boundaries, thereby increasing the police, fire, and emergency medical resources that can respond to an emergency. Regional organizations can also facilitate coordination by fostering information and resource sharing. For example, in response to problems coordinating the construction schedules on roads in the New York-New Jersey region, the Port Authority of New York and New Jersey created the Transportation Operations Coordinating Committee (TRANSCOM) in 1986—a coalition of 18 independent transportation and public safety agencies in Connecticut, New Jersey, and New York. TRANSCOM’s significance was exhibited on September 11, 2001, when it facilitated efforts among member agencies such as the Port Authority, New Jersey State Police, New Jersey Transit, New Jersey Department of Transportation, and New Jersey Turnpike to reopen a major Manhattan bus terminal to transport thousands of people home. DHS and state and local emergency management officials have cited the Los Angeles Terrorism Early Warning Group (TEW) as an example of an information-sharing network focused on the prevention of terrorist acts. Created in 1996 by the Los Angeles County Sheriff’s Department, the primary focus of TEW is to provide a coordinated and focused response to acts of terrorism based on assessment and dissemination of intelligence information. The core team of TEW includes the Los Angeles Sheriff’s Department, Los Angeles Police Department, City and County Fire Departments, Los Angeles County Department of Health Services, and the Federal Bureau of Investigation. Cooperating agencies include about 30 other agencies representing a number of disciplines, such as emergency management, transportation, and criminal justice. As a group, TEW monitors trends and assesses threats that could potentially result in terrorist attacks within Los Angeles County. Because of its ability to develop terror threat information from a variety of sources and disseminate it to first response officials throughout a large metropolitan region, DHS is encouraging states and local agencies to utilize their federal homeland security funding to replicate the Los Angeles TEW model within the framework of their UASI plans. Metropolitan regions differ in their civic and political traditions. Some regions have leadership and/or long-running civic and political traditions that promote collaborative efforts. For example, according to national associations and emergency preparedness officials in the San Francisco and Los Angeles areas, fire and emergency services in California jurisdictions have longstanding traditions of coordinating and operating jointly, across city and county lines. This tradition is expressed through a strong mutual aid system. In other regions, however, tradition can work against regional collaboration. In one state we visited, metropolitan transportation planning was characterized by a practice of having one MPO for each county. Officials in the region we visited explained that local development patterns in the region traditionally isolated each county from the next, but in recent decades the counties’ development had merged as new migrants moved into the area. As a result, the county-based planning structure may be outdated, because it is based on previously existent development patterns. In response to the lack of a regionwide MPO, the county-based MPOs have formed a regional MPO alliance that includes MPO chairs, representatives from the regional councils of government, and the state transportation department. To function effectively, regional organizations must take into account the impact of political and civic traditions. In regions where leadership or cultural factors encourage collaborative efforts, regional organizations that are formed locally, instead of being imposed by federal and state government, are more likely to have identified a coherent regional area based upon natural boundaries, population, and established mutual aid relationships. Where appropriate and considering regional leadership or culture, federal or state programs can preserve the benefits of existing, locally formed regional organizations by allowing local jurisdictions to organize together. The following examples illustrate this point: Pennsylvania’s Counterterrorism Planning, Preparedness and Response Act of 2002 (Act 227) legally established the state’s nine regional counterterrorism task forces to coordinate the activities of county law enforcement agencies in addressing terror threats. However, in most cases, Pennsylvania allowed counties to divide themselves into regions based upon their natural mutual aid alliances, rather than imposing a new organizational boundary. In Texas, the Governor requested assistance from regional councils of governments to facilitate a variety of collaborative efforts to build regional emergency preparedness capacity across the state. Specifically, regional councils of governments were able to unite public and private stakeholders to develop, maintain, and coordinate regional emergency preparedness management plans and actions. While many cities, counties, and private sector stakeholders in Dallas-Fort Worth had extensive emergency preparedness plans, many of these plans were not integrated. The North Central Texas Council of Governments played a key role in facilitating emergency preparedness coordination and integrating preparedness plans through its efforts to coordinate and integrate the emergency preparedness initiatives of the metropolitan area. Those efforts culminated in the Regional Emergency Managers meeting—a forum through which emergency managers shared information, discussed best practices and technology, built rapport, and developed mutual aid agreements. At the time of our study, the group was continuing to meet on a quarterly basis and is developing a regional emergency plan and associated schedule for achieving emergency preparedness goals. Regional leadership or traditions that are focused on achieving collaboration can advance regional coordination by expanding collaborative efforts throughout a region. In such cases, allowing regional organizations the flexibility to define their geographic areas or membership requirements can foster increased degrees of regional coordination. However, in our view, in cases where state and local traditions do not engender interjurisdictional collaboration, more prescriptive requirements regarding group membership, decision-making processes, and planning serve as minimum thresholds for those activities. In some cases, leaders bring together stakeholders to agree upon common objectives and to act to achieve them. Those leaders play an important role in fostering trust among partners and facilitating progress. According to a report by the National Academy of Public Administration (NAPA), leadership dedicated to stakeholder involvement is a critical characteristic of high-performing partnerships, second only to achieving results. Collaborative leadership contributed to the expansion and success of regional coordination efforts we studied in both emergency preparedness and transportation programs. For example, emergency managers in the San Francisco Bay Area developed the area’s Regional UASI working group, recognized by DHS and the State of California as a good example of regional coordination. They brought the working group together to discuss emergency issues and develop solutions for the entire Bay Area, which includes three subregions with individual UASI programs—San Francisco, San Jose, and Oakland. While there was no requirement to work collaboratively across UASI programs, these emergency management leaders took the initiative to establish a regional approach to facilitate coordination throughout the area. They created a regionwide group that meets for planning, and they obtained funding to implement the UASI efforts by combining a portion of the individual UASI program’s funds for use in the whole of the San Francisco Bay Area. The group has effectively developed a regionwide emergency preparedness strategic plan that includes eight goals, such as regional mutual aid exercises and communications interoperability. The deliberations of regional collaborative entities can result in mutually agreed upon problems and solutions. Moreover, strategic plans are a valuable tool to articulate goals, objectives, tasks, and measures. By adding specificity to more general discussions about problems and solutions, strategic plans can help to focus and operationalize efforts to deal with identified problems. In addition, standards, if existent, can be applied to help measure baseline performance levels (e.g., the existing level of preparedness), define measurable goals and objectives, and identify any gaps in performance. In other words, the application of standards can give measurability and benchmarking to strategic planning and performance monitoring. Regional organizations’ collaborative efforts can result in achieving mutual agreement, expressed in plans, among diverse stakeholders on priority problems and on specific steps to be taken to address them. Moreover, the goals and objectives in plans allow problems and planned steps to be defined specifically and progress to be measured. Two examples follow. In the case of the Tampa Bay Estuary Program (TBEP), a regional organization’s collaborative efforts identified environmental problems, goals, and objectives that were expressed in a comprehensive strategic plan. Estuary program officials pointed to the program’s focus on a limited number of measurable and achievable restoration goals as key to its success, with respect to the strategic planning process. Such planning addressed how to restore and recover the Tampa Bay sea grass to conditions of 1950 via measurable and actionable goals, objectives, and tasks. By specifically defining what could be done in an action plan, TBEP involved a wide cross-section of stakeholders, including federal, state, and local government partners, local environmental groups, and the private sector. Using EPA’s primer dated August 1989, “Saving Bays and Estuaries” as a guideline for developing missions and policies, the program’s planning component involved a diverse and comprehensive set of stakeholders. For example, a technical advisory committee proposes technical solutions to the restoration effort; a nitrogen mitigation consortium involves local industry in proposing solutions; and a management board involves environmental agencies in providing advice to the Policy Board—chaired by the Florida Department of Environmental Protection and EPA—that approves all major decisions. Program officials credited the involvement of scientists and citizens from the Tampa Bay region as vital to the process of identifying and ranking the Bay’s problems, as well as developing measurable goals and objectives that are included in its comprehensive restoration plan. Specifically, the strategic plan identifies the restoration of 14,000 acres of sea grasses and protection of the remaining sea grasses as a major goal and also establishes a nitrogen management strategy (action plan) to encourage sea grass recovery. The comprehensive strategic plan and nitrogen management strategy include specific and measurable goals by reducing nitrogen levels, identifying interim indicators (including water clarity and chlorophyll concentrations), as well as monitoring mechanisms to measure progress toward goals. In the Dallas-Fort Worth area, emergency management officials reported that the UASI requirement for a regional emergency preparedness plan initiated development of a comprehensive plan for emergency preparedness policy guidance and coordination. They noted that planning helped the region to prioritize goals and resulted in a systematic decision-making process to determine spending for the UASI funds. Other UASI areas, including Tampa Bay and Los Angeles, reported that the strategic planning process was a driving force in streamlining administration of the program. Another example of the role of strategic planning with well-defined goals and measurable objectives in encouraging regional coordination is the MPO’s requirement to develop a realistic transportation plan that includes short-term and long-term strategies. According to officials, such planning forces stakeholders to determine the relative importance of various transportation projects. Federal transportation law requires MPOs to plan for projects using a process that considers financial resources that are budgetarily constrained, thereby forcing stakeholders to resolve disputes and agree on common goals and realistic objectives at the outset. In the San Francisco Bay Area, the planning process led to transportation projects that served the region as a whole instead of disparate projects in different jurisdictions. For example, the regional MPO planned for an extension between two rail systems that enhanced regional access to the San Francisco Airport with the surrounding area, including San Jose and Oakland. In addition, a strategic plan can be used in making decisions about funds and other resources. Funds and resources can be allocated based on the goals and objectives of the strategic plan. For example, the NCR’s UASI plan aligned $60 million to 21 lines of effort that were categorized in functional areas that included equipment, training, exercises, and planning. Those projects were linked to eight points contained in a multistate agreement. At the same time, to be truly effective strategic planning needs to be comprehensive by addressing most of the resources available to address a public policy problem. Failure to do so can result in overfunding some ongoing efforts, and underfunding or not funding other activities. For example, in our May 2004 report on the management of first responder grants in the NCR, we found that the UASI planning effort for the NCR would have been improved by considering not only the uses of $60 million in UASI funds, but also the uses of $280 million in funding from other first responder grants. While we found no evidence of duplicative purchases, consideration of the other $280 million in funds within the framework of the UASI plan would have reduced opportunities for excessive expenditures in some areas, while gaps remained in other areas. More comprehensive planning could have better ensured that funding would have been focused on the highest priority emergency preparedness needs of the region. The NCR’s UASI governance structure is now taking steps to implement more comprehensive planning. Some federal programs contain features that encourage regional solutions by providing incentives for local jurisdictions to join together to obtain federal grant funding. A federal grant whose award is conditioned on the recipient working through a collaborative regional organization can encourage regional coordination. Grant programs can also require the regional groups to express their agreements regarding problems and solutions by preparing a strategic plan with measurable goals and objectives. Such plans can guide grant expenditures. Grant requirements that take into account local and regional conditions and histories of collaboration by providing appropriate flexibility can further enhance regional coordination. Finally, federal financial assistance for coordination activities can provide important support. Federal grantor agencies support the existence of regional organizations by requiring the grantee to establish such an organization before receiving federal funds. Importantly, such requirements can promote interjurisdictional cooperation in areas where civic and political traditions work against such cooperation. For example, federal transportation law requires an MPO to write metropolitan transportation improvement plans before federal highway and transit funds can be allocated. Moreover, UASI requires a regional working group representing first responder agencies and policymakers in a core city, core county, and other local jurisdictions to write a regional UASI plan. In addition, a federal agency may define a collaborative decision-making process that fosters wide participation by a variety of stakeholders and tries to avoid one party or type of party being overrepresented in the regional group or wielding too much power within the group. In that regard, a federal program may define minimally acceptable requirements for such a group and the planning processes associated with it. For example, DHS’ UASI assigns funding to predefined core cities and core counties. In addition, in one location that we visited, the working group was required to agree unanimously to the UASI regional strategic plan and budget, representing a high state of consensus. In another case, federal transportation law requires MPOs to be broad-based bodies that include representation from elected officials of various jurisdictions in the defined service area of the MPOs. In addition, MPOs must include the state transportation agencies and operators of publicly owned transit services. Federal grant designs can take into account the uniqueness of leadership and political traditions at the state, local, and regional levels by allowing local jurisdictions the flexibility to pursue working arrangements that can facilitate regional coordination. By allowing jurisdictions to identify the boundaries of the region, they can take advantage of regional leadership or political relationships that can bring additional stakeholders, resources, or ideas to the process. For example, in fiscal year 2003, the Dallas UASI region as defined by DHS included the City of Dallas and its contiguous counties—Collin, Dallas, Denton, Kaufman, and Rockwall. However, many regional, state, and city officials felt that Tarrant County also should be included in the UASI planning, since Tarrant County includes a large portion of the Dallas-Fort Worth population, including the entire city of Fort Worth. To address this issue, the state provided funding to Tarrant County from the 20 percent of UASI funding that was not passed through to the City of Dallas. The Commonwealth of Pennsylvania also exhibited a commitment to regional collaboration when it overlaid the regional Philadelphia UASI area onto a preexisting regional task force. Member jurisdictions of that task force—five emergency management coordinators from the counties in the Southeastern Pennsylvania Regional Task Force—had been working together for 5 years. As a result, the UASI program in Philadelphia benefited from strong preexisting working relationships. The cordiality built up among the UASI task force members fostered relatively coequal funding and planning efforts that extended to suburban parties well beyond the core city and core county. Other locations, however, may not have traditions or leadership that encourage interjurisdictional collaboration. For example, in some locations, we found power imbalances, as well as political traditions and histories of competition that challenged regional coordination. Such challenges, for example, have been manifested by one or two jurisdictions making decisions about how federal dollars would be spent and how much funding other jurisdictions would receive. In such cases, regional cooperation might be facilitated by designing grants that require representation and collaboration through regional organizations. Some federal grant programs require strategic plans as a precondition for receiving federal grant dollars to encourage regional coordination, but for the plans to be effective they should include measurable objectives and corresponding resource alignment. In addition, the application of preparedness standards to define the baseline status and goals for regions can enhance strategic plans by adding an element of measurability and specificity to them. Our previous study of a number of leading public sector organizations shows that strategic plans work most effectively when they contain goals and objectives that are measurable and actionable. The presence of measurable goals and objectives allows program managers to ascertain progress being made and required action—such as reallocating funding and/or making programmatic changes—needed to meet those goals and objectives. For example, in the Tampa Bay Estuary Program, a community of state, local government, nonprofit, and commercial stakeholders determined four key program goals, as well as mechanisms through which to achieve these goals prior to receiving funding. Upon obtaining the funding, the program’s management built upon the stakeholders’ support to proceed efficiently with the plan. As previously noted, the existence and applicability of standards can enhance the ability of decision makers to define measurable programmatic goals and objectives and enable them to assess and demonstrate progress being made. DHS’ recently issued strategic plan makes reference to establishing, implementing, and evaluating capabilities through a system of national standards. In emergency planning, preparedness standards can serve to define the preparedness requirements of an area or jurisdiction, the current status of preparedness, and the gap that exists between the requirements and current status. Emergency preparedness officials told us that when developing their strategic plan, national standards would have been helpful to identify gaps and determine appropriate actions to address them. Clear standards help to guide the progress toward measurable objectives. For example, MPOs must show that projects identified in transportation plans for federal funding do not worsen air quality conditions of the nonattainment metropolitan area. Their analysis must demonstrate that the total emissions projected for a transportation plan or program are within the emission limits established by the State Implementation Plan. Reducing transportation emissions in the metropolitan planning process is usually achieved by a combination of new construction, system improvements, and demand reduction measures. Some federal grant programs provide regional organizations recurring funding for costs associated with regional coordination. The federal government sometimes facilitates regional collaboration by paying specifically for some of the costs of regional coordination. For example, the coordination activities of MPOs are paid in part with federal transportation funds. Estuary program officials said annual EPA grants allow spending for administrative needs and are important for facilitating regional estuary efforts. They reported that federal EPA funding, even though a relatively small portion of their overall budgets, was important to program sustainability, because it is often the only funding available to cover the critical operations that enable the rest of the estuary program’s activities to take place. Federal grants also may facilitate regional coordination by enabling organizations to use federal grant dollars to leverage partner organizations to fund administrative costs. Officials with TRANSCOM in the New York- New Jersey region said that federal funding for technical infrastructure and maintenance costs enabled them to leverage funding from partner jurisdictions for administrative costs. Our observations about regional coordination in the implementation of federal programs in metropolitan areas we visited are applicable to the efforts to coordinate homeland security in the NCR. Importantly, DHS’ UASI program allowed the District of Columbia, the State of Maryland, the Commonwealth of Virginia, and regional jurisdictions to exercise a high degree of flexibility in organizing the UASI governance structure. Based on our review early developments, the NCR’s UASI program would exhibit key elements of successful regional coordination in UASI-related emergency preparedness efforts. As envisioned in the current UASI plans, the NCR’s UASI program may be on the way to developing multilayered regional coordination structures for the UASI. For example, the NCR is beginning to use regional working groups—the Emergency Preparedness Council (EPC) and the Chief Administrative Officers Committee (CAO), among others—to bring stakeholders together to agree upon goals and to consider funding allocations for regional emergency preparedness. However, at the time of our May 2004 report, the NCR had not applied this regional coordination structure and plans to the full array of federal homeland security grants in the region, totaling about $340 million. As discussed at a September 1, 2004, meeting of the UASI governance structure’s Senior Policy Group (SPG) and CAOs committee, the UASI governance structure plans to implement comprehensive planning by identifying funding other than UASI and developing centralized information on the uses of those funds. Based on our work in six urban areas, effective regional collaboration is characterized by, among other things, the presence of a regional organization of many diverse stakeholders that identifies problems and possible solutions. The combined outcome of the collaborative interaction of those parties is a strategic plan that is made actionable by the presence of goals and objectives. As currently envisioned and as being implemented in the initial stages, the NCR’s UASI governance structure appears to incorporate those features and thereby has the potential to identify, fund, and implement emergency preparedness regionwide, rather than having those decisions made either by one dominant jurisdiction or in a fragmented, jurisdiction-by-jurisdiction manner. As the UASI program is currently planned and implemented in the early stages, the governance structure is bringing together various stakeholders to identify regional emergency preparedness projects to be funded with UASI funds, and to solicit and obtain funding priorities, other input, and concurrence from federal, state, and local governmental stakeholders (including first responders); the commercial sector; the not-for-profit sector; and the health community, among others. For example, the CAO committee uses several technical committees—e.g., police chiefs, fire chiefs, public information officers, and health care committees—to identify security gaps and make recommendations on how to close them. Those recommendations are to be reviewed by the CAO committee, which is comprised of the 19 CAOs (in effect, county executives and city and town managers) of the Metropolitan Washington Area Council of Government’s (MWCOG) jurisdictions, and consolidated, where necessary. In addition, the CAOs would discuss preparedness expectations for the region, including strategic objectives and commitments to action by Maryland, Virginia, and the District of Columbia. The CAOs would obtain UASI proposals by asking NCR jurisdictions and technical committees to provide their top priorities. According to the CAO Committee’s chairman, those priorities would be consolidated by the CAO committee and used to generate final, rank-ordered funding priorities for the fiscal year 2004 UASI funds. Under current plans, the EPC, which serves as the UASI working group, would have the authority to approve all funding initiatives. The EPC represents the federal, state, and local levels of government, a variety of first responder disciplines, and the commercial and not-for-profit sectors, among others. It meets to discuss and approve the UASI funding recommendations that have been made by the CAO Committee. The SPG—representing the Governors of Maryland and Virginia, the Mayor of Washington, D.C., and the DHS Office of National Capital Region Coordination (ONCRC)---has final budget authority over projects discussed, recommended, and approved by the CAOs and EPC. MWCOG staff and the CAO Committee’s Chairman do not envision disagreements between the different elements of the UASI governance structure, because they share membership on the same committees. In our report and testimony of May and June 2004, respectively, we concluded that the NCR efforts to implement an efficient and effective regional preparedness approach were hampered by not having a coordinated strategic plan for enhancing NCR preparedness. Moreover, the regional UASI plan would not be based on any performance standards. Specifically, the NCR’s UASI plan could not be considered to be a comprehensive strategic preparedness plan because it excluded non-UASI funds totaling $280 million in fiscal years 2002 and 2003. As we reported, at the time of our May 2004 report, there existed no reliable central source of data on funds available and expended and the purposes for which they were spent. Instead, those funds were allocated on a grant-by-grant basis within each jurisdiction largely based on requests from first responder and emergency management officials. To the extent there was consensus on regional goals and knowledge of regional capacities, funds could be allocated in a more coherent manner. Moreover, federal emergency preparedness grants were often spent by each jurisdiction without considering whether assets and resources purchased already existed in neighboring jurisdictions and could be shared. Decisions about those purchases generally were not based on knowledge of the current level of preparedness or requirements to reach a desired preparedness level. According to comments provided by DHS and as discussed at a September 1, 2004, meeting of the UASI governance structures SPG and CAOs Committee, the UASI governance structure now plans to address these issues by gathering information from Maryland, Virginia, and the District of Columbia on funding sources other than UASI, how the funds were allocated and for what purposes, and how they were distributed by jurisdiction. In that regard, the governance structure’s working group is converting hard-copy data on funds available and expended to a centralized database that would be fully populated by 2005. This would help the UASI governance structure avoid duplication of funding and leverage UASI funds to extend preparedness efforts to the entire region. In addition, as stated in DHS’ comments on our draft report and as discussed at the September 1, 2004, meeting of the SPG and CAOs Committee, a committee has been assigned to work on an analysis of regional preparedness gaps that would consider the local assets that could be applied to closing those gaps. Stakeholders at the meeting mentioned that such a gap analysis could be based on likely scenarios that would need to be addressed during an emergency. The NCR’s UASI plan sets broad strategic goals of preventing terror attacks, reducing the region’s vulnerability to terror, and minimizing damages and recovery from any terror attacks that do occur. The plan endorses an eight-point agreement signed by Maryland, Virginia, and the District of Columbia to achieve those three strategic objectives by focusing action on (1) preventing terror; (2) promoting citizen involvement in preparedness; (3) working in partnership to implement a coordinated decision-making process; (4) implementing emergency protective measures; (5) promoting a public/private partnership to protect the infrastructure; (6) working to develop a Joint Information System for the media; (7) enhancing mutual aid agreements, including dealing with any liability issues; and (8) partnering to coordinate plans for terrorism and security-related training and exercises across the area. Federal programs frequently rely on regionally coordinated approaches to deliver important services to program beneficiaries and clientele. This fact is especially important in the relatively young field of homeland security, because the urgency of addressing the terror threat calls for effectively and efficiently managing the use of federal homeland security grant dollars. Based on our work, we have concluded that regional approaches to manage federal homeland security dollars help to ensure that those funds are spent in a complementary, coordinated fashion that is targeted at known security gaps. Our work further shows that regional approaches to emergency preparedness and other fields are characterized by several broad features that the federal government can encourage, frequently through the design and requirements of its grants. These lessons can be applied in the NCR and elsewhere to improve the management of federal emergency preparedness grant dollars by enlisting the support of a variety of stakeholders in identifying and supporting solutions to preparedness requirements and targeting the use of scarce resources to address preparedness gaps. The federal government can encourage effective coordination in its grant requirements in four ways: First, some federal grants require the existence and operation of a regional collaborative organization and establish a minimum threshold of regional collaboration by requiring a variety of stakeholders, resulting in widespread agreement on what problems should be addressed and what steps should be taken. Second, where favorable political and civic conditions exist, some federal grants have allowed regional organizations to exercise flexibility in how they operate—for example, in establishing their membership boundaries. Third, some grants provide minimum thresholds for planning by requiring that regional organizations prepare regional strategic plans that contain goals and objectives that are specific and measurable. Strategic plans provide a focal point for establishing goals and aligning resources. The application of standards, where existent, adds a measure of precision and measurability to a plan’s goals and objectives. Fourth, some grants fund the costs of regional organizations, thereby providing additional incentives for localities to collaborate interjurisdictionally. Regional approaches for homeland security continue to evolve quickly, but the nation is still in the early stages of building institutions and processes to address emergency preparedness. Also, the federal government is still in the early stages of developing preparedness standards to guide local initiatives. Based on our work and given the important role that regional planning and governance can play in improving national preparedness, these developments warrant continued congressional monitoring and oversight. As local initiatives continue to evolve and federal guidance becomes more definitive, the use of regional structures and plans in guiding the allocation and use of all major federal homeland security assistance will likely become more important. We provided a draft of this report to DHS and officials of the NCR’s UASI governance structure for their review and comment. DHS commented that the report contains information that will be valuable to communities across the country as DHS encourages regional coordination and capability building. DHS also states that the UASI governance structure is currently active and is not proposed or interim. We agree that the governance structure is not proposed or interim, and we state in our report that the regional coordination activities of the NCR’s UASI governance structure have evolved to begin to display many of the characteristics of regional coordination. For example, our report reflects information regarding the establishment and evolution of structures associated with the UASI governance structure, including the Senior Policy Group, the Emergency Preparedness Council, and the Chief Administrative Officers Committee. DHS also remarked that, as discussed at a September 1, 2004, meeting of the UASI Senior Policy Group and Chief Administrative Officers Committee, the UASI governance structure will take steps to ensure that planned uses of federal emergency preparedness funds consider all funding sources, including non-UASI sources. Specifically, the UASI governance structure plans to gather information from Maryland, Virginia, and the District of Columbia on funding sources other than UASI, how the funds were allocated and for what purposes, and how they were distributed by jurisdiction. In that regard, the governance structure is converting hard- copy data on funds available and expended to a centralized database that would be fully populated by 2005. In response, we added information in our report to reflect these refinements to the NCR’s governance structure. The Deputy Mayor/City Administrator of Washington, D.C., also provided comments. Similar to DHS, he stated that the NCR’s governance structure reflected the building of a great deal of the foundation for meeting the domestic preparedness challenges that affect the area. He also commented that the NCR is unique compared to the six metropolitan areas we chose for detailed analysis because only the NCR (1) involves two states and a governmental entity that combines state and local functions; (2) contains monuments and memorials that are the most visible symbols of our national strength and patriotism that, if attacked, would create a perception of vulnerability on the part of the federal government; and (3) is the seat of the federal government, creating a partnership between the national government and state and local governments. While we agree that the NCR is an important and unique urban area, the areas we chose for detailed analysis contain comparable features. For example, the New York City region contains three states and a very large city; that same region, as well as other areas we visited, also contains a significant federal presence and many buildings and icons that could be at risk for a terror event. Moreover, other regions we studied contained extensive partnerships between federal, state, and local governments. The Deputy Mayor/City Administrator also stated that the National Estuary Program incorporates clean water standards and scientific solutions to accomplish clean water. He stated that the federal homeland security strategies and plans are not based on proven standards and solutions. Hence, he concluded that the National Estuary Program is not comparable with federal homeland security strategies and plans. We agree that the National Estuary Program is based on existing standards and solutions; indeed, our report notes that for the most part, standards are not yet extant for homeland security efforts. However, the application of standards in the planning and implementation of the National Estuary Program is the very reason we chose to explore and elaborate upon it. Our report notes that the preparation and implementation of plans that have goals and objectives that are actionable and measurable—frequently based on the application of existing standards—is a key factor in the success of regionally coordinated programs. Indeed, our May 2004 report on the management of first responder grants in the NCR recommends that the Secretary, DHS, identify and address gaps in emergency preparedness and evaluate the effectiveness of expenditures in meeting those needs by adapting standards and preparedness guidelines based on likely scenarios for the NCR and conducting assessments based on them. As agreed with your office, unless you release this report earlier, we will not distribute it until 30 days from the date of this letter. At that time, we will send copies to relevant congressional committees and subcommittees, to the Secretary of Homeland Security, and to 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. If you or your staff has any questions about this report, please contact me at 202-512-6806. Key contributors to this report are listed in appendix IV. Our overall goal for this engagement was to identify features of regional collaboration in urban areas outside of the National Capital Region (NCR) that could be transferred to homeland security efforts in the NCR and elsewhere. In pursuit of that overall goal, we met with representatives and officials of the National Academy of Public Administration, the Association of Metropolitan Planning Organizations, the National Association of Regional Councils, the U.S. Department of Transportation, and the U.S. Environmental Protection Agency. We asked these parties to recommend specific urban areas that, in their view, had significant regional coordinative activities that we should examine. We also sought out areas that presented challenges for regional coordination through such features as having a multitude of jurisdictions within a region, an interstate geographic area, and geographic bifurcation characterized by the presence of a large body of water. We also obtained information regarding factors— such as the presence of significant federal and commercial facilities, national monuments, critical infrastructure (bridges, tunnels, airports, and seaports), population density, and ranking as a high-threat urban area per the Department of Homeland Security’s (DHS) Urban Area Security Initiative—that indicated a metropolitan area was at risk for a terror event. Based on these various considerations and recommendations, we identified the Dallas-Fort Worth, Los Angeles, San Francisco Bay, New York, Philadelphia, and Tampa-St. Petersburg areas as sites meeting one or more of these criteria and selected them for a more detailed analysis of regional coordination across a variety of federal programs. We also used information from these parties, along with a review our previous work in the area of intergovernmental relations, to identify federal programs with regional coordination features that could be useful for enhancing regional emergency preparedness coordination. Based on our assessment of this information, we selected for examination the transportation planning program that utilizes metropolitan planning organizations to prepare regional transportation improvement plans and related plans to guide the expenditure of federal highway and transit dollars. In the area of environmental protection, we selected estuary programs in which state agencies; local governments; or other public, nonprofit, or private agencies, research institutions, and individuals develop programs to protect and restore coastal resources through comprehensive planning and joint action. We also selected a homeland security program—the Urban Area Security Initiative—that apportions domestic preparedness funding for equipment, training, exercises, and planning on the basis of a regional plan that is prepared by a regional working group. To meet our first objective of identifying factors of successful regional coordination, we met with representatives of regional organizations and with federal, state, and local government officials in the areas selected. Regional organization representatives that we met with came from regional councils, councils of governments, metropolitan planning organizations, air quality districts, and estuary programs (where applicable). We also met with local and state officials responsible for homeland security and emergency preparedness, first responders, and other region-specific officials with responsibility for transportation, environmental, or homeland security planning. We asked these officials about characteristics of their organizations and regional political and civic factors that fostered regional coordination. We also obtained, analyzed, and followed up on such documentation as: stakeholder lists and the decision-making procedures of regional organizations, strategic planning documents, indicators of progress made against program goals and objectives, and plans for future enhancements of regional coordination. In pursuit of the second objective of identifying features of federal programs that enhance regional emergency preparedness coordination, we met with local officials and officials from state emergency management agencies at all six case study locations. We also met with federal grantor agency officials from the Department of Transportation, the Environmental Protection Agency, and DHS’s Office of State and Local Government Coordination and Preparedness. We obtained information and examined documentation (i.e., program guidance, grant requirements, and reporting requirements) about the federal guidelines and objectives for these programs. Based on those discussions and documentation examinations, we were also able to identify traits and characteristics that provided incentives to state, regional, and local governmental, commercial, and not- for-profit entities to collaborate in pursuit of public policy purposes. To address our third objective of examining the state of emergency preparedness regional coordination in the NCR, we determined current NCR regional coordination practices by meeting with officials from the Metropolitan Washington Council of Government’s Divisions of Transportation, Environment (Air Quality), and Homeland Security and Public Safety. We also met with officials from the DHS’s Office of National Capital Region Coordination and the Chair of the NCR Chief Administrative Officers Committee, and we attended meetings of the NCR Emergency Preparedness Council as well as the Senior Policy Group and Chief Administrative Officers Committee. We relied on oral and documentary evidence from these officials as well as our previous review of the management of first responder grants in the NCR to understand the state of regional coordination in the NCR as of September 2004. We conducted our review from July 2003 to September 2004 in accordance with generally accepted government auditing standards. Patricia Dalton Director, Strategic Issues U.S. General Accounting Office Washington, DC 20548 As the State Administrative Agent (SAA) for the National Capital Region (NCR), I would like to thank you for forwarding the Draft GAO report, GAO-04-1009, entitled Homeland Security: Effective Regional Coordination Can Enhance Emergency Preparedness for review. This draft report was provided to the NCR to obtain advance review and comment for subjects it discusses. We understand that the report has not been fully reviewed within GAO and is, therefore subject to revision.In general, the report describes factors that enhance regional coordination in selected metropolitan areas, the features of federal programs that enhance regional emergency preparedness coordination, and how to incorporate regional coordination for emergency preparedness features from other metropolitan areas into the NCR. The report selected six metropolitan areas to examine regional coordination. These six areas were chosen based on their vulnerability to terror events indicated by the presence of potential targets and the level of complexity as it relates to regional coordination. Based on the uniqueness of the NCR, it is difficult to compare the NCR with the six metropolitan areas identified. The following describes the differentiating factors associated with the NCR: The NCR is the only urban area to include two states and a government entity that serves city, county, state functions in combination (the District of Columbia). The NCR comprises eight major jurisdictions with a number of additional municipalities that reside within the boundaries of these eight jurisdictions. In line with regional homeland security coordination and the guidance set forth by the Office of Domestic Preparedness (ODP), the NCR adopted a comprehensive governance structure that includes elected leaders and Chief Administrative Officers (CAO’s) from each jurisdiction as well as the State Homeland Security Advisors and Emergency Management Directors that comprise the Senior Policy Group (SPG). The NCR’s monuments and memorials are some of the most visible in the country and are symbols of national strength and patriotism. A terrorist threat to anyone of these monuments or memorials is likely to have a major negative psychological and emotional impact that would be felt throughout the country and the world. This would create a perception of vulnerability on the part of the Federal government. The NCR is also the seat of the Federal government. A partnership exists between the NCR state and local governments and the Federal government entities to coordinate homeland security efforts. For these reasons, the NCR must be viewed as unique in comparison to other urban areas designated by the Department of Homeland Security. The report recognizes the importance of regional organizations to serve as structured forums for diverse parties to discuss public policy problems and agree on possible solutions. The report specifically refers to the Metropolitan Washington Council of Governments (MWCOG) multi-jurisdiction transportation board as an example of such an organization and forum for collaborative decision making. As discussed in the Office of National Capital Region’s response to the previous GAO report (GAO-04-433), the NCR recognizes the importance of such an entity through the formal NCR Review and Recommendation Process. This process ensures coordination of resources among all jurisdictions within the NCR and utilizes MWCOG public safety cluster committees (i.e., Law Enforcement, Fire Chief, Emergency Manager, etc…) to ensure coordination throughout the NCR within their particular area of expertise and provide the associated priorities and needs. This allows the NCR to leverage longstanding tradition of inter- jurisdictional coordination to provide recommendations through the regional process and accompanying governance structure. This regional collaborative process has been encouraged by the leadership of the NCR and has resulted in the NCR Chief Information Officers (CIO’s) to formulate a MWCOG committee to discuss information technology issues and develop solutions as it pertains to homeland security. The report also recognizes the importance of strategic plans developed by regional organizations can be effective tools to focus resources and efforts to address problems. Such plans often contain features as goals and objectives that are measurable and quantifiable. The report specifically refers to the Tampa Bay Estuary Program involving multiple entities from the private and public sectors (federal and state) to implement solutions to cleaning up Tampa Bay on technically sound plans that are based on measurable goals and objectives. The National Estuary program identifies federal standards that have been established for hazardous substances, through scientific data, that must be obtained within the water through specific sampling methods to determine if the Estuary is considered “clean”. These standards are based on remedial technologies (solution) that currently exist for remediating a source as defined by the Environmental Protection Agency. The NCR recognizes the importance of technically sound plans that are based on measurable goals and objectives when federal standards exist to define the quantifiable standard to be met with existing remedies or solutions. Such quantifiable federal standards currently do not exist for defining a level of preparedness or established remedies or solutions to meet such standards. For the reasons stated above, GAO has incorrectly compared a well established, federal estuary program with baseline performance measures with homeland security strategies and plans that do not have well developed, scientifically tested, baseline performance measures. That said, the NCR has in place a structure to enable good planning. To assist in future coordination efforts the SPG has developed a team to assist in administering state and regional grant funds, and coordination of programmatic planning and response issues. A detailed outline of theses processes were described with the response to the draft GAO report, GAO-04-433 entitled: Homeland Security: National Capital Region Grant Management Issues Reflect the Need for Coordinated Planning and Performance Standards. The processes described allow for coordinated grants administration and strategic planning for enhancing the NCR’s preparedness, performance standards, and a reliable, central source of data on funds available and the purpose for which they are spent. The report further recognizes the importance of regional organizations that reach collaborative decisions prior to receiving grant funds. As the report points out, this avoids one party or type of party being over-represented in the regional group or wielding too much power. As stated on page 32 of the report, the NCR utilizes regional working groups for collaborative decision making, as stated above when referring to the public safety committees of MWCOG. This was also exemplified in the September 2, 2004 CAO/SPG meeting, which GAO representatives attended to view the NCR’s collaborative decision-making process at work. In line with regional homeland security coordination and the guidance set forth by ODP, the NCR adopted a comprehensive governance structure that includes the CAO's from each jurisdiction as well as SPG, which is comprised of the homeland security advisor and the director of the emergency management agency of Maryland, Virginia, and the District of Columbia. This governance process is required to ensure collaborative decision making throughout the NCR. The governance structure of the NCR is all encompassing to include not only the strategic decision makers and the senior leaders of the region but also the tactical decision makers, the Public Safety department heads, and their subordinate field experts. For all the progress made in the NCR to increase preparedness, the NCR realizes, and your report supports the fact, that we need to continue to implement and enhance our collaborative decision-making process and continue to redefine our performance goals. We have already built a great deal of the foundation for meeting the challenges noted in the report and will continue to work toward meeting our goals. Your cooperation is appreciated. Kral, Administrator for the Office of Homeland Security, at (202) 727-5934. In addition, Ernie Hazera, Joseph Byrns, Chelsa Kenney, Laurie Latuda, Jeanine Lavender, Amy Rosewarne, Susan Sato, and Amelia Shachoy made key contributions to this report. 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). Each weekday, GAO posts newly released reports, testimony, and correspondence on its Web site. To have GAO e-mail you a list of newly posted products every afternoon, go to www.gao.gov and select “Subscribe to Updates.”

As requested, GAO reviewed coordination practices in various metropolitan areas to find regional programs with lessons learned that could be applied in the National Capital Region (NCR) and elsewhere. We addressed the following questions: (1) In selected metropolitan areas, what factors enhance regional coordination? (2) What features of federal programs enhance regional emergency preparedness coordination? (3) How does regional coordination for emergency preparedness in the NCR incorporate features from other areas and federal programs? For detailed analysis, we selected Dallas, Los Angeles, New York, Philadelphia, San Francisco, and Tampa-St. Petersburg--considered by DHS to be high-threat urban areas because of their population and critical infrastructure, among other factors. We also analyzed regional coordination in the planning and implementation of transportation and environmental programs because of their history of requiring such collaboration. DHS and the District of Columbia's Deputy Mayor/City Administrator generally agreed with our report regarding the characteristics of regional coordination and that the NCR's Urban Area Security Initiative governance structure was relatively advanced. GAO's analysis of federal program documents and plans, and interviews with federal, state, and local officials in six metropolitan areas revealed several factors that characterize effective regional coordination of federally supported efforts. Regional coordination efforts are enhanced by the presence of a collaborative regional organization that includes representation from many different jurisdictions and different disciplines. Also, when regional civic and political traditions foster interjurisdictional coordination, flexibility in the membership and geographic area of the regional organization can enhance collaborative activities. In addition, a comprehensive strategic plan with measurable goals and objectives helps focus resources and efforts to address problems. Finally, funding regional organizations provides incentives for their collaborative planning activities. The federal government can provide support for regional coordination. In particular, through its grant design and requirements, it encourages structures and practices associated with effective regional efforts. For example, federal transportation law requires the existence of metropolitan planning organizations (MPO) before transportation funds can be awarded. Some programs have recognized the importance of flexibility by allowing local jurisdictions to organize themselves in ways consistent with their regional environment. For example, the DHS' Urban Area Security Initiative (UASI) grant program allowed three San Francisco Bay programs to pool some of their grant resources to establish a regionwide UASI effort. Moreover, some federal grants require regional organizations to prepare plans that guide funding decisions. Transportation law, for example, requires MPOs to prepare transportation improvement plans as a condition for awards. Finally, federal financial support can facilitate coordination activities. Several programs, including the MPO program, provide such support. The characteristics of effective regional coordination we identified are applicable to the NCR's efforts to coordinate emergency preparedness. If implemented as planned and as observed in its early stage, the NCR's UASI program would include a collaborative regional organization. However, as we reported in May 2004, the NCR did not include a full array of homeland security grants in its planning. The NCR's UASI program plans to address those issues by identifying non-UASI funding sources and collecting information about the funding allocations, expenditures, and purposes, as well as data on spending by NCR jurisdiction. DHS and UASI officials believe these data will enable program managers to avoid duplication of expenditures and to better utilize program funds. Regional approaches are changing quickly, and the nation is still in the early stages of building regional institutions across the country to deal with homeland security issues. Those important developments warrant continued congressional monitoring and oversight.

You are an expert at summarizing long articles. Proceed to summarize the following text: The quality of life in urban areas is and will continue to be significantly affected by decisions on the use of federal transportation funds. Key urban issues, such as traffic congestion, air pollution, and the economic viability of neighborhoods and commercial areas, are significantly affected by the decisions on how these funds are spent. The decisions, in turn, grow out of the urban transportation planning process and the role of the nation’s 339 metropolitan planning organizations (MPO). Since the early 1970s, MPOs have been significant players in urban transportation planning. An MPO is not a discrete decision-making body with real jurisdictional powers, such as a city or county government. Instead, an MPO is best viewed as a consortium of governments and other bodies—such as transit agencies and citizens groups—that join together for cooperative transportation planning. An MPO’s organization and membership often consists of (1) a policy-making board involving elected officials from the local governments in the metropolitan area; (2) a technical committee consisting of professional staff of local, state, and federal transportation agencies; and (3) an MPO staff. The MPO’s primary mission is to develop a consensus on a long-term transportation plan for an urban area and to develop a transportation improvement program (TIP) that identifies projects to implement the plan. How each of the 339 MPOs in the United States fulfills this mission depends on its relationship with the state department of transportation and other transportation operators, the number of local governments in the region, the size and experience of the MPO staff, the growth rate of the population, and the number of transportation modes in the region. According to a 1995 report on MPOs by the U.S. Advisory Commission on Intergovernmental Relations (ACIR), some MPO-like organizations existed in the 1950s to prepare special metropolitan planning studies in Chicago, Detroit, New York, and Philadelphia. In 1970, federal policy fostered the development of comprehensive urban transportation planning by requiring the creation of planning agencies in areas with populations of 50,000 or greater to carry out cooperative planning at the metropolitan level. Originally, all MPOs were treated alike under federal laws and regulations. In the mid-1980s, when funding for metropolitan planning was reduced, preference for funding was given to those MPOs in metropolitan areas over 200,000 in population, areas now known as Transportation Management Areas (TMA). ISTEA’s funding provisions also provided additional discretion and funding to those MPOs located in areas violating the federal air quality standards. ISTEA established the Congestion Mitigation and Air Quality program (CMAQ) and authorized $6 billion over 6 years to help the areas not in attainment with the air quality standards (nonattainment areas) reach compliance with the Clean Air Act’s (CAA) requirements. With CMAQ funds, the MPOs located in the areas that are not in compliance with the federal standards for ozone or carbon monoxide emissions can approve projects that help control or reduce these emissions. The population and geographic area covered by the MPOs also determine the breadth of their responsibilities and the support they have to meet their ISTEA planning requirements. Some MPOs, such as those in New York, Chicago, and Los Angeles, plan for urbanized populations of over 6 million. Typically, these MPOs are well financed and have a dedicated professional staff of 100 or more. At the other extreme, the MPOs that plan for urban areas with populations just over 50,000 may have no staff or a single county government employee working part time for the MPO. In addition, the MPOs’ planning duties can be complicated by the boundaries of jurisdictions in metropolitan areas. As growth occurs, urbanized areas sometimes overrun the MPOs’ boundaries or become so large that state and local officials establish more than one MPO to serve the area. Currently, 14 contiguous urbanized areas within a single state have two or more MPOs. In these locations, such as Florida’s Tampa Bay area, cooperation and coordination among the MPOs are essential. Other urban areas cross state lines. For example, the Philadelphia MPO plans for the Pennsylvania and New Jersey portions of the Philadelphia urban area, and the St. Louis MPO plans for the Missouri and Illinois portions of the urban area. The task of these MPOs is complicated by their having to deal with two or more state governments and more than one Federal Highway Administration (FHWA) or Federal Transit Administration (FTA) region. The ACIR report noted that ISTEA brought three new, far-reaching philosophies to the administration of the federal surface transportation programs: (1) the decentralization of decision-making to the state and local governments, and particularly to the MPOs in the larger metropolitan areas with populations of 200,000 or more; (2) stronger environmental connections, especially to the CAA; and (3) the elevation of nontraditional goals and stakeholders to new prominence in the planning and decision-making processes. ACIR noted that the decentralization of decisions gave many MPOs a larger area to plan for, more miles of road to make decisions about, more flexibility to consider alternatives to the automobile, a lead role in allocating certain federal transportation funds, a longer horizon to consider for the planning process, and a responsibility to consider many transportation-related public policies. In 129 urban areas with populations greater than 200,000,—the TMAs—ISTEA gives the MPOs the authority to select projects from the TIP, in consultation with the state. In other areas, the selection of projects is to be carried out by the state in cooperation with the MPO. Environmental considerations have become more of a driving force in the MPOs’ work as well. The MPOs in nonattainment areas must develop transportation plans that ensure that the CAA’s requirements are met. In constraining the transportation plans to meet the CAA’s goals, the MPOs cannot, with limited exceptions, spend any federal funds on any highway projects that will exacerbate existing air quality problems or lead to new violations of federal air quality standards. The MPO-developed transportation plans must contribute to reducing motor vehicle emissions. The elevation of nontraditional goals and stakeholders in the MPO planning process is specified in the ISTEA section that requires the MPOs to consider 16 factors when developing their metropolitan plans. Some of the planning factors require planners to consider the effects of transportation policies on land-use development; the social, economic, energy, and environmental impacts of transportation decisions; provide for the efficient movement of freight; and ensure connections with international borders, ports, and airports and intermodal facilities. These planning factors address many of the ways that transportation relates to other values and the unintended impact of transportation and transportation facilities. ISTEA stated that these factors must be considered as part of the planning process. In addition, ISTEA and subsequent planning regulations emphasized an early and continuous effort to involve citizens that actively seeks input from direct stakeholders and other members of the public, including those traditionally underserved by the existing transportation systems. The public’s involvement is to be sought at various points in the planning process, including the development of the plan, the TIP, and individual projects. Taking into consideration all of the relevant requirements of ISTEA and the CAA, the MPOs must develop two basic planning documents—the transportation plan and the transportation improvement program. The first document—the transportation plan—is a long-term document that specifies a 20-year vision for a metropolitan area’s transportation system. The plan is to include short- and long-range strategies leading to the development of an integrated and efficient intermodal transportation system. The plan is to be revised and updated at least every 3 years in those areas not meeting the federal air quality standards and at least once every 5 years in other areas. An acceptable plan must be a realistic, implementable document describing how the transportation system will serve metropolitan development objectives, address congestion and air quality concerns, and address other issues. The TIP is a much more detailed document that specifies a list of priority projects to be implemented in each year covered. It must include all transportation projects that will receive federal transportation funding and be clearly based on the objectives laid out in the plan. The TIP covers a period of at least 3 years and must be updated every 2 years. After approval by the governor, the metropolitan TIP must be included in the state TIP, which is then subject to review and approval by the Federal Highway Administration (FHWA) and the Federal Transit Administration (FTA). ISTEA specifies that the plans and TIPs include a financial component that demonstrates how the plans will be funded and implemented. The TIP must be financially constrained each year and must include only those projects for which funding has been identified using current or reasonably available revenue sources. The state and the transit operators must provide information early in the process of developing the TIP about the amount of federal, state, and other funds likely to be available. This financial constraint requirement was a major change in federal policy. Before ISTEA, long-range plans and TIPs were often lengthy “wish lists” of projects proposed by local governments, transit operators, and others. Because such plans and programs bore no relation to the available financial resources, many projects were never implemented. Hence, the real implementation decisions took place outside of the formal planning process. Thus, under ISTEA the financial constraint requirement ensures that the implementation decisions come directly from a systematic planning process. Concerned about the abilities of the MPOs to meet the demands of ISTEA’s planning requirements, the Chairman and the Ranking Minority Member, Senate Committee on Environment and Public Works, and the Chairman of that Committee’s Subcommittee on Transportation and Infrastructure requested us to determine the challenges that the MPOs face in implementing ISTEA’s metropolitan planning requirements. Specifically, this report (1) discusses the MPOs’ experiences in implementing ISTEA’s planning requirements and (2) examines the extent to which the U.S. Department of Transportation’s certification review process ensures that the MPOs in larger urban areas comply with ISTEA’s requirements. To assess the challenges that the MPOs faced in meeting ISTEA’s metropolitan planning requirements, we reviewed numerous surveys, reports, conference summaries, and other literature on urban transportation planning that have been published since 1991. In addition, we spoke to representatives of FHWA, FTA, and other national experts. We also obtained and analyzed the results of a 1994 nationwide survey of all MPOs in the United States conducted by the National Association of Regional Councils (NARC). On the basis of these efforts, we determined that three of ISTEA’s planning provisions—(1) the requirements for involvement by citizens in developing plans and programs, (2) financially constraining the transportation improvement program, and (3) project identification—were particularly challenging for the MPOs. To further explore these key issues, we conducted in-depth telephone interviews with officials of 13 MPOs and 11 state transportation planning agencies. These organizations are listed in appendix II. The MPOs we selected included those that had great or little difficulty with planning requirements (on the basis of their responses to the NARC survey) and represented different regions in the United States. All but 1 of the 13 MPOs we interviewed represent urban areas with populations of 200,000 or greater—the transportation management areas. With each MPO, we discussed why it did or did not have difficulty with selected planning requirements, the reasons for the difficulty or lack of it, the benefits and drawbacks of the planning requirement, and whether the Congress should reconsider these or any other of ISTEA’s planning requirements. To determine whether DOT’s certification review process was ensuring that MPOs comply with planning requirements, we obtained and reviewed DOT’s guidance for field staff conducting the reviews and discussed with FHWA and FTA officials the rationale behind DOT’s approach to the reviews. We also obtained copies of the 55 certification reports published through January 5, 1996, and reviewed and analyzed their contents. Finally, we spoke to selected MPOs and states about their views on the advantages and drawbacks of the certification process. We performed our work from August 1995 through July 1996 in accordance with generally accepted government auditing standards. After providing a draft of this report to DOT for review and comment, we met with DOT officials, including the Chief, Metropolitan Planning Division, Federal Highway Administration, and the Chief, Statewide Planning Division, Federal Transit Administration. Where necessary, we modified the report to address their comments and suggestions. Three of ISTEA’s key planning requirements—for extensive public involvement in planning and programming, for the financial constraint of TIPs, and for the MPOs’ authority to select projects—posed significant challenges. Despite these challenges, the MPOs we interviewed believe that their efforts to meet these requirements have been beneficial. Furthermore, both the MPOs we interviewed and the national organization representing MPOs support continuing these three provisions. The state transportation planning officials we interviewed were less unanimously supportive of these provisions, and the American Association of State Highway and Transportation Officials (AASHTO) advocates eliminating the requirement to financially constrain the long-term transportation plans. ISTEA’s requirements for extensive involvement by members of the general public in the transportation planning process required considerable changes at many of the nation’s MPOs. The public participation requirement has challenged the MPOs to expand the resources devoted to involving citizens and apply more effective techniques for soliciting public input. Despite the initial challenges, all 13 MPOs we interviewed believed that ISTEA’s requirements were desirable and beneficial to the planning process. According to the MPOs we spoke to, effective public outreach serves to inform the public of key regional transportation issues, helps ensure that programs contain projects truly needed by the public, and identifies “problem” projects early in the planning process. According to the MPOs and states we interviewed, changes to this requirement, if any, should ensure that the MPOs have sufficient flexibility to develop those programs best suited to their local areas. According to DOT’s guidance, ISTEA intended that the MPOs’ efforts to involve citizens would lead to transportation plans and programs that are more reflective of a community’s mobility and accessibility needs and more cognizant of the broader issues, such as the effects of transportation investments on the environment, urban neighborhoods, and the general quality of life. The efforts to involve citizens were to include an open exchange of information and ideas between transportation decision makers and the public, including all individuals and groups potentially affected by transportation decisions. Such efforts were to occur at various stages of the transportation planning process, including the development of the long-term plan, the TIP, and individual projects. At the outset of ISTEA, the MPOs’ ability to meet the act’s public involvement requirements was in doubt. A 1992 study commissioned by DOT noted that public participation in transportation planning had been relatively narrow and of low visibility, except for critical episodes when contentious issues arose. The urban areas that did have extensive public participation efforts before ISTEA were those that had active civic cultures. The 1995 ACIR report found that participation by the public is one of the areas emphasized by ISTEA in which the MPOs need the most assistance. DOT’s regulations also note that an effective effort to involve citizens requires the MPOs to provide the public with timely and relevant information on transportation planning, full public access and input to key decisions, and opportunities for the public’s early and continuing involvement. These requirements have been challenging to the MPOs for a number of reasons. Specifically, we found that ISTEA’s requirement for involving the public challenges the MPOs to (1) significantly expand the resources devoted to that involvement, (2) develop new methods for soliciting public input, and (3) effectively use the results of their efforts to involve the public. First, the efforts to involve citizens required greater resources than the MPOs may have been devoting. A 1994 planners manual found that effective involvement by the public would require not only greater commitment from MPO managers and public officials, but also significant postage and publication budgets and more staff time than most MPOs would likely expect. Our interviews with the MPOs and the states clearly bore this out. Eleven of the 13 MPOs we interviewed told us they had expanded their efforts to involve citizens since ISTEA, and 7 of them said that the need for additional resources was a challenge. Typically, the MPOs told us that while they had made some limited efforts to involve the public before ISTEA, these were often cursory. For example, the St. Louis MPO’s effort grew from a standing citizens committee into a multifaceted program to involve more people. This MPO’s efforts to inform and educate the public now include transportation issue papers distributed to target audiences, public speaking engagements before community groups via a speakers bureau, press releases on topical transportation-related issues, and articles in MPO periodicals. The efforts to obtain input from the public include public meetings, smaller focus groups, surveys, and project solicitations. Similarly, an official of the Philadelphia MPO told us that the MPO has tripled its spending on involvement by the public—from $90,000 to about $300,000 annually—and now has two full-time staffers exclusively devoted to the effort. Second, the development and implementation of programs to involve the public may call for knowledge and skills that may not have been readily available to MPOs at the outset of ISTEA. The 1995 ACIR report also found that the MPOs needed research on the techniques that will encourage citizens’ participation, especially those techniques that have been successful in highly populated areas, and the services of experts trained in such techniques. The report found that the MPOs needed to be more sophisticated in using the media to build support from the public. These issues also arose in our interviews with the MPOs and the states. In open-ended discussions, 4 of the 13 MPOs noted the difficulty presented by selecting and implementing the appropriate techniques for involving the public. For example, an official of the St. Louis MPO told us that identifying the best method is the biggest problem the MPO faces in its attempts to involve the public. The official added that the problem is an ongoing one, as the public response to individual techniques seems to diminish over time. The Springfield, Massachusetts, MPO noted that in developing transportation newsletters, simply translating the planners’ technical jargon into readable language for the general public is a large task. The MPO has hired a specialist to assist with this effort. Such technical assistance may be key for many MPOs—the Milwaukee MPO, which did not have much difficulty with ISTEA’s requirements for involving citizens, credited technical assistance from the University of Wisconsin’s extension service as a significant factor in the program’s success. Finally, the MPOs must determine how input from the process of involving the public will influence plans and programs. Nearly all of the MPOs we interviewed found it difficult to get the general public interested and involved in transportation planning issues. These MPOs noted that, typically, “John Q. Public” will become interested in transportation planning only if a specific project will affect his well-being. He may get very involved, for example, if he believes that a road-widening project will increase the traffic near his home and hence harm the value of his property. As a result, the public’s input generally may not reflect the views of a cross-section of the general public. Several MPOs said that getting input from lower-income and minority communities is particularly challenging. On the other hand, certain interest groups, often with a narrowly defined agenda, may be very active in commenting on the transportation planning process. As a result, the interest of activists with specific agendas may dominate the process of involving the public. One MPO official noted that citizens’ involvement has given professional groups a vehicle for expressing their views and dominating the public discussion. In putting together plans and programs, the MPOs must balance the input of activists with the transportation needs of the broader public. Despite the difficulties and imperfections inherent in the efforts to involve the public, all of the MPOs we interviewed believe that effective involvement by the public is critical to good planning. All 13 MPOs noted that their efforts to meet ISTEA’s requirements for involving the public have resulted in plans and programs that are more reflective of the public’s transportation needs and hence enjoy broader and stronger public support. Also, citizens’ latent opposition to projects is uncovered much earlier in the planning process. For example, the Durham, North Carolina, MPO told us of a project that would widen a four-lane road to eight lanes. All of the technical analyses supported the need for this project, but the MPO ran into significant public opposition as the construction phase neared. The project was delayed for over a year, which, according to the MPO official, might well have been avoided if the public’s input had been sought earlier in the planning process. For the reasons outlined above, the 13 MPO officials we spoke to unanimously supported the continuation of the requirement for involving the public in transportation planning. However, MPO and state planning officials emphasized the importance of flexibility in selecting the appropriate techniques for inviting citizens’ input and the concomitant importance of avoiding overly prescriptive federal regulations. For example, a Florida state department of transportation official stated that techniques that work well for communities in Florida’s panhandle may be ineffective in the Hispanic and Caribbean communities of south Florida. An official at the St. Louis MPO stated that any one technique for involving the public has a relatively short shelf life, with diminishing returns over time. Hence, it is important to vary techniques—such as surveys, public meeting, focus groups, and so on—over time. Financially constraining TIPs—the 3-year plan—was a new requirement for many MPOs. A 1994 planner’s guide noted that prior to ISTEA, many TIPs were laden with more projects than could be afforded and that bringing these TIPs into balance was politically painful. Also, successfully constraining a TIP requires reliable projections of revenue—projections that were not always available. Despite these difficulties, all but two of the MPOs we spoke to had developed financially constrained TIPs, and all MPOs believed that the practice was critical to meaningful short-term planning. As the requirement has forced a realization of limited resources, it has encouraged planners to explore other options for local and regional financing. The MPOs we interviewed all supported continuing the TIP constraint in ISTEA. ISTEA requires MPOs to ensure that their TIPs include a ranked list of projects and a financial plan that demonstrates how the program can be implemented with reasonably available resources. For example, a TIP featuring $10 million in highway and transit improvements would have to show that these projects could be paid for with federal, state, local, or other funds that were demonstrably available. This requirement was a significant change to federal planning requirements. According to the National Association of Regional Councils (NARC), before ISTEA, there were pressures to include as many projects as possible in the TIP, regardless of the cost. Consequently, proposed transportation spending was sometimes more an outcome of political influence than of a rational planning process. NARC noted that by ensuring that planners develop and limit investment programs on the basis of realistic budgets, transportation spending would be a rational outcome of the planning process. The MPOs and states we interviewed stated that the requirement to financially constrain TIPs is one of the most challenging of ISTEA’s planning requirements. Because many MPOs had not financially constrained TIPs before ISTEA, both their technical ability to develop financial plans and their institutional wherewithal to exclude projects not falling within the budget were in doubt at the outset of ISTEA. A nationwide survey of MPOs conducted by the National Association of Regional Councils found that financially constraining the TIP was the most difficult of eight selected ISTEA planning requirements. Our interviews with the MPOs and the states, as well as other studies of MPOs under ISTEA, reveal that the financial constraint requirement presented the MPOs with two main challenges. First, the MPOs had to develop a regional consensus as to which programs would be on the TIP. Second, the MPOs had to obtain reliable estimates of the funds available from the state departments of transportation. Because a financially constrained TIP is a defined and realistic program of transportation spending, it must be based on a regional consensus about which projects are best suited to meet a region’s transportation needs. Highways, mass transit, and other projects can be proposed by many entities, including the state, cities, counties, transit agencies, and community groups. The financial constraint requirement forces policy-makers to consider trade-offs and make choices among these alternative transportation investments. In open-ended discussions, 6 of the 13 MPOs that we interviewed noted the difficulties involved in reaching such a consensus. For example, the Atlanta MPO noted that its 1992 TIP contained about four times as many projects as could be paid for with reasonably available resources. To bring the TIP into balance, it had deleted about $400 million worth of planned projects by 1993. This action did not please the sponsors of deleted projects, although many projects had scant chance of implementation. Similarly, the MPO for Dallas/Ft. Worth noted that the MPO and the state department of transportation had a significant dispute because a freeway improvement advocated by the state was not included in the financially constrained TIP. A reliable estimate of available revenues is indispensable in financially constraining the TIP. Because much of the funding for urban transportation—both state and federal—comes from the state departments of transportation, the MPOs depend on their states to provide guidance on the financial resources that can reasonably be expected to be available during the TIP period. Most MPOs either did not raise this issue or told us that the state departments of transportation have been cooperative and have provided financial estimates with reasonable timeliness. However 3 of the 13 said that the states’ lack of willingness to provide reliable estimates of the available revenues has been a hurdle in developing financially constrained TIPs. At two MPOs, the inability to obtain reliable financial information was the center of disputes between the MPO and the state department of transportation about the ability of the MPO to select projects. For example, officials of one MPO told us that the state department of transportation did not provide estimates of the available funds, except in the form of draft state TIPs. In essence, the MPO said that the state had refused to provide any estimates of the future revenues that the MPO could use to develop a local TIP. Another MPO told us that it had submitted a TIP that was financially constrained on the basis of the revenue estimates provided by the state. The TIP was included in the state’s transportation improvement program, which was subsequently rejected by FHWA/FTA because the state’s revenue assumptions included a drawdown of its unobligated balances, which is not possible without congressional action. As a result, the MPO had to develop a revised TIP with about one-third the resources of the original TIP. The state’s action and the subsequent rejection of the TIP created considerable resentment among the local officials and project sponsors in the region. Twelve of the 13 MPOs we interviewed told us they had developed financially constrained TIPs under ISTEA. Furthermore, all of the MPOs we spoke to unanimously supported the continuation of the requirement to financially constrain the TIP, as did 7 of the 11 state transportation offices we interviewed. All of the MPOs we spoke to noted that the financial constraint requirement forces the development of TIPs that include the projects that will be implemented. Officials of the New Orleans MPO, for example, told us that before ISTEA, the system of selecting and implementing transportation projects had broken down. There was little sense of real priority in the TIP. Because the TIP is now financially constrained, its credibility and “implementability” are significantly enhanced, and the priorities spelled out in the TIP now drive investments. Similarly, an Atlanta MPO official told us that the commitment to the projects on the TIP is much greater because the TIP is now a firm program of transportation investment priorities. In addition to establishing a meaningful program of projects, the financial constraint requirement has led to tangential benefits. Many MPOs said that the financial constraint requirement has forced regional elected officials to realize the gap between transportation needs and reasonably available revenues. As a result, regional policy-makers are examining other revenue- raising measures, including innovative financing mechanisms. For example, the staff of the Pensacola, Florida, MPO told us that the regional policy-makers were considering establishing a toll authority for that fast-growing region. Also, several MPOs noted that the financial constraint requirement is indispensable in giving the MPOs real authority to select projects. By financially constraining TIPs, the MPO produces a ranked list of projects that will drive transportation investments. The comments we received from MPOs about the financial constraint requirement for the long-term plan to some extent paralleled those we received about the TIP requirement. However, some MPOs and states noted that financially constraining long-range planning is particularly difficult because obtaining reliable estimates of the available resources for a 20-year period is impossible. As a result, some states and MPOs said that they have had to apply the constraint on the basis of current resources, which limits the vision of the long-term plan. As several MPO and state representatives explained, new revenue sources that the MPOs could use over a 20-year period are not easily identified at the time the plan is developed. As a result, the long-term plan may be much more conservative than it needs to be. Several MPOs have found a way around this dilemma. Three MPOs that we interviewed said that they developed two long-term plans—a constrained plan for the federal requirement and an unconstrained, or “visionary,” plan to outline a more extensive transportation agenda for the region. ISTEA required that the MPOs—and by extension, the regional interests—in the larger urban areas have a greater influence on transportation investment decisions than other transportation planners. Key wording in ISTEA gives the MPOs in the larger urban areas substantial influence on identifying projects to be included in transportation programs as well as on the projects selected from the programs. These MPOs are responsible for identifying all projects for implementation, except projects under the National Highway System and the Bridge and Interstate Maintenance programs. While there was uncertainty about the MPOs’ ability to take on this decision-making authority at the outset of ISTEA, the MPOs and states we interviewed believe that ISTEA has enhanced the MPOs’ authority to select projects. While this enhanced authority was attributed to various provisions of ISTEA, a cooperative and constructive working relationship with the state was essential. ISTEA requires that the MPOs in the larger urban areas—those with populations of 200,000 or more—take on a significantly larger role in identifying transportation projects to meet the regions’ mobility needs. Before ISTEA, the MPOs were generally seen as entities that were outside of the decision-making process; they developed lists of projects but deferred real decision-making authority to the state transportation agencies. According to the 1995 NARC study, ISTEA stressed that the MPOs be transformed from weak advisory bodies into strong decision-making partners working more closely and on an equal footing with the state transportation agencies and other key stakeholders. The MPOs were to play a pivotal role in planning as leaders, managers, and builders of consensus among other agencies that may have different perspectives and priorities. As a result, transportation decisions—that is, project identification—would be an outgrowth of a regionally based process and hence better meet the regions’ mobility needs. At the outset of the ISTEA era, the capacity of the MPOs to assume this leadership/decision-making role was in question. The MPOs were not traditionally strong decision-making bodies, and federal policy had de-emphasized urban transportation planning during the 1980s. As a result, the planning capacity of many MPOs deteriorated during this time. As the Institute of Public Administration noted in 1992, the MPOs’ budgets, functions, staffs, and technical capacities dwindled during the 1980s. Perhaps as a result, DOT analysts conducting comprehensive planning reviews between 1991 and 1993 found that important metropolitan planning and programming decisions were determined primarily by the states or by transit operators. The MPOs were generally not assuming a decision-making role. At the start of the ISTEA era, therefore, the MPOs needed to strengthen their ability to forge consensus on both project financing priorities and the development of TIPs. In our interviews, we found that political and institutional factors—that is, an MPO’s working relationship with the state department(s) of transportation, regional transit agencies, and local governments—were the key difficulty in the MPOs’ assuming the authority for selecting projects. Six of the 13 MPOs we spoke to noted that forging a consensus among the disparate interests in the metropolitan area was a challenge. For example, the Atlanta MPO said that it was very difficult to get all the relevant parties—the state, the local government, the transit agencies, and so on—working together to develop a unified TIP. While the pre-ISTEA TIP was not really a document that drove investment decisions, the participants perceived that under ISTEA, the development of the TIP would have a real and lasting impact. It was clear from our discussions with MPOs that a cooperative and constructive relationship with the state departments of transportation is essential in expanding the MPOs’ authority. Nine of the 12 large MPOs we interviewed said that the states had facilitated the MPOs’ project identification, although in some cases several years passed before a constructive working relationship developed. For example, a representative of the St. Louis MPO said that the Missouri department of transportation was not at first cooperative with the MPO’s effort to assume more decision-making authority. More recently, however, the MPO and the state have signed a memorandum of agreement spelling out the agencies’ respective roles and recognizing the more prominent role the MPO will play in selecting projects. Two MPOs said that the states continue to resist the MPOs’ and regional interests’ efforts to assume greater authority over project identification. In both cases, the difficulties were rooted in the fundamental disagreements between the MPO and local officials on the one hand and the MPO and the state government on the other hand about the appropriate level of the MPO’s and the local government’s influence on the development of the TIP. One MPO said that the state’s TIP process did not allow the MPO to participate fully in the process of selecting projects. For example, the state had limited certain federal funds for pedestrian projects in a manner that the MPO believed was inconsistent with ISTEA. An official of the state department of transportation told us that it gets extensive input and advice from the MPO and other regional interests in determining the projects to be included in the state’s plans. However, the state agency is opposed to suballocating federal and state transportation funds to the MPOs. At the other MPO, we found that by dominating the voting power on the MPO’s decision-making body, the state transportation department was in effect the MPO. As a result, the voice of municipal governments and other regional interests were not effectively represented in developing TIPs. Most MPOs we interviewed—8 of 12—said that ISTEA had a great or very great impact on their authority to select projects. Their comments revealed that no single provision of ISTEA can be credited with this change. As table 2.1 reveals, several of ISTEA’s provisions have contributed to this change. For example, ISTEA states that projects in urban areas with populations of 200,000 or greater shall be selected by the MPO in consultation with the state, except projects under the National Highway System and the Bridge and Interstate Maintenance programs. The MPOs typically stated that this provision had some impact but was mainly symbolic. For example, one official told us that the selection of projects from a financially constrained TIP was little more than an administrative sign-off. Of much greater significance was the development of a financially constrained TIP. As an official of the Albany, New York, MPO explained, all of the projects in a financially constrained TIP are intended for implementation; consequently, the development of the TIP is the real decision point for project identification. Four of the 12 large MPOs that we interviewed said that ISTEA had only little or some influence on their authority to select projects. Two of these noted that their influence increased only minimally after ISTEA because they had an acceptable level of influence before ISTEA. For example, the Milwaukee MPO told us that it has long had a constructive working relationship with the Wisconsin Department of Transportation. Although the MPO noted that ISTEA had some impact on its authority, it said that it did not just wrest authority from the state and present its decisions as a fait accompli; a cooperative working relationship with the state was critical. As discussed above, two other MPOs had different experiences. Despite the range of views on ISTEA’s impact, the MPOs we interviewed unanimously supported both the ISTEA language that delegates the authority to select projects to larger MPOs and the other provisions that have enhanced the MPOs’ authority. MPOs and states to some extent have differing views on continuing ISTEA’s planning provisions. While the MPOs we interviewed unanimously endorsed the continuation of the public participation, financial constraint, and project selection requirements, some states opposed the continuation of these requirements. Furthermore, AASHTO and the Association of Metropolitan Planning Organizations (AMPO) have taken differing views. As table 2.2 indicates, AASHTO and AMPO have differing positions on continuing certain planning provisions of ISTEA. AMPO cited ISTEA’s requirements for involving the public as a model piece of legislation for ensuring broad-based involvement by citizens and local elected officials. While noting the benefits of involving the public, AASHTO stated that the regulations on such involvement are too detailed and prescriptive. It emphasized state and local flexibility in developing the process of involving the public. It also noted that the detailed requirements in federal regulations and guidance can lead to substantial delays on projects and to court challenges. Nearly all the state officials we interviewed supported the continuation of the requirements to involve the public that are contained in the legislation. However, as noted earlier, some states also expressed concern about the impacts of overly prescriptive regulations. According to AMPO’s policy statement, ISTEA’s requirements for financially constrained plans and programs are consistent with sound business practices and strongly supports the continuation of the requirements. AASHTO’s states that in financially constraining TIPs, MPOs should have the flexibility to program at a level that enables them to deal with the uncertainty of project schedules and with fluctuating levels of federal funding. State officials expressed similar concerns. Four of the 11 state planning officials we contacted opposed the retention of this requirement. While they support the principle of financially constraining the TIP, they believe that the regulatory interpretation is too strict. Three of the four stated that the planning regulations should allow some over-programming. As one MPO explained, delays are inevitable on some projects because of environmental permitting or other reasons. Because the process of amending a TIP—for example, adding a new project—is very time consuming and administratively difficult, this delay can be substantial. Several states we interviewed noted that a modest over-programming of the TIP—for example, by 10 percent—would circumvent this problem by including a short list of “ready to go” projects that could be funded in the event that other, higher-priority TIP projects were delayed. AMPO supported the financial constraint requirement for the long-term (20-year) plan. AASHTO, however, stated that the implementing regulations do not take into account the difficulty of predicting the amounts and sources of funding over a 20-year period. AASHTO noted that the requirement was unrealistic and could prevent MPOs from taking advantage of fiscal partnering arrangements. As a result, AASHTO calls for eliminating the ISTEA requirement to financially constrain long-term plans. In addition, 5 of the 11 states we interviewed opposed the continuation of this requirement. Typically, the states said that it is not possible to develop a reliable estimate of revenues over a 20-year period and that financially constraining the long-term plan inhibits a vision for the regional transportation system. AMPO and AASHTO’s are perhaps in clearest disagreement over the issue of the MPOs’ authority to select projects. AMPO favors extending decision-making authority to all of the MPOs that desire to assume it. Potentially, this action would increase from 129 to 339 the number of MPOs with the authority to select projects. AASHTO’s proposal to raise the threshold for the transportation management area to 1 million people would take the authority to select projects away from about 94 MPOs that currently have it. AASHTO contends that raising the threshold would restrict the authority to those urbanized areas likely to have the resources to meet the burdens this authority implies. AASHTO’s position on this issue was not well reflected in our interviews—only 2 of the 11 state officials we contacted opposed the retention of ISTEA’s current wording. Not surprisingly, these two states are the ones where we encountered a significant disagreement between the state and the MPO on the question of selection authority. The desirability of ensuring adequate involvement by the public and financial constraints on transportation programs was not disputed by the MPOs and states we interviewed, nor by AASHTO and AMPO. Furthermore, the difficulties of financially constraining long-term plans is clearly a challenge that some states and MPOs have met. In view of the benefits of these provisions, the problems faced in meeting these requirements may not require legislative changes. The key dispute we encountered among the three issues we explored—the delegation of the authority to select projects to a greater or lesser number of metropolitan planning organizations—is essentially an issue to be resolved through congressional deliberations. To ensure that urban transportation plans and programs are an outgrowth of the planning process that ISTEA prescribes, ISTEA required the Secretary of Transportation to conduct planning certification reviews at the MPOs in transportation management areas. The MPO and state officials we spoke to generally supported the certification process and described it as helpful and constructive. However, in reviewing 55 certification reports, we found that the reports are of limited usefulness in assessing trends or problem areas in the ISTEA planning process. First, the certification reports vary widely in format and content because the Department did not develop standard formats for assessing or reporting the MPOs’ compliance. Second, three MPOs were certified despite significant deficiencies in the urban transportation planning process. Accordingly, the results of the certification reviews cannot be used to develop a reliable understanding of the MPOs’ progress in meeting ISTEA’s planning requirements. This is an especially critical issue because the certification reviews are by far the most in-depth assessments of the MPOs’ performance in transportation planning. ISTEA requires that the Secretary of Transportation certify that metropolitan transportation planning conforms with ISTEA’s planning provisions. Specifically, at least once every 3 years, FHWA and FTA must jointly review and evaluate the planning processes for each of the nation’s 129 MPOs located in TMAs. If, on the basis of their joint review, FHWA and FTA determine that the planning process meets or substantially meets the planning requirements, they may either jointly certify the planning process or conditionally certify the process subject to specified corrective actions. If FHWA and FTA find that the planning process in a TMA does not meet the requirements, certification is denied, and FHWA and FTA may withhold all or part of the apportioned federal highway and transit funds, or withhold their approval of certain projects. This requirement was a significant change in federal oversight policy. Since 1983, the urban transportation planning regulations have required that the state and the MPO “self-certify” that the urban transportation planning process is in conformance with the continuing, cooperative, and comprehensive (3-C) process called for in the law and the regulations. Self-certification was intended to grant increased responsibility for transportation planning to the states and MPOs. Under ISTEA, the MPOs and the states will continue to self-certify annually. The FHWA and FTA certification reviews are comprehensive. First, they cover all 129 TMAs with the results of the reviews reflective of large urban areas. Second, the reviews cover a range of planning topics focusing on six areas: incorporation of the 15 planning factors in the planning process, development of early and continuing involvement by the public, completion of detailed alternative studies when considering major transportation investments in a corridor, development of a congestion management system incorporating measures to reduce travel demand, assurance that plans and programs conform with air quality plans and the Clean Air Act Amendments of 1990, and development of financial constraints on plans and programs. Certification reviews consist of a desk audit, during which FHWA and FTA staff review pertinent files and supporting documentation pertaining to the planning process; a site visit that includes extensive meetings with members of the MPO’s governing board and technical staff, state transportation officials, and other local officials; a public meeting to allow members of the general public to share their impressions of the planning process; and the preparation of a report on the certification review. The on-site reviews can last 5 days and include eight or more representatives of FHWA and FTA staff from headquarters, the regions, and field offices. In commenting on a draft of this report, DOT officials stated that although the certification reviews are the formal mechanism for ensuring compliance, DOT uses a number of other means as well. For example, DOT reviews and approves planning work programs for all metropolitan areas, assesses the TIP and TIP amendments for conformity with that state’s air quality plan in areas not meeting federal air quality standards, and reviews and approves state TIPs. DOT is also conducting a series of enhanced planning reviews (EPR) in a much more limited number of urban areas. According to an official of DOT’s Volpe Transportation Center, the EPRs are intended to be less judgmental and regulatory oriented than the certification reviews. The MPOs and the states have differing views on the certification review process. The MPOs and states we interviewed generally see the process as constructive and helpful and support its continuation. However, some also noted that the reviews could be done more efficiently and the results reported in a more timely manner. AASHTO has called for the elimination of the certification reviews because they are time consuming. Five of the 12 large MPOs we interviewed had been certified as of May 1996. Each of these MPOs told us that the certification review was constructive and helpful and stated that the requirement for certification by DOT should be continued. For example, the representatives of the Milwaukee MPO said that the process was constructive and that it would be unwise for the federal government to dole out money with no accountability for compliance with the federal planning guidelines. Also, the certification review provides local elected officials and MPO staff the opportunity to meet with federal officials and get a better feel for what is expected, as well as useful critiques of how the MPO staff approach their job. The Springfield, Massachusetts, MPO staff told us that FHWA and FTA reviewers helped begin the movement toward greater regional control of the MPO. For example, the certification review began a dialogue on the need to give regional officials greater representation on the MPO’s board. On the other hand, one MPO noted that the on-site reviews could be completed in less time. For example, the planning staff of the Pensacola MPO said that the on-site visit took almost a full week and could have been done in a day and a half. Attributing the length of the visit to the fact that it was a first-time effort, they said that the visits would likely be briefer in subsequent reviews. Officials from 8 of 11 states we contacted had experiences with the process of MPO certification reviews. Four of them supported the continuation of the process, one opposed continuation, and two were neutral or had no opinion. While most of these state officials supported the process, several noted that DOT should emphasize a constructive process rather than a fault-finding audit approach. A Texas official noted that the reviews, in contrast to the practice of self-certification, give the planners an objective assessment of their performance. AASHTO advocates eliminating the certification reviews. It asserted that the reviews are too time consuming and cumbersome for many states and do little to improve the planning process. As of January 12, 1996, DOT had issued certification reports on 55 MPOs. Twenty-three MPOs were certified without qualification, and 31 were certified subject to certain corrective actions being taken. To date, one MPO has not been certified—the MPO for the Boston metropolitan area; its certification was held in abeyance. The overriding issue in this case was the insufficient role that local elected officials had played in the planning process. For example, in meetings between FHWA and FTA staff and 12 local elected officials, the local officials unanimously complained that they had virtually no opportunity to be part of the decision-making process. While Boston was the sole instance in which DOT postponed certification of the planning process, our review of the reports on certification reviews indicate that conditional certifications were issued for some MPOs in serious noncompliance with ISTEA’s planning requirements. For example, the reports on other Massachusetts MPOs noted insufficient local representation and state dominance of the planning process. The Worcester, Massachusetts, MPO was certified even though it had no local officials on its policy body, the MPO’s technical board had not met publicly since 1976, no public involvement process had been formally adopted, and TIPs and transportation plans were not appropriately financially constrained. In addition, although the Springfield, Massachusetts, MPO’s policy body had not met in 14 years and included no local elected officials, the MPO was certified. Numerous instances of noncompliance were also identified in the report for the Louisville, Kentucky, MPO. The over-arching issue was a lack of communication and cooperation among the key regional planning entities. The states of Kentucky and Indiana, as well as the city of Louisville, were carrying out many planning activities outside of the MPO process, prompting the reviewers to state that they found parochialism far more prevalent than regionalism. FHWA’s review noted that the entities in the urbanized area were more concerned with getting their “piece of the pie” than with the good of the region. As a result of these concerns, the reviewers recommended that the MPO be conditionally certified for 1 year. DOT certified these MPOs because of its flexible approach in the first round of reviews. According to an FHWA headquarters official, the current round of reviews began 3 years after ISTEA’s passage but only a year after the final planning regulations were issued. As a result, DOT felt that a phase-in of requirements and a lenient approach in the first round of reviews were appropriate. This was particularly true during the pilot reviews, which included the reviews of Worcester and Louisville. Decertification, the official said, would have occurred only in the case of egregious noncompliance, such as the failure to submit a TIP. Because the certifications must be completed every 3 years, FHWA and FTA regional and divisional offices are devoting considerable resources to the certification reviews. For example, officials in FHWA’s Region 4 estimated that FHWA and FTA had spent a total of 1,105 staff days in conducting and reporting the results of 19 certification reviews within their region, averaging 58 staff days per review. In addition, FHWA and FTA personnel in two other regions we contacted spent 420 staff days and 408 staff days, respectively, completing the certification reviews in their own jurisdictions over the same period. This accounting does not include the travel and per diem costs involved in the reviews. A certification review can last 5 days and include 8 or more representatives from FTA and FHWA headquarters and regional and field offices. Despite this large resource commitment, in our review of the 55 reports on certification reviews published through January 12, 1996, we found that the reports on certification reviews were not documented in a way that allows comparisons between one MPO and another, or a meaningful assessment of the progress that the MPOs are making in meeting the planning requirements. The reports vary significantly in format, depth, and content. In one FHWA region, for example, all six of the reports on certification reviews that we examined were four pages or less in length, were written in a very summary fashion, and contained limited discussions of how the MPOs complied with the six focal areas under review. By contrast, the certification reports from several other FHWA regions were quite lengthy, as long as 29 pages and averaging over 15 pages. As a result, a national overview of the MPOs’ progress in meeting the planning requirements would be quite difficult to develop. Variations also exist in the use of the key terms of certification reviews, such as “corrective action required” or “corrective action recommended.” For example, one region’s reports clearly distinguish corrective actions as areas where steps are needed to correct a regulatory deficiency from those which are optional recommendations for improvement. In some certification reports from other regions, however, it was not possible to distinguish corrective actions from recommendations. For example, the cover letter of one report stated that the MPO was certified subject to certain corrective actions. However, the body of the report did not name the corrective actions that the MPO was to undertake. Instead, it included a discussion of 11 recommendations, although it was not clear if these recommendations were required for certification or whether they were left to the discretion of the MPO. According to FHWA headquarters officials, the certification reviews were not intended to help assess a trend toward improvements in metropolitan transportation planning efforts. Instead, the purpose was to assess whether an individual MPO had substantially complied with the planning requirements. Furthermore, DOT wanted to avoid a defined format, so as to give certifying officials the flexibility to conduct the reviews in a way best suited to the MPO and its unique circumstances. Also, DOT wanted to encourage innovation and experimentation in conducting the reviews. Although DOT provided its certification reviewers with the flexibility to assess the MPOs’ compliance with ISTEA planning requirements, the result of this flexibility has been that the certification reports provide limited information on how well MPOs have met these important ISTEA provisions. For example, the certification reports do not allow the Department to determine if the difficulties faced in financially constraining TIPs were similar across most MPOs, or whether these reasons had similar root causes. Given the resources going into the effort and the resultant depth of the reviews, collecting consistent data for an overall assessment is important and would not preclude the Department’s need for flexibility. Collecting these data is further justified since the certification reviews are by far the most comprehensive reviews of the MPOs’ performance that are likely to be conducted. We recommend that the Secretary of Transportation direct the Administrators of the Federal Highway Administration and the Federal Transit Administration to develop reporting formats for assessing and reporting on the MPOs’ compliance with ISTEA’s planning requirements in such a way that the Department can identity any nationwide patterns in planning deficiencies, the underlying causes of these planning deficiencies, and the extent to which the MPOs have made progress in meeting the requirements. DOT officials disagreed with our conclusion that the information gathered during the certification reviews should be used to develop an overview of the MPOs’ progress in meeting ISTEA’s planning requirements. DOT officials stated that the certification reviews were not intended to assess the MPOs’ overall progress; rather, they were intended to review the efforts of individual MPOs and provide those MPOs feedback on what they must do to fully meet ISTEA’s planning requirements. In addition, officials stated that the certification process is one of several activities that the Department has or plans to take to determine the MPOs’ compliance with the planning requirements and thereby assess the MPOs’ overall progress in meeting the requirements. These additional activities include the Department’s approval of TIPs and their conformity with state air quality plans; the sponsorship of studies, focus groups, and conferences on the MPOs’ progress; and the use of enhanced planning reviews. The Department will use this body of information to assess the MPOs’ compliance with the planning requirements and thereby provide the Congress with information on whether the MPO planning provisions should be continued in ISTEA’s successor legislation. As a result of these concerns, DOT officials disagreed with the recommendation in our draft report that it develop standard criteria and reporting formats for its certification reviews so that the Department could assess and report on the MPOs’ compliance with ISTEA’s planning requirements. DOT officials stated that the recommendation was too prescriptive, particularly in its call for standard criteria, and suggested that we direct our recommendation to the Congress instead. We have incorporated information in the report that describes the additional activities that Department officials stated they have undertaken or plan to undertake to assess the MPOs’ progress in meeting ISTEA’s planning requirements. In addition, we have modified our proposed recommendation by deleting our original call for standard criteria to address the Department’s request for more flexibility in responding to our recommendation. However, we disagree with the Department’s characterization of the certification reviews as only one element in a broader effort to assess the MPOs’ compliance and progress. The scope and effort that the Department has placed in the certification reviews clearly suggest that the information obtained through the reviews is critical in assessing how well the MPOs have met the requirements. The certification reviews cover all 129 MPOs in the nation’s largest urban areas, assess the MPOs’ progress in six key planning areas, and require significant FHWA and FTA headquarters and regional staff time to complete. In contrast, the enhanced planning reviews as well as DOT-sponsored studies have reviewed only a small number of MPOs. Given this investment, we believe it is appropriate for the Department to develop standard formats for documenting the results of the certification reviews. A standard reporting format would not limit the Department’s flexibility to tailor the certification reviews to the particular needs of the MPO. Rather, it would provide the Department and the Congress with rich sources of information that they could use to evaluate whether or not the MPO planning provisions should be continued. DOT officials also suggested technical and editorial changes to the report. Where appropriate, we incorporated these changes.

Pursuant to a congressional request, GAO reviewed: (1) metropolitan planning organizations' (MPO) implementation of the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) planning requirements; and (2) whether the Department of Transportation's certification review process ensures that MPO in larger urban areas comply with those planning requirements. GAO found that: (1) the MPOs have found three of ISTEA's planning requirements particularly challenging to meet: (a) requiring greater involvement by citizens; (b) limiting short- and long-term transportation plans to reasonable revenue projections (the financial constraint requirement); and (c) selecting transportation projects; (2) the MPOs found that the requirement to involve citizens had ensured that their transportation plans better reflected their regions' transportation needs; (3) the financial constraint requirement led the MPOs to obtain more reliable revenue projections from the state departments of transportation and transit agencies and to exclude those projects that could not be financed within budget constraints; (4) ISTEA's project selection authority required the MPOs to become consensus builders, effectively working with the states, localities, and transit agencies in identifying projects; (5) in some cases, the efforts of the MPOs and the local officials to assume greater authority have encountered resistance from the states; (6) despite the difficulties encountered, the MPOs that GAO interviewed said that their efforts to meet these three planning requirements had improved their transportation plans; (7) the 13 MPOs that GAO interviewed unanimously endorsed the continuation of the ISTEA planning requirements; (8) in contrast, state department of transportation officials that GAO interviewed did not uniformly support the continuation of ISTEA's planning requirements; (9) as of January 1996, the Federal Highway Administration (FHwA) and the Federal Transit Administration (FTA) had reviewed 55 MPOs; (10) 23 were certified without qualification, and 31 were certified subject to certain corrective actions being taken; (11) the certification of one MPO was held in abeyance because of significant areas of noncompliance; (12) in reviewing 55 certification reports, GAO found that the reports are of limited usefulness in assessing trends or problem areas in the ISTEA planning process; (13) the certification reports vary widely in format and content because the Department did not develop standard criteria for assessing or reporting the MPOs' compliance; and (14) three MPOs were conditionally certified despite significant deficiencies in their urban transportation planning processes.

You are an expert at summarizing long articles. Proceed to summarize the following text: As trustee, the Secretary of the Interior is responsible for administering the government’s trust responsibility to tribes and Indians. Several Interior agencies administer various portions of the government’s Indian trust responsibility, including the Bureau of Indian Affairs (BIA), the Bureau of Land Management (BLM), the Minerals Management Service (MMS), the Office of American Indian Trust, and the Office of the Special Trustee for American Indians (OST). In several instances these agencies’ lines of authority overlap or their functional areas of responsibility interrelate. See attachment I for a chart showing the current Interior organizations responsible for trust fund accounting and asset management functions. Attachment I also highlights those agencies which the Strategic Plan proposes to transfer to the American Indian Trust and Development Administration (AITDA). BIA performs land title and lease ownership determinations and maintains official ownership records. BIA also performs appraisals of some Indian assets and negotiates and executes leases and contracts for use or sale of nonmineral assets—such as timber, farming, grazing, real estate, and rights-of-way—and mineral assets such as oil, gas, and coal. In addition, BIA collects and accounts for Osage tribe mineral royalties. BLM assists BIA in preleasing activities associated with valuing mineral resources. BLM is also responsible for inspecting and enforcing the terms of Indian mineral leases and verifying production. MMS collects and accounts for mineral royalty payments on Indian leases and transfers the revenues to Treasury for deposit to the Indian trust funds managed by OST’s Office of Trust Funds Management (OTFM). In addition, MMS performs compliance audits that are directed at ensuring that Indian royalty payments are consistent with lease terms and production volume. MMS also provides funding to some tribes for cooperative agreements to perform their own compliance audits. OTFM, in the Office of the Special Trustee for American Indians, accounts for nonmineral revenues and distributes mineral royalties received from MMS to tribal and individual Indian accounts, based on lease and ownership information. OTFM disburses unrestricted funds to account holders upon request. OTFM also invests IIM and tribal trust funds on behalf of account holders. While IIM accounts are currently maintained in BIA’s Integrated Records Management System as separate accounts, OTFM invests the cash balances in these accounts as a pool, primarily in U.S. Treasury and U.S. agency securities. OTFM invests tribal funds in government securities or collateralized accounts in federal depository banks. The Office of American Indian Trust, in the Office of the Secretary of the Interior, conducts annual reviews of tribes’ performance of trust functions assumed under the Tribal Self-Governance Act of 1994. The office prepares federal Indian trust protection standards and guidelines and reviews significant decisions affecting American Indian trust resources, including treaty rights. To describe the trust asset management problems that the Strategic Plan proposes to resolve, we reviewed the problems identified in the Strategic Plan and relied on our past work and the work of independent public accountants that Interior contracted with to perform financial statement audits and reviews. To summarize the Strategic Plan, we reviewed the Plan, its accompanying appendixes, and other supporting documents. We met with Office of Special Trustee officials, including the Special Trustee for American Indians, and officials in BIA, BLM, and MMS to obtain clarification on certain aspects of the Plan. To explain the basis for the cost estimates contained in the Strategic Plan, we reviewed its budget document and the cost data it provided. We contacted OST officials for further information, as necessary. As agreed with your office, we did not attempt to validate the estimates presented in the Plan or their underlying assumptions, nor did we assess whether the estimates included all necessary costs of full implementation of the Plan. To identify implementation issues, we analyzed the Plan in detail and relied on our past work on Indian trust fund accounting and asset management issues. We also met with Department of the Interior officials, the Special Trustee for American Indians, and officials in BIA, BLM, and MMS and contacted the Director of Interior’s Office of American Indian Trust to obtain their views on the Plan. In addition, we reviewed tribal comments on the Plan, which were provided to the Special Trustee as a result of his consultation meetings with the tribes. Although our work identifies key issues that the Congress needs to consider in deciding whether to approve the initiatives described in the Plan, it is by no means all inclusive and there are other issues yet to be identified. We conducted our work between April and July 1997 in accordance with generally accepted government auditing standards. As we have reported in the past, Interior’s Indian trust fund accounting and asset management problems are long-standing and permeate all facets of the trust fund management business cycle. They include (1) the lack of accurate, up-to-date information on ownerships to ensure that revenue is distributed to the correct account and the increasing workload associated with fractionated ownerships, (2) inadequate management of natural resource assets resulting in a lack of assurance that all earned revenues are collected, (3) weaknesses in trust fund management systems and internal controls and policies and procedures that result in a lack of assurance about the accuracy of trust fund balances, and (4) the failure, in the past, to consistently and prudently invest trust funds and pay interest to account holders. These overall weaknesses preclude account holders from having assurance that their account balances are accurate and that their assets are being prudently managed. Currently, trust fund accounting and asset management are complicated by the lack of adequate numbers of trained field staff. In fiscal year 1996, the Congress transferred the funding for BIA’s Financial Trust Services to OST. As a result, on February 9, 1996, a Secretarial Order made OST responsible for accounting for IIM receipts and, as a result, a number of BIA staff were transferred to OTFM. However, at a number of area and agency offices, small staffs handle a wide variety of duties of which trust activities are only one part. Consequently, there are insufficient field staff at present to provide separate, full-time collection and accounting functions for OTFM and separate, full-time leasing and ownership recordkeeping staff for BIA. As a result, depending on the agency office, either OTFM or BIA performs IIM accounting functions and procedures for processing receipts, leasing activities, paying allowed claims, administering IIM accounts (including establishing new accounts), monitoring leases, performing guardianship activities, and billing and printing checks. In addition, lines of supervision and accountability are sometimes blurred. This problem has not yet been resolved. Moreover, continued fractionation of Indian land and lease ownerships has seriously complicated trust fund accounting and asset management. According to the Strategic Plan, Interior may soon be unable to cope with the recordkeeping of land titles and accurate distribution of income due to the worsening fractionation. The Plan contains a proposal for dealing with this problem. Interior officials agree that fractionation must be reduced and eliminated to ensure the success of Indian trust fund accounting and resource management reforms. Interior has submitted a legislative proposal for congressional consideration. The Strategic Plan proposes a two-phase change to Interior’s current organizational and management structure for Indian trust management. The first phase would establish a single organization for trust management activities—the American Indian Trust and Development Administration (AITDA)—independent of the Interior Department. The proposed organization would be in the form of a government-sponsored enterprise (GSE). The AITDA would be organized by function—such as accounting or land titles—and would be managed by a full-time Chairman and Chief Executive Officer and a five-member Board of Directors appointed by the President and confirmed by the Senate. Three members are to be proposed by the Indian community and two members—the Chairman and Chief Executive Officer—are to have financial and trust management expertise and may also be American Indians. Board members would serve staggered terms of 12 years. Attachment II provides a chart showing AITDA and identifies those organizational components of AITDA and lines of coordination with Interior agencies. The Plan proposes that AITDA assume the federal government’s Indian trust authority related to Indian trust funds and assets. It also proposes that certain organizations and related funding be transferred to AITDA—including OST and OTFM, BIA’s Land Title and Records Office, and Interior’s Office of American Indian Trust—along with various Interior agency records management functions related to trust fund accounting and asset management. Specifically, the Plan proposes that responsibility for and funding of various Interior asset management and compliance functions be transferred to AITDA. These transfers include the following: BIA’s leasing activities and its Land Title and Records Office to AITDA’s Trust Resources Management Division. BLM’s lease inspection, enforcement, and production verification activities to AITDA’s Trust Resources Management Division. MMS’ compliance and valuation function to AITDA’s Risk Management and Control Division. Interior’s Office of American Indian Trust to AITDA’s Risk Management Control Division. According to the Plan, AITDA would use the funds transferred from BIA, BLM, and MMS to contract with these agencies or with tribes to perform the related trust asset management activities. Also, it would use funds transferred from MMS to contract with MMS for compliance and control functions and perform oversight of self-governance tribes, respectively. However, AITDA would have the option to contract with other entities for these services. In addition, the Plan would create the following three new organizations within AITDA: the National Indian Fiduciary Records Center, responsible for controlling and preserving all Indian trust-related records, to be located in Albuquerque, New Mexico, near OTFM; a trust risk management unit to conduct operational audits, credit and compliance reviews and audits of outside servicers (including BIA, BLM, MMS, and tribes) and to perform appraisals and other asset management functions; and a centralized technical center for data processing. To support the operations of the new organization, the Plan calls for hiring qualified staff; acquiring or modifying trust fund accounting and asset management systems; developing policies and procedures and internal controls; and implementing internal and external audit functions. The major systems that would collectively support the new organization fall under an umbrella concept known as the Trust Asset and Accounting Management System (TAAMS). TAAMS would include trust asset and accounting systems, a land title and records system, and a trust fund general ledger accounting system. The second phase of the Strategic Plan would establish a bank and trust company—the American Indian Trust and Development Bank (TD Bank)—to provide full financial services and economic development funding to Indians. The TD Bank would be a nationwide financial institution, backed by the full faith and credit of the U.S. government, that lends to, invests in, and provides financial services for American Indians, tribes, and their communities. The TD Bank’s Board of Directors’ would consist of five members appointed by the President and confirmed by the Senate and would be “identical with AITDA’s Board.” The TD Bank would initially be capitalized at $500 million by the federal government through “appropriations, judgment funds, or funds provided by other government-sponsored enterprises.” This initial capital would be permanent. Ownership of the TD Bank would be distributed in initial capital stock to federally recognized American Indian Tribes in proportion to the number of Indians living on or near reservations, as determined by the latest census or other appropriate information. This stock ownership would not be subject to sale, trade, or withdrawal. Except for the right to receive dividends and qualify for certain types of loans, the Plan does not explain the rights and privileges that tribes would have as a result of their stock ownership. The TD Bank would be a for-profit financial institution but could also receive appropriations to provide for the cost of lifeline financial servicesand the cost of other programs that the Congress may choose to authorize in the future. The TD Bank would be authorized to invest up to 25 percent (initially $125 million) of its permanent capital in eligible individual Indian and tribal business ventures and projects. The TD Bank would also be allowed to invest up to $300 million for the purchase, holding, and financing of fractionated Indian realty interests on allotted lands. The Plan also proposes that the TD Bank be authorized to receive up to $5 billion in additional funding from borrowing to provide loans and other economic development funding to American Indians. The additional funding would include $3 billion from Treasury borrowing and $2 billion from the sale of bonds and notes to be guaranteed by the U.S. government. The TD Bank would provide financial services through 50 to 75 branch offices located on or near major American Indian communities. In addition, Phase II of the Plan calls for systems technology enhancements and a new headquarters building. These proposals are not fully discussed in the Plan. Phase I of the Strategic Plan includes initiatives that are directed toward (1) data conversion, reconciliation, and backlog cleanup, (2) upgrading some existing systems and acquiring new systems, and (3) substantially changing the way existing programs and functions are performed. To implement these initiatives, the Strategic Plan includes budget estimates indicating that about $168 million will be needed for fiscal years 1997 through 1999 and approximately $61 million and $56 million in fiscal years 2000 and 2001, respectively. These cost estimates are generally based on the OST contractor’s assessment of the costs of similar functions performed by private sector trust companies, vendor estimates, actual costs of functions currently performed by certain Interior agencies; and assumptions about the workload, staffing and number of locations to be serviced. We did not attempt to validate the estimates presented in the Plan or their underlying assumptions, nor did we assess whether the estimates included all necessary costs of full implementation of the Plan. Table 1 summarizes the cost estimates in the Strategic Plan. Attachment III details the basis for each of the Phase I cost estimates in the Strategic Plan. Phase II costs in the Strategic Plan include previously discussed capitalization and funding of the TD Bank and the fractionated realty holdings, purchase, and sales program. Costs for Phase II would also include automated systems modifications and acquiring a headquarters building. Estimates of these costs are not provided in the Strategic Plan. A number of areas require further clarification, planning, or consideration before the Plan can move forward. These include implementation timing of certain initiatives, such as records cleanup and acquiring a new IIM accounting system component; proposals, such as establishing a centralized organization and upgrading and acquiring systems, that need more planning before they can be successfully implemented; and issues requiring congressional consideration that relate to the desirability and feasibility of establishing the new organization as a private entity and establishing the trust development bank. Past audits by independent public accounting firms, Interior’s Office of Inspector General, and GAO have identified serious internal control and systems weaknesses that impair the reliability of trust fund accounting. To resolve these weaknesses, auditors have made recommendations for BIA and Interior to take timely actions such as correcting inaccurate and incomplete IIM accounting records, eliminating ownership determination and recordkeeping backlogs, and establishing a master lease file. The Special Trustee has also concluded that there is an urgent need to take action to correct increasingly deteriorating recordkeeping deficiencies. Because Interior lacks the financial and managerial resources to clean up the records, the Special Trustee proposes that the cleanup be outsourced to independent contractors. This proposal is consistent with our past recommendations. Cleanup of IIM accounts is under way, and cleanup of appraisal and lease and ownership backlogs could begin within a relatively short time. As part of TAAMS, the Strategic Plan proposes that the commercial trust accounting and investment system—which is currently used by OTFM for tribal accounts—be expanded to include a component for IIM accounting. Currently, IIM accounts are maintained on BIA’s Integrated Records Management System (IRMS), which is not a trust accounting system. However, in determining the appropriate timing for acquiring an IIM commercial trust accounting system component, certain questions need to be addressed, including whether to (1) convert all IIM accounts to the new system immediately, or convert them as they are cleaned up, (2) identify and archive inactive accounts before conversion, (3) convert small-balance or pass-through accounts (zero balance accounts where receipts are immediately withdrawn) to the new system or maintain them separately. Once these issues and any other identified issues are resolved, the IIM accounting system expansion should be able to move forward, assuming it can reasonably be expected to support the systems and interfaces required to build an integrated TAAMS. The Strategic Plan includes proposals for establishing a centralized organization responsible for trust fund accounting and asset management and upgrading or acquiring systems to support these functions. While the basic premise—the need for a central organization and major systems improvements may be sound, the Plan does not adequately address how these reforms would be implemented. For example, the Strategic Plan refers to MMS’ mineral royalty collection and accounting function, but it also refers to AITDA acquiring a mineral management and accounting system. In addition, the Plan does not adequately define all interrelated business functions, such as the co-located BIA, BLM, and MMS mineral program office in Farmington, New Mexico, or how the proposed new organization will work with BIA, BLM, and MMS to provide assistance to tribes on mineral leasing activities. Furthermore, the Plan does not adequately address how BIA’s agriculture, forestry, and realty activities will be performed in the future. Finally, the Plan was developed without sufficient input from affected Interior agencies. For example, BIA, BLM, MMS, and Office of American Indian Trust officials told us that they were not consulted on the development of the Plan. Changes in trust systems outlined in the Plan could have major effects on the business processes and practices in these agencies. The Plan needs to be more fully developed to (1) provide adequate evidence of a framework for sharing related business and functional information and program requirements among the cognizant organizations and functions and (2) support the design and development of management and information systems. In addition, before proceeding with the major information technology investments proposed by the Plan, the processes and structures required by the Paperwork Reduction Act of 1995, the Clinger-Cohen Act of 1996, and OMB guidance for funding information systems investments need to be put in place. These include the development of a strategic Information Resources Management (IRM) plan, criteria for the evaluation of major information system investments, and an information architecture which aligns technology with mission goals. Because OST has not developed a strategic IRM plan, and investment process, or an information architecture, the organization risks acquiring systems that will not meet their business needs. In late May 1997, in response to the Clinger-Cohen Act, Interior hired a Chief Information Officer (CIO) with both industry and federal agency experience. The CIO and the Special Trustee need to work closely to ensure that the investments in information systems are made appropriately and effectively. Because of the systems’ size, impact, and complexity, the Department has reported to the Office of Management and Budget that these trust systems constitute a major information system investment for Interior. Two fundamental issues need to be addressed before the Congress can make further decisions on whether and how to implement the Strategic Plan’s proposed initiatives. These two issues relate to the desirability and feasibility of establishing (1) AITDA as a government-sponsored enterprise (GSE) and (2) the Indian Trust Development Bank. The Plan needs to provide more information on each of these proposals in order to support full consideration by the Congress. Specifically, (1) The Strategic Plan proposes the establishment of AITDA as a single organization responsible for trust fund and asset management activities. The Plan proposes that AITDA be a GSE which is, typically, a private corporation. The Plan should more fully address the extent to which the United States may transfer trust authorities and responsibilities to a GSE. The government assumed many of these authorities and responsibilities as a result of treaties negotiated with individual Indian tribes. Although the Plan characterizes AITDA as a GSE, it proposes that AITDA receive appropriations and congressional oversight. The Plan does not identify, however, the amount of funding or whether the funding will be appropriated directly to AITDA or provided in the form of grants or borrowing authority. Also, the plan does not discuss what is meant by congressional oversight. The Plan proposes that AITDA, a private entity, oversee the functions of various Interior agencies. Typically, nonfederal entities do not have oversight responsibilities for federal agencies. This issue needs to be addressed in the Plan. (2) The Strategic Plan proposes the establishment of an Indian Trust and Development Bank. The Plan also proposes that the TD Bank receive appropriations, judgment funds, or funds provided by other GSEs. Under current law, judgment funds are not available to fund programs. Also, the nature and type of contractual arrangement with private sector institutions needs further clarification and explanation. In addition, the basis for capital to be provided by other GSEs needs to be defined and clarified. The relationship, contractual or otherwise, that would exist between the AITDA and the TD Bank is not fully defined. This relationship, including the degree of liability that the AITDA would be subject to regarding the TD Bank’s operations, also needs to be defined. The Strategic Plan proposes that the TD Bank provide a wide range of lifeline services at no cost or at a subsidized cost. These services include basic functions such as checking and savings accounts, money orders, and account statements, but also include tax, investment, and retirement planning services. Because these services would likely be funded by appropriations, their cost needs to be identified. The Plan would require that the federal government maintain equity capital equal to 5 percent of average risk-adjusted assets. Because this could result in significant additional contributions by the federal government resulting from losses or expansion by the TD Bank, the appropriateness of this proposed requirement needs to be addressed. Limitations on who can be a customer or shareholder (whether only tribal members with certificates of Indian blood and federally recognized tribes or others, including non-Indians) needs to be defined and clarified. These are key implementation issues that must be considered before the Plan can move forward. Additional information is needed from the Special Trustee about the proposed organization so that the Congress may carefully consider the government’s Indian trust responsibility; type of organization, funding, and oversight; the types of programs and services to be provided by the new organization; and the relationship of any new organization to the Interior Department and other external organizations. Once these and other organizational issues are resolved, the next step is to proceed with the development of the information systems planning described earlier. In our view, both the additional organizational planning and the information systems planning are essential to the success of this important endeavor. Mr. Chairman and Mr. Vice Chairman, this concludes my statement. I would be glad to answer any questions that you or the Members of the Committee might have. (OST) (OTFM) (BIA/LTRO) (OAIT / MMS) The Strategic Plan includes budget estimates indicating that about $168 million will be needed for fiscal years 1997 through 1999 and about $61 million and $56 million for fiscal years 2000 and 2001, respectively, to implement Phase I of the Plan. The Office of the Special Trustee’s fiscal year 1997 appropriations included a little over $13 million to begin these improvements. Table III.1 summarizes the cost estimates contained in the Strategic Plan followed by detailed explanations of the basis for these cost estimates. As agreed with committee staff, we did not attempt to validate these estimates or assess whether they represent the full cost of implementing the Plan. The following discussion explains the basis for the cost estimates for the three main components of the plan—data conversion, reconciliation, and backlog cleanup; upgrading and acquiring systems; and forming a new organization. The principal objective of Phase I of the Strategic Plan is to address and resolve the root causes of the long-standing trust management problems as quickly as possible. The Plan proposes that $49 million be provided for fiscal years 1997 through 1999, and $8.6 million and $7.2 million for fiscal years 2000 and 2001, respectively, to support data conversion to new systems. These estimates include cleanup of probates, land title records, IIM and tribal accounting records and reconciliations, and appraisals. Table III.2 summarizes these costs. To eliminate probate backlogs, the Plan proposes that $11.5 million be provided for fiscal years 1997 through 1999 and $1.4 million be provided in fiscal year 2000. This estimate includes approximately $1.1 million for BIA agency office initial document preparation, $2.4 million for probate hearings and appeals, and $8 million for BIA’s Land Title and Records Office (LTRO) title and ownership determination and recordkeeping for fiscal years 1997 through 1999. The Plan also estimates that $1.4 million will be needed for fiscal year 2000 to complete the LTRO effort. The estimate of $1.1 million for fiscal years 1997 through 1999 to reduce the backlog associated with BIA agency office preparation of probate documents was based on OST’s estimate of a backlog of 3,500 probates and an average workload of 10 completed probates a month per probate clerk, or 120 per year. Thus, the Plan proposes providing a total of 30 probate clerk staff years at a GS-7 salary and benefits rate of $38,000 a year. The estimated $2.4 million for fiscal years 1997 through 1999 to eliminate probate court hearing and appeals backlogs was based on OST’s estimate of a backlog of 3,453 cases. The Plan proposes providing an additional 12 administrative law judges and 12 paralegals and 12 secretaries at the GS-7 level to eliminate the backlog. To eliminate backlogs in land title and ownership determinations and recordkeeping, the Plan proposes that $8 million be provided for fiscal years 1997 through 1999, and that an additional $1.4 million be provided for fiscal year 2000. This estimate is based on BIA information on backlogs and the level of effort needed to complete the tasks shown in table III.3. To clean up inaccurate IIM accounting records and perform data and document checks, the Plan proposes that $7.4 million be provided through fiscal year 1999. Cost estimates for cleanup of IIM accounting records are based on OTFM’s experience with records cleanup at five field offices. As of mid-July 1997, OTFM had performed work at 11 BIA agency offices to clean up IIM records. Cost estimates for data conversion of IIM and lease records from BIA’s Integrated Records Management System (IRMS) to the expanded trust accounting system are $2.2 million for fiscal years 1997 through 1999. These estimates are based on data obtained from private sector trust companies for conversion of similar data. To support LRIS conversion, reconciliations of ownership data, and cleanup of defective titles, the Plan proposes that $4.6 million be provided for fiscal years 1997 through 1999, and that $2 million each be provided for fiscal year 2000 and fiscal year 2001. These estimates cover Land Title Office research, review, and identification of all tracts with title defects. The Plan estimates that $3 million will be needed for imaging cleanup for fiscal years 1997 through 1999. The cost estimate is based on the level of work needed to complete the electronic imaging of documents (preparing a hard-copy document in electronic form) identified for the tribal reconciliations. To support asset management and cleanup appraisals, the plan proposes that $20 million be provided for fiscal years 1997 through 1999 and that $5 million each be provided for fiscal year 2000 and fiscal year 2001. The cost estimates are based on (1) OTFM’s estimates that there are, on average, 100,000 active leases at a given point in time and that 20,000 of these produce 80 percent of the total lease revenues, (2) fee information for summary report appraisals obtained through interviews with private sector appraisal companies in two geographic areas of the country, and (3) appraisal policy assumptions that transactions producing 80 percent of the total lease revenue from Indian lands would receive an outside, certified, independent appraisal during fiscal years 1998 and 1999 and once every 5 years after 1999, and that 5 percent of smaller-revenue leases would receive an independent appraisal annually. The Plan estimates that about $61 million would be needed for fiscal years 1997 through 1999 and approximately $31 million and $29 million for fiscal years 2000 and 2001, respectively, to implement the new systems. The estimated systems and infrastructure costs are shown in table III.3. Trust Asset and Accounting Management System (TAAMS) Land Title and Records Management System (LTRMS) General Ledger System (GLS) According to the Plan, the $18 million for TAAMS includes about $17 million for the trust fund accounting system and about $.8 million for a trust real property system for fiscal years 1997 through 1999. The accounting system costs are based on estimates obtained from commercial trust system vendors and include estimated annual account maintenance fees of $35 per IIM account per year for 350,000 IIM accounts and $85 per tribal account per year for 1,500 tribal accounts, which would total about $12 million. The estimates also include one-time licensing and start up fees and user fees. The Trust Real Property Management System component of TAAMS would provide for management and administration of an estimated 100,000 active and pending surface and mineral leases each year. The Trust Real Property Management system would consist of 2 major components—an asset management information system (including a history file), and one or more surface and mineral property management and accounting systems, depending on the type of asset, such as real estate rentals, mineral leasing, and timber contracts. The cost estimate for the Trust Real Property System is based on pricing structures for private sector lease management software that is compatible with commercial trust accounting systems. Cost estimates total about $.8 million for fiscal years 1997 through 1999 including a one-time fee for an interface with the trust financial system. The Plan also proposes a Land Title and Records Management System to provide land title and records management and administration of over 170,000 tracts of land and related title documents. This system is estimated to cost $11 million for fiscal years 1997 through 1999, with costs of ongoing operations of about $6.1 million in fiscal year 2000 and about $4.6 million in fiscal year 2001. These cost estimates are based on BIA estimates for LRIS upgrades to achieve automated chain-of-title and records storage, which were included in OST’s fiscal year 1998 budget request. The Plan proposes that $2.3 million be provided for fiscal years 1997 through 1999 and that $.3 million each be provided for fiscal years 2000 and 2001 for a trust fund accounting general ledger system. These estimates are based on private sector vendor information and OTFM’s current general ledger trust accounting system needs. The Plan proposes that $3 million be provided for fiscal years 1997 through 1999 and that $.3 million be provided each year thereafter for ongoing costs of integrating and implementing the systems described above. To support the overall TAAMS, the Strategic Plan proposes that $26.5 million be provided for fiscal years 1997 through 1999 for an information technology infrastructure, plus approximately $12 million in fiscal year 2000 and about $10 million in fiscal year 2001 for ongoing costs. This infrastructure is to include systems architecture, a local area network, and systems installation. The infrastructure estimate includes $4 million for fiscal years 1997 through 1999, $2 million in fiscal year 2000 and approximately $1 million in fiscal year 2001 for computer equipment and end-user training for tribes. Cost estimates for these systems components are based on private sector vendor fee schedules for servicing over 1,900 sites, 450 tribal and 1,535 AITDA work stations, a network and 120 file servers, software, encryption, laser printers, support, and maintenance. Implementing the new organization is estimated to cost about $52 million for fiscal years 1997 through 1999 and ongoing costs are estimated at $19.4 million for fiscal year 2000 and $18.2 million for fiscal year 2001. These estimates are based on OST’s strategic planning contractor’s analysis of private sector equipment, systems, and software costs. According to the Strategic Plan, implementation costs include those shown in table III.4. Training of AITDA, BIA, MMS, and BLM staff is estimated to cost $10 million for fiscal years 1997 through 1999 and $2.5 million in fiscal year 2000 and $2.3 million in fiscal year 2001. These estimates are based on a training needs assessment and information obtained from private sector vendors on the costs of commercially available courses. The estimate includes nearly $5 million for function and task training for all levels of the organization and over $5 million directed at training four functional groups—end users, end-user support, application developer support, and trust management systems staff. Training costs are projected to vary from $150 per day to $365 per day for each participant depending on the type of training and such factors as the cost to transport trainers to remote locations. In addition to the $10 million for training AITDA, BIA, MMS, and BLM staff, the Plan proposes $2.7 million for end-user training for tribes. That amount is included in the systems infrastructure cost estimates shown in table III.3. Cost estimates of $4.2 million for fiscal years 1997 through 1999 and $.2 million each for fiscal years 2000 and 2001 are to cover development of policies and procedures and legal manuals. These estimates are based on OST’s strategic planning contractor’s assessment of costs for similar efforts at private trust banks. The cost estimates of $9 million for fiscal years 1997 through 1999 and $4.5 million each for fiscal year 2000 and 2001 for the new risk management organization are based on actual amounts spent by risk managers in two separate private sector trust companies with a scale of operations similar to the trust management activities at Interior. As proposed by the Strategic Plan, risk management and control activities would include internal and external audits, review and approval of policies and procedures, oversight of appraisal and leasing functions, and computer security. Risk management and control would be carried out by a Risk Control Group, which would monitor the effectiveness of systems and controls, and an Audit Group, which would be responsible for audit and review of service bureau functions provided by BIA, BLM, MMS, and tribes. The Audit Group would include the following: An Asset Review Division, responsible for internal and external audits and evaluations. An Appraisal Services Division, responsible for assessing real property values and market trends affecting leasing decisions for natural resource assets and portfolio management. A Compliance Division, responsible for ensuring compliance with laws and regulations. The Plan proposes transferring Interior’s Office of American Indian Trust and funding and MMS’ funding for compliance and valuation functions to AITDA’s Compliance Division. The Plan does not include these funds in the AITDA budget proposal because they do not represent new funding, but rather, they represent existing funding that would be transferred to AITDA from these Interior agencies. The incremental costs of the proposed risk management and control function are shown in table III.5. The remaining costs of the new organization include archives and records management, external professional services, and overall management. Archives and records management costs are based on OST’s estimates of costs for a leased facility, personnel, building lease, equipment, supplies, and shipping. The cost for external professional services is based on private sector fee schedules for system integration services. These costs were expected to be $6 million for fiscal years 1997 through 1999 and ongoing costs are estimated as $2.5 million for fiscal years 2000 and $1.5 million for 2001. Overall management costs associated with AITDA are estimated at $5.5 million for fiscal years 1997 through 1999, including $4.9 million for AITDA’s executive management and $.6 million for its Advisory Board. Ongoing costs are estimated at $1.9 million, including $1.7 million for AITDA and $.2 million for the Advisory Board in both fiscal years 2000 and 2001. According to OST, AITDA cost estimates are based on OST’s current authorized staffing and related operating costs for office space and travel. Advisory Board cost estimates are based on current OST Advisory Board costs for travel and per diem at government rates. Paperwork Reduction Act of 1995, requires agencies to use information resources in a manner to improve the efficiency and effectiveness of their operations in the fulfillment of their missions. Clinger-Cohen Act of 1996, requires federal agencies to focus on results that they are achieving through information technology (IT) investment. The act requires the head of an agency to implement a process for maximizing the value and assessing and managing the risks of the agency’s IT acquisition and ensuring the development of reliable financial and program performance information. The act also requires agencies to appoint a Chief Information Officers (CIOs) to direct and oversee agency information resource management. Federal Acquisition Streamlining Act of 1994, requires agencies to define cost, schedule, and performance goals for federal acquisitions, including IT projects, and monitor the programs to ensure that they remain within prescribed tolerances. OMB Circular A-127, Financial Management Systems, prescribes policies and standards for executive departments and agencies to follow in developing, operating, evaluating, and reporting on financial management systems. OMB Memorandum M-97-02, “Funding Information Systems Investments,” commonly referred to as “Raines Rules,” prescribes decision criteria for evaluation of major information system investments proposed for funding in the President’s fiscal year 1998 budget. Executive Guide: Improving Mission Performance Through Strategic Information Management and Technology (GAO/AIMD-94-115, May 1994). Assessing Risks and Returns: A Guide for Evaluating Federal Agencies’ IT Investment Decision-making, Version I (GAO/AIMD-10.1.13, February 1997). 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GAO discussed the results of its analysis of the Special Trustee for American Indians' Strategic Plan for Indian trust fund accounting and asset management improvement, focusing on: (1) the trust asset management problems that the Strategic Plan proposes to resolve; (2) a high-level summary of the Strategic Plan; (3) the basis for the cost estimates included in the Plan; and (4) implementation issues, including key issues that the Congress would need to consider in deciding whether to approve the initiatives described in the Plan. GAO noted that: (1) management of the Indian trust funds and assets has long been characterized by inadequate accounting and information management systems, untrained and inexperienced staff, backlogs in appraisals and ownership determination and recordkeeping, lack of a master lease file and an accounts receivable system, inadequate written policies and procedures, and poor internal controls; (2) because of these overall weaknesses, account holders do not have assurance that their accounts balances are accurate and that their assets are being prudently managed; (3) to address the Department of the Interior's long-standing Indian trust fund accounting and asset management problems, the Congress passed the American Indian Trust Fund Management Reform Act of 1994, which created the Office of the Special Trustee for American Indians; (4) the act required that the Special Trustee provide oversight of reforms within Interior, including development of policies, procedures, and systems; (5) in April 1997, the Special Trustee submitted his Strategic Plan to the Congress; (6) the Strategic Plan proposes a new organization, independent of Interior, to administer trust fund accounting and asset programs; (7) these proposals are estimated to cost $168 million for fiscal years 1997 through 1999 and another $61 million and $56 million for fiscal years 2000 and 2001, respectively; (8) in addition, the Plan proposes establishing an Indian economic development bank to be capitalized by the federal government; (9) a number of areas require further clarification, planning, or consideration before the Plan can move forward; (10) these include: (a) implementation timing of certain initiatives, such as records cleanup and the acquisition of a new individual Indian Money accounting systems component; (b) proposals, such as establishing a centralized organization and upgrading and acquiring systems, that need more planning before they can be successfully implemented; (c) issues relating to the desirability and feasibility of establishing the new organization as a private entity, including the legality of transferring the federal government's trust authorities and responsibilities to such an entity; and (d) issues relating to the establishment of the trust development bank, including the initial funding and on-going capital maintenance proposals; and (11) in order to appropriately address these issues, more information and analysis need to be included in the Plan to provide clarification of the authority and responsibility of the proposed organization, and its relationship to Interior.

You are an expert at summarizing long articles. Proceed to summarize the following text: The first space shuttle launch occurred on April 12, 1981. During the 25th launch on January 28, 1986, the shuttle Challenger was destroyed shortly after liftoff from Kennedy Space Center. Shuttle flights were suspended while the accident was investigated by the Presidential Commission. The shuttle returned to flight on September 29, 1988. Since that time, it has flown successfully about 50 times. The Presidential Commission determined that the 1986 accident was caused by a faulty seal in one of the solid rocket motor joints. The Commission also found other contributing causes to the accident, such as management isolation, communications failures, and lack of a properly staffed, supported, and robust safety organization. According to the Commission’s June 6, 1986, report, the decision to launch the Challenger was based on incomplete and sometimes misleading information, a conflict between engineering data and management judgments, and a the National Aeronautics and Space Administration (NASA) management structure that permitted internal flight safety problems to bypass key shuttle managers. Officials who made the launch decision were unaware of a recent history of problems with the defective solid rocket motor joint and of the motor contractor’s initial recommendation against launching. According to the Commission, if the decisionmakers had known all of the facts, it is highly unlikely that they would have decided to launch. Space flight can never be made risk free because it involves complex hardware and software systems, harsh operating environments, and the possibility of human error. A 1995 study by a NASA contractor, for example, placed the median estimate of a catastrophic shuttle failure at 1 in 145 launches. According to the advisory committee on the Future of the U. S. Space Program, “there can be no acceptable objective among those who would challenge the vastness of space other than perfection.” Unfortunately, as the Committee’s report points out, the objective of perfection is not readily met, especially since space missions are fundamentally difficult and demand undertakings that depend upon some of the world’s most advanced technology and there are many opportunities for error. The shuttle is an extremely complex system. The program employs thousands of people and launching a shuttle requires that 1.2 million separate procedures be accomplished correctly. Also, NASA has identified over 5,000 critical system components whose failure, either singularly or in combination, could cause loss of the vehicle or crew. Because these risks cannot be completely eliminated, they must be identified and properly managed. NASA’s risk management policy requires that program and project management communicate to NASA management and all program/project personnel the significance of assessed risks and the decisions made with respect to them. At NASA, risk management includes identifying the primary risk drivers and estimating the likelihood of occurrence, identifying the ensuing consequences, and determining the cost and schedule impact. NASA policy regarding safety is to avoid loss of life, injury of personnel, damage, and property loss; instill safety awareness in all NASA employees and contractors; assure that an organized and systematic approach is utilized to identify safety hazards and that safety is fully considered from conception to completion of all agency activities; and review and evaluate contractors’ and NASA’s plans, systems, and activities related to establishing and meeting safety requirements to ensure that desired objectives are effectively achieved. Failure modes and effects analyses are conducted for all flight hardware elements and ground support equipment. This analysis starts with the identification of all potential failure modes and evaluation of “worst case” effects. NASA places potential effects of failures into the general categories shown in table 1.1. Hazard analyses are conducted to identify potential safety hazards and means for minimizing the hazards. NASA’s actions to minimize hazards follow the sequence of (1) system designs that minimize potential hazards, (2) use of safety devices if the design does not eliminate a potential safety hazard, (3) use of warning devices to alert the flight or ground crew to potential hazards, and (4) use of special procedures. Approaches for assessing risk can be either quantitative or qualitative, depending on whether statistical probabilities are assigned to a risk element. All risk assessment approaches require experts to make subjective judgments about the risk elements as well as the likelihood of their occurrence. Quantitative approaches, such as probabilistic risk assessments, can be used to assess both the likelihood that an accident will occur (probability) and the level of damage or loss that will result (consequences). Quantitative assessment methods mathematically quantify risk on the basis of engineering judgment, calculated probabilities of component reliability, analysis of potential human failures, and whether they occur singly or in combination. A probabilistic risk assessment, for example, addresses three basic questions: (1) What could go wrong? (2) How likely is it that this will happen? and (3) What are the consequences? Qualitative assessments, on the other hand, assess risk through descriptive information, identifying the nature and components of risk or an ordinal scale, such as high, medium, and low. Qualitative ratings are usually based on the judgments of experts after they consider such things as test and operational experience, analytical results, trends, and other reported data. NASA follows a formal review process in certifying the shuttle for flight. The certification of flight readiness process is a step-by-step activity designed to certify the readiness of all components of the vehicle assembly and all aspects of mission support. The flight preparation process begins with project milestone reviews including (1) element acceptance, (2) payload readiness, (3) software readiness, and (4) project preflight readiness reviews. These reviews are chaired by NASA project managers and the contractors formally certify the flight readiness of the hardware and software. The next step in the process is the program milestone reviews. These reviews are held to assess the readiness for mating the external tank and solid rocket booster, orbiter and external tank, and ferrying the orbiter atop the shuttle carrier aircraft when required. These reviews are chaired by the manager of launch integration and each shuttle element manager certifies that it has satisfactorily completed the manufacture, assembly, test, and checkout of the elements, including the contractor’s certification that design and performance are up to standard. The final step in the flight preparation process is the flight readiness review. This review is held about 2 weeks prior to launch and is chaired by the Associate Administrator for Space Flight. All shuttle elements, safety and mission assurance, center directors, and senior representatives from the major contractors participate in this review. At the end of the flight readiness review, all organizations must certify that the mission is ready for launch. The Associate Administrator for Safety and Mission Assurance is also an active participant. The safety and mission assurance organization holds parallel reviews to assess safety issues related to the planned launch. The safety and mission assurance organization participates in all phases of the flight preparation process. Two days before a scheduled launch, a mission management team holds a review to assess flight readiness. Its agenda includes close out of any open work, close out of any flight readiness review action items, discussion of new or continuing anomalies, and an updated briefing on anticipated weather conditions at the launch site and at abort landing sites in different parts of the world. The mission management team meets every day after the launch –2 day review up to the conclusion of the mission. Figure 1.1 illustrates NASA’s flight preparation process. NASA’s safety organization provides an independent channel for assessing shuttle flight safety. Each center’s safety organization participates in the element acceptance reviews as well as the flight readiness review and the mission management team. Participation in these reviews provides the opportunity for NASA’s safety organization to express any residual concerns about the safety of an upcoming mission. The organization also holds independent prelaunch assessment reviews. In addition, the Associate Administrator for Safety and Mission Assurance attends the flight readiness review and has a direct communications link to the NASA Administrator. Other program briefings and reviews are also a part of the certification of flight readiness process. For example, the program manager holds an early morning telephone conference with the shuttle centers and headquarters each day to discuss the status of progress and problems. Likewise, about midday the working level shuttle managers hold a telephone conference to provide updated information. Safety and mission assurance personnel attend all of the shuttle program and project meetings and contribute their independent views. The former Chairman, Subcommittee on Investigations and Oversight, House Committee on Science, Space, and Technology, asked us to review NASA’s management of risk associated with flying the space shuttle. Specifically, we reviewed the actions NASA has taken to improve the free flow of information in the launch decision process and the progress NASA has made in adopting quantitative methods for assessing risk. To assess the communications environment, we reviewed policies, procedures, and practices related to management of the shuttle program used by the agency in making launch decisions; we observed various shuttle processing reviews, including a shuttle launch; and discussed various aspects of the program with those responsible for its management. We also conducted discussions of these topics with groups of shuttle and safety managers at NASA Headquarters, and the Johnson, Marshall, and Kennedy field centers. Together these individuals represented almost all of the top NASA officials responsible for shuttle launch decisions and management of most shuttle manufacturing and processing work. To understand the flow of risk information within shuttle contractor organizations and between NASA and its shuttle contractors, we also held discussions with groups of program and safety managers and working-level engineers at three of NASA’s prime shuttle contractors. We chose the three contractors because the work is among the more complex and highest risk in the program. Group discussions are very useful for exploring the various facets of communications issues and processes. However, they did not enable us to determine how many participants held a particular view or the intensity of their views. Therefore, to more precisely measure the themes that emerged from the group discussions, we sent a structured questionnaire to the NASA interview participants and some safety representatives who did not participate in the group interviews. Appendixes I through III contain a more detailed discussion of our group interview and survey methodology. To evaluate NASA’s use of quantitative risk assessment methodologies, we reviewed policies, procedures, and practices related to NASA’s shuttle risk management program and held discussions with senior shuttle managers and NASA’s safety and mission assurance organization. We also discussed the use of quantitative risk assessment methodologies with other federal agencies that are responsible for managing complex systems to establish a benchmark for the use of such methods within the federal government. This work included the Nuclear Regulatory Commission and the Federal Aviation Administration. We also obtained information on the Environmental Protection Agency’s use of quantitative risk assessment in the management of superfund cleanup sites. In addition, we consulted outside experts to obtain their views on the usefulness of quantitative risk assessments to NASA. We conducted our review primarily at NASA Headquarters, Washington, D.C.; Marshall Space Flight Center, Alabama; Johnson Space Center, Texas; Kennedy Space Center, Florida; Thiokol Corporation, Ogden, Utah; and Rocketdyne Division of Rockwell International, Canoga Park, California. We conducted our review between June 1994 and December 1995 in accordance with generally accepted government auditing standards. Good communications is one of the keys to effective risk management. Without adequate information about risks, launch decisions may be flawed as they were in the case of the Challenger accident. Interviews with key shuttle program officials, survey data, and our observations indicate that NASA has been successful in creating communication channels and an organizational culture that encourages people to discuss safety concerns and to bring those concerns to higher management if necessary. NASA has announced plans to make fundamental changes in the way it manages the shuttle program—turning day-to-day management over to a single prime contractor and reducing direct NASA involvement. Some managers expressed concern about the potential impact of this change, particularly with respect to staffing and organizational restructuring. NASA’s challenge will be to ensure adherence to the communications principles that are essential to promoting shuttle safety. According to the Presidential Commission, prior to the Challenger accident, project managers for the various elements of the shuttle program felt more accountable to their center management than to the shuttle program organization. As a result, vital program information frequently bypassed the program manager, who was located at the Johnson Space Center. The Commission recommended that NASA give the program manager authority over all program funding and work. In response, NASA centralized program management in a shuttle program director at headquarters with overall responsibility for shuttle operations and budgets. Also, the program manager at the Johnson Space Center was made a headquarters employee in order to minimize center-to-center communications problems. Effective January 31, 1996, however, shuttle program management responsibility was transferred from the headquarters director to the Johnson Space Center director. Because NASA has not yet prepared a detailed plan for implementing this change, we could not fully evaluate its implications. However, according to NASA officials in the Office of Human Space Flight, the Johnson Center director will have full authority over the shuttle resources and work at all participating centers and will report directly to the NASA administrator. NASA has also given astronauts a role in certifying the shuttle for launch and encouraged them to move into shuttle management positions, as recommended by the Presidential Commission. NASA also established the Headquarters Office of Safety and Mission Assurance under the direction of an associate administrator reporting directly to the NASA administrator. The agency strengthened the safety organizations at its shuttle field centers so that each director of safety and mission assurance reports to a center director rather than the engineering organization. NASA also increased the number of people assigned to the safety organization. In addition, NASA established a safety reporting system to provide an avenue for NASA and contractor personnel to confidentially report problems to safety and program management officials that could result in loss of life or mission capability, injury, or property damage. Participants in our discussion groups—both within NASA and in the contractor organizations—described a communication environment that is more open than the one that existed at the time of the accident. Respondents in our follow-up survey portrayed the culture as encouraging contractors and employees to discuss and, if necessary, elevate safety concerns. Discussion groups also identified multiple channels, both formal and informal, for communicating flight safety information. In some cases, these communication channels represent independent, parallel paths for assessing risk. Our own observations and analysis of NASA’s approach to dealing with a recent problem illustrated the openness with which agency officials address safety issues. In group discussions with key NASA and contractor shuttle managers and contractor working-level engineers, we asked them to assess conditions related to the flow of safety information to top management. All of the groups reported that the shuttle program’s organizational culture encourages people to discuss safety concerns and bring concerns to higher management if they believe the issues were not adequately addressed at lower levels. As one manager noted, because of the complexity of the shuttle program, open communication, group discussions, and the sharing of information are essential to flight and work place safety. NASA managers at the three field centers with primary responsibility for managing shuttle elements and at NASA headquarters reported having taken steps to create an organizational environment that encourages personnel at all levels to voice their views on safety to management. One manager noted that people are not afraid to surface their mistakes to management when they discover mistakes have occurred. Another manager said, “If . . . I got the idea that I had a manager in the system who wasn’t allowing their people to feel comfortable in bringing things, probably that’s the time I think I would change that person’s job because . . . our people need to feel that they can come without attribution and talk about what they need to talk about.” Managers in each group we interviewed cited various techniques they use to create an organizational environment that encourages personnel at all levels to voice their professional viewpoints on safety issues to management, even if dissenting. For example, managers invite people to express their concerns by trying to keep every line of communication open and telling people that bringing up a problem does not reflect poor performance; holding extensive dialogue over shuttle safety issues, beginning early in the problem identification stage, so that everyone fully understands the issues; encouraging people to come in or call their managers if they want to talk about a safety concern, no matter how small the issue; and not only encouraging, but expecting, open expression of professional differences at all levels. The contractor managers also described a working relationship with NASA that they believe encourages open communication and the elevation of safety concerns. They described the flow of information between NASA and shuttle contractors as continual, open, and comprehensive. From their perspective, daily contact between contractor and NASA working-level personnel contributes to the exchange of information. Contractor support to and participation in flight readiness reviews and other shuttle processing meetings, and their reporting of safety information directly into NASA’s centralized information systems are among the other mechanisms that achieve that exchange. One manager noted that the Challenger accident prompted a change in his contractor’s management approach. Before the accident, company meetings were closed to the NASA site representatives. Since the accident, NASA representatives attend all technical meetings. Managers from two other contractors said that they would not hesitate to go to the highest levels of NASA management to ensure that safety issues received appropriate attention. Contractor working-level engineers portrayed their organizations as supportive of engineers elevating shuttle safety issues and concerns to management. For example, at one contractor facility, program teams are structured so that minority opinions about the handling of safety problems can be elevated to a higher level board. At another contractor facility, the work environment was described as one that encourages debate, discussion, and never keeping a safety concern quiet. At the third contractor plant, the formal reporting process ensures that NASA and contractor managers are continually apprised of issues, review how issues are resolved, and can request more work if they do not agree with the resolution of a safety issue. The managers and safety representatives who responded to our survey also gave very favorable ratings to NASA’s current communications culture. For example, 90 percent of those responding to the survey said that to a great or very great extent NASA’s organizational culture encourages civil service employees to discuss safety concerns with management. As shown in figure 2.1, more than 80 percent of the respondents to our survey rated the following current shuttle communications and information flow conditions very favorably. As part of our review, we attended numerous certification of flight readiness and prelaunch assessment reviews for shuttle mission STS-64, including the flight readiness review and launch. We observed open and candid discussions, debate of issues, and a structure that required the recording and follow-up of unresolved issues. At most reviews, presentations appeared thorough and participants asked many probing questions to ensure they had an adequate understanding of the issues being briefed. If participants did not believe they adequately understood an issue or additional work was required to resolve an issue, it was listed as an open item to be resolved prior to launch. Managers, safety personnel, and working-level engineers described shuttle program and contractor procedures and structures that provide multiple avenues for continual communication with contractors, across centers, and with headquarters to discuss safety issues. These avenues include the certification of flight readiness process, daily telephone conferences, and weekly meetings. In response to our survey, almost all NASA program managers and safety representatives believe the opportunities to discuss and communicate shuttle issues and concerns meet, or even exceed, the needs of the program in terms of the number of forums held and the types and levels of expertise represented. The certification of flight readiness process requires the involvement of all centers and projects on issues that could affect safety or mission success. In preparation for a launch, NASA relies on a number of reviews to ensure that the shuttle is safe for flight. These reviews are designed to ensure compliance with requirements, that prior problems/failures have been corrected, planned work has been completed, and operational support is in place for the mission. Managers also reported other, sometimes less formal, channels for communicating safety information. For example, the shuttle program manager holds an early morning telephone conference daily, enabling NASA managers at headquarters and the centers to discuss problems and draw upon the experience of others. The manager of launch integration also conduct a daily “noon board” telephone conference to discuss shuttle issues, status, and required changes related to vehicle processing at the Kennedy Space Center. Project representatives from the various shuttle centers participate if the issue involves their shuttle element. Also, NASA’s shuttle program manager chairs a weekly Program Requirements Control Board meeting that is the controlling authority for all changes to the shuttle program baseline. Safety and mission assurance engineers participate in all of these meetings. Further, NASA safety and project representatives at contractor plants help ensure a continual flow of information on contractor issues. In addition, the NASA Safety Reporting System (an anonymous reporting system) provides another opportunity for people to report safety concerns. In addition to taking part in all of the program and project reviews for the certification of flight readiness, NASA’s Office of Safety and Mission Assurance conducts prelaunch assessment reviews of all major shuttle elements. The office’s System Safety Review Panel also conducts several reviews, including a review of in-flight anomalies from previous missions. These safety office reviews are conducted independently of the project offices responsible for the various shuttle elements. Results of the safety office reviews are presented at the flight readiness review. The safety organization continues to monitor shuttle missions up to and during launch. Figure 2.2 illustrates the parallel assessments by safety and mission assurance and the shuttle program and project offices. We asked contractor working-level engineers what avenues are open to them to communicate their views in the event that they disagree with a safety decision made at higher levels of management, either within their organization or within NASA. A variety of communication routes were cited: a company ombudsman, the firm’s safety manager, NASA counterparts, or higher levels of management within the contractor’s organization and the NASA Safety Reporting System. While there was a high level of agreement that the current culture encourages and enables contractors and employees to discuss safety issues and concerns, there was not universal agreement about the kinds of risk information needed for final launch decisions. We asked NASA managers and safety representatives to designate the types of safety issues that should always be briefed in detail to corporate-level management at the final flight readiness review. Seven of the 15 types of issues we asked about were widely endorsed as needing the board’s review; however, opinions were divided in other areas. For example, the views of the board members tended to differ from those of the other managers and safety representatives regarding whether hazards and new waivers should always be briefed in detail. Opinions were also divided about the level of detail that should be provided when there are changes that affect procedures or processes involving the flight crew, operations, software, or shuttle hardware. We also observed differences in the amount of detail provided during two flight readiness reviews. At the first review, we observed that the review board’s chairman required less detail about issues and concerns than at the second review. The second review meeting we observed was chaired by a different official. This official requested a greater level of detail about issues being discussed. Thus, the change in personnel caused some initial confusion about the type and amount of information needed to make corporate-level launch decisions. To provide a better understanding of the cultural and communication path changes within NASA, we compared NASA’s approach to handling the motor joint issue at the time of Challenger with a recent issue concerning another joint in the solid rocket motor. On two successive flights in 1995, hot gas penetrated beyond the joint’s sealer compound and made very small singe marks on the joint’s primary o-ring. NASA was more cautious in its approach to handling the latest motor joint problem. For example, NASA immediately halted shuttle launches and publicly aired the problem. NASA held weekly press meetings to discuss the problem and progress in correcting it. Shuttle and contractor managers at all organizational levels were heavily involved in the issue and the safety organization provided an independent assessment of the problem. NASA did not resume shuttle launches until it was confident that the problem was understood and corrected. Table 2.1 describes our observations. Some discussion group participants told us they are concerned about the impacts of continued cost reductions and planned program changes. Over the next 5 years, plans call for NASA to make significant additional reductions in shuttle costs while maintaining the capability to meet the demanding schedule for international space station assembly and support. Although final decisions have not been made, NASA has initiated a number of actions to further reduce shuttle operation costs, including turning shuttle operations over to a single prime contractor. Some participants in our discussion groups expressed concern about the effect of continued cost reductions and the transition to contractor management of the program. In July 1995, we reported on the schedule pressures created by the International Space Station assembly requirements. Based on our own analysis and internal NASA studies, we concluded that the shuttle’s ability to meet station launch requirements appeared questionable. To meet the station’s “assembly complete” milestone, shuttle officials had designed a very compressed launch schedule. During certain periods of the station assembly, clusters of shuttle flights are scheduled to be launched within very short time frames. For example, the schedule calls for five launches within a 6-month period in fiscal year 2000 and seven launches during a 9-month period in fiscal year 2002. Because the schedule is so compressed at times, there is very little margin for error. There is little flexibility in the schedule to meet major contingencies, such as late delivery of station hardware, or technical problems with the orbiter. We reported in June 1995 that NASA had reduced shuttle operations funding requirements by a cumulative amount of $2.9 billion between fiscal years 1992 and 1995 when the fiscal year 1992 budget request is compared to the fiscal year 1995 request. In our survey, we asked NASA managers and safety representatives what actions had been taken to accommodate the funding reductions and whether these actions, in their opinion, had enhanced, degraded, or had little or no effect on the accuracy, completeness, and timeliness of shuttle safety-related information. Generally, their assessment was that the actions either had little or no effect on quality or somewhat degraded quality. For example, of nine respondents who reported funding reductions accomplished by delaying safety improvements, six said the delay somewhat degraded the quality of safety-related information. However, some respondents reported actions taken to cut costs actually enhanced the quality of information. Just over 75 percent of NASA managers and safety representatives we surveyed believed that NASA emphasized safety over shuttle schedule to a great or very great extent. Figure 2.3 illustrates NASA managers and safety representative responses to our survey question on the extent to which program priorities place greater importance on safety than on meeting schedule. Just over 60 percent of NASA managers and safety representatives we surveyed believe that to a great or very great extent NASA emphasizes safety over reducing cost. Figure 2.4 illustrates responses to our survey question on the extent to which program priorities place greater importance on safety than on cost reduction. Contractor managers and working-level engineers also told us that past funding reductions had not affected the quality of safety-related information they develop. According to the contractor managers, reductions in the shuttle flight rate and various contractor productivity enhancements have enabled them to accommodate past personnel cuts without, they believe, sacrificing the quality of shuttle information they develop. Some working-level engineers in the group interviews cited a variety of concerns about the effects of funding reductions. For example, the engineers said (1) investigations of lower priority issues take longer to complete because there is not enough time to devote to them, (2) keeping people with the required skill level is a concern, and (3) there is a lack of storage in automated databases to archive safety information. In addition, some engineers told us that the funding reductions have adversely impacted employee morale because people are being asked to accomplish more with fewer resources and some employees fear losing their job. Some engineers said, however, that although morale was lower, they did not believe it adversely affected flight safety. In November 1995, the Associate Administrator for Space Flight testified that NASA plans an additional $2.5 billion cumulative reduction from total shuttle funding requirements in fiscal years 1996 through 2000 against the fiscal year 1996 budget request. According to the Associate Administrator, the program will achieve the budget reductions through restructuring and other workforce and content reductions. Both NASA and contractor managers in our discussion groups expressed concerns about how they would cope with additional funding cuts. For example, the project managers for two contractors said that workforce reductions can impact their timeliness in responding to situations that arise. One contractor manager noted that while the company measures various indexes such as “first time quality” and overtime, it is difficult to specify the point at which additional program changes to accommodate funding cuts might reduce quality. Another contractor manager noted that at some point, funding reductions could translate into not having enough people, so that maintaining the required quality will mean continual schedule delays—a signal to the contractor that their program cannot be reduced further. Although firm estimates are not available, NASA expects to achieve significant cost savings by turning shuttle operations over to a prime contractor. The contractor would be responsible for shuttle processing and launch, but NASA will retain the responsibility for making the final launch decision. The single prime contractor would combine many of the tasks now performed under 28 separate shuttle program contracts. Savings are expected to accrue because shuttle operations would be more efficient and require fewer civil service employees. Current plans are to award the contract by fiscal year 1997. During our discussion groups, some NASA managers expressed concern about the transition of shuttle operations to a single prime contractor. They feel that over the years NASA has assembled an expert shuttle operations team and there are many unknowns about making a transition to a new way of doing business. For example, the safety and mission assurance organization maintains independent oversight of shuttle operations. NASA’s projections are that the quality assurance oversight role will be reduced under the single prime contractor concept of operations. Although managers expressed concern about transitioning to a single operations contractor, in response to our survey, 76 percent of the managers and safety representatives said that quality assurance inspections and reviews should be decreased. According to NASA, there will continue to be independent oversight and the agency has plans to assure that the oversight/insight will be properly focused with the reduced level of resources expected. NASA will retain decision authority and direct oversight over work that is considered out-of-family (those events/activities that may contain a level of risk beyond the known and accepted level). In addition, NASA will retain the developmental effort for new hardware. This work will transition to the single prime contractor, but only after all the unknowns are understood by NASA. Further, NASA will return to an oversight mode when there is an indication that there is an increase in the understood level of risk for any reason. The single prime contractor will be required to propose a process for performing risk assessment and to demonstrate that they are able to institute and properly manage the process. This includes the process for keeping NASA informed of issues that have the potential for increasing risk. Through our discussion groups, individual interviews, and observations, we identified several management principles related to communication and information flow that appear to guide shuttle communications. We also identified additional management principles that we believe are essential to promoting shuttle safety in the future. In our survey, we listed these principles and asked NASA managers and safety representatives to identify those guiding principles that they believe are essential to promoting shuttle program safety as NASA deals with budget constraints, associated downsizing, and restructuring in the near term, and with continuation of shuttle flights in the long term. A large percentage of managers and safety representatives we surveyed agreed that the following principles are essential to promoting shuttle safety. The organizational environment and structures for both contractor and NASA personnel encourage timely, open discussion and debate to ensure managers have the benefit of all relevant knowledge of shuttle program issues. Managers (civil service and contractors) stress safety over schedule and cost and those managers foster these values among employees. The organizational environment encourages people (civil service and contractor) to elevate concerns to higher management if they believe the issues were not adequately addressed at lower levels. The working arrangement between NASA and contractors ensures agency managers obtain continual knowledge of problems and issues so that appropriate decisions can be made. Organizational mechanisms enable NASA corporate-level managers to carry out their decision-making responsibilities for certifying readiness for flight. NASA uses the most appropriate analytic and quantitative methods available to assess shuttle risks and conduct sufficient assessments and reviews to carry out the agency’s oversight of shuttle work processes. Management information systems, including databases, are accessible, accurate, complete, and timely for shuttle program oversight and decision-making. The NASA environment is a self-evaluative one that monitors its effectiveness in communication and information flow and seeks ways to improve it. In addition to the principles previously listed, some NASA managers provided additional principles that they believe are essential to promoting shuttle safety as NASA deals with budget constraints, downsizing, and restructuring. Management of changes in the program receives adequate attention and time to ensure that (1) program priorities are adhered to, (2) government and contractor responsibilities for the reporting and resolution of safety-related issues are clearly defined, and (3) changes to the shuttle program are appropriately evaluated before implementation. Appropriate training is conducted to ensure that personnel can effectively and efficiently carry out their work when changes in program operations, processes, and staffing occur. Morale and the working environment of employees are considered key elements in assuring a safe and quality program. Prime contractor management methods ensure quality of subcontractor work. NASA has created an organizational culture that encourages shuttle program and contractor employees at all levels to bring safety concerns to the attention of NASA’s top management. NASA has also established policies and procedures to ensure the free flow of needed safety-related information. However, in response to our survey, some shuttle program personnel expressed concern about whether NASA might be emphasizing cost reductions over flight safety as planned budget reductions and operational changes occur. Also, in response to our survey, several types of issues were endorsed as always needing the flight readiness review board’s attention. However, opinions were divided in other areas, suggesting that managers and safety representatives may not be clear on each other’s expectations about the issues that should always be briefed. If, as is likely, the planned shuttle operations contractor assumes more of the burden of providing information to the flight readiness review, it will be important to clearly specify the type and level of detail of information to be provided. NASA has adopted certain management principles that help guide the shuttle launch decision process. These include such steps as stressing safety over schedule and cost and developing an organizational culture that encourages both contractor and NASA personnel to elevate concerns to higher management if they believe the issues were not adequately addressed at lower levels. We recommend that the Administrator of NASA identify guiding principles of good risk management, such as those contained in this chapter, and ensure that terms and conditions of the planned shuttle operations contract reflect these principles. We also recommend that the Administrator take steps to ensure that flight readiness review participants understand and agree on the minimum issues that should always be discussed at the review and the level of detail that should be provided. In commenting on a draft of this report, NASA agreed with our first recommendation and stated that the agency is taking steps to implement it. According to NASA, the shuttle flight operations contract request for proposal and statement of work have been carefully reviewed and these documents reflect the principles of good risk management described in this report. NASA said that it will ensure that the contract terms and conditions are compatible with these principles. Regarding the second recommendation, NASA said that it is appropriate and the agency has recently completed an activity to update and clarify the roles and responsibilities of each program element and organization relative to the flight readiness review. The new procedure is to be fully implemented in support of shuttle flight STS-78 in June 1996. We made additional changes to the report, where appropriate, based on NASA’s technical comments. The National Research Council recommended in 1988 that NASA apply quantitative risk assessments to the shuttle program. However, NASA still relies primarily on qualitative methods to assess and prioritize significant shuttle risk. This approach relies heavily on the judgment of shuttle engineers to identify significant risk items that could cause loss of a shuttle or crew. Although NASA awarded a contract for development of a quantitative method model known as a probabilistic risk assessment for the shuttle program, NASA has not fully assessed the potential benefits of using the tool in routine shuttle decision-making. The agency also has not developed an overall strategy for assuring use of this method where it is appropriate. In addition, databases are not always timely, complete, accessible, or reliable enough to be used in these type analyses. The National Research Council investigation of NASA’s risk assessment approach following the Challenger accident found that quantitative assessment methods had not been used to directly support NASA decision-making related to the space shuttle. The Council recommended that probabilistic risk assessment approaches be applied to the shuttle at the earliest possible date. They also recommended that databases be expanded to support probabilistic risk assessments, trend analysis, and other quantitative analysis and that NASA develop a statistical sciences capability to perform necessary risk assessments. Quantitative methods, such as probabilistic risk assessments, have been used in the decision-making process by other federal agencies involved in high-risk ventures. For example, the Nuclear Regulatory Commission uses probabilistic assessments in its regulation and oversight of nuclear power plants. These techniques are used to assess the safety of operating reactor events and as an integral part of the design certification review process for advanced reactor designs. Commission officials stated they have found probabilistic risk assessments to be an effective tool for making plant-by-plant examinations to determine areas needing more emphasis, such as how long it takes a utility to respond to problems. Commission officials told us that, in their experience, probabilistic risk assessments can help identify and focus their attention on risk areas that require the most resources. The Environmental Protection Agency uses quantitative risk assessments to determine the health risks posed by superfund hazardous waste sites. The agency reviews contaminated sites for investigation and cleanup. One element of the investigation is a baseline risk assessment—an evaluation of current or potential threat to human health. The evaluation establishes probabilities that are used to decide whether a site requires cleanup. For example, if the risk of humans developing cancer from site chemicals is greater than 1 in 10,000, Environmental Protection Agency policy requires that the site be cleaned. NASA pointed out that it is important to make a clear distinction between quantitative risk assessments in general and the specific probabilistic risk assessment method when determining the value of applying these methods to space hardware issues. NASA said it recognized that probabilistic risk assessments had proven valuable at the Nuclear Regulatory Commission and the Environmental Protection Agency. However, this method did not have comparable utility at NASA. Reactor design and certification risk assessments are based on failure rates compiled from hundreds of plants and facilities while the shuttle has significantly less hard data available to quantify risk. In addition, NASA said the public health risk posed by nuclear power plant accidents or toxic waste sites argues for a multimillion dollar investment in risk assessment that can span years of analysis. In contrast, according to NASA most shuttle risk issues must be resolved in a shorter time frame. In response to the Council’s interim report, NASA began taking tentative steps toward the use of probabilistic analysis by initiating contractor trial probabilistic risk assessments of some shuttle elements. In parallel with this, NASA began developing a procedure to prioritize the shuttle’s highest risk elements. This proposed technique would lend itself to the incorporation of quantitative measures of risk and probabilities of occurrence as these measures were developed. NASA planned to assess the benefits and applicability of this method to the shuttle risk management process based on the results of the contractor studies. A former Associate Administrator for Safety and Mission Assurance indicated that he would personally evaluate the probabilistic risk assessment technique and develop a strategy for introducing it throughout NASA. However, the strategy has not yet been developed. Regarding its databases, NASA responded by developing a centralized database designed to improve the quality of information by providing an integrated view of the status of shuttle problems in near real time. The Council recommended that development of this system be given a high priority. NASA developed a database to provide information, but, as discussed in other sections of this chapter, that database has limitations. NASA officials told us that while some progress has been made, the use of probabilistic methods have not reached a mature state at NASA. NASA has made limited use of probabilistic risk assessments of the shuttle, including proof-of-concept studies, assessment of some specific shuttle systems, and required assessments of accident probabilities for launches involving radioactive material. A 1994 survey of probabilistic methods used in structural design, which included some shuttle projects, found that there is no agreed-upon approach across centers for preferred methods, practices, or software and that the various quantitative tools have not been fully examined, evaluated, and accepted by NASA centers. In early 1994, the NASA Administrator and the Office of Space Flight concluded that a probabilistic risk assessment of shuttle risk was needed to guide safety improvement decision-making. According to a safety official, NASA contracted with Science Applications International Corporation in January 1994 to conduct a probabilistic risk assessment of the space shuttle. This was the first assessment to include a complete shuttle mission. The contractor was required to develop and apply a risk model of the shuttle during flight and to quantify in-flight safety risk. The analysis was to identify, quantify, and prioritize risk contributors for the shuttle. According to the model’s author, secondary objectives were to provide a vehicle for introducing and transferring probabilistic risk assessment technology to NASA, and to demonstrate the value of the technology. The model was completed in April 1995. According to the contractor who developed the probabilistic risk assessment model, the model could be a useful tool in NASA’s management of shuttle risks. For example, the model might be used to establish realistic cost objectives for redesigning the high risk components, helping to assure that limited resources are focused toward solving those problems that will have the most impact on safety. The National Research Council also noted that a detailed quantitative risk assessment provides decision makers with a better basis for managing risk. An internal shuttle program survey of managers, safety experts, and senior engineers revealed mixed reactions to the model. Although generally positive, respondents cited some concerns. For example, some respondents commented that more use of actual failure data would have benefited the analysis and that some assumptions used were debatable. Some found fault with the excess use of expert opinion and the lack of thoroughness in delineating certain assumptions. Following the survey, the Deputy Associate Administrator for Space Flight informed shuttle and safety managers that they should feel free to use the report and model as a “limited tool in the risk management tool box.” According to some NASA safety officials, the model has not been routinely used by NASA personnel as a risk assessment tool because officials are still evaluating the utility of the model and barriers exist to its use by NASA employees. For example, there is no instruction manual for using the model and it requires use of contractor owned software. According to safety officials, NASA does not have current copies of the required software and older inadequate versions are limited. According to these officials, only one NASA employee has been able to use the model on a NASA computer using the older software. In addition, no firm decisions have been made regarding maintenance and update of the model to reflect shuttle changes, such as the super light weight external tank. Safety officials stated they are continuing to assess the model to determine its utility within NASA. NASA project and safety officials compile a list of significant shuttle risk issues for each project to target resources and manage risk reduction efforts. Only risks that can be reduced by incorporating hardware or procedure modifications are included in the assessment. According to NASA’s April 1995 shuttle safety risk ranking methodology guidance, the source of risk information currently used in the rankings is qualitative and the process ranks catastrophic events by judgmentally derived prioritization matrices. The guidelines state that many comparisons of catastrophic events could be made but are sometimes subjective, emotional, and rely on different techniques. A complete probabilistic risk assessment would be the most desirable analysis, according to the guidelines, but probabilistic analyses are labor-intensive efforts that require many system experts, a complete understanding of the methodology, and proper management of the effort. NASA has made limited progress in adopting the National Research Council’s recommendations that the agency assess risk with quantitative methods, such as probabilistic risk assessments. NASA uses a variety of methods to assess shuttle risk issues, and efforts are underway to increase the use of quantitative methods. Qualitative methods are still widely used when risk issues are thought to be well understood. NASA has made limited use of the classical probabilistic risk assessment method of analysis. Cost, lack of specific expertise, and lack of data are the reasons cited for limited use. According to shuttle and safety managers, lack of a strategy for incorporating the methods into decision-making processes has impeded NASA’s progress in adopting the National Research Council’s recommendations on risk assessments. Also, insufficient expertise exists at NASA to conduct specific quantitative analyses, such as probabilistic risk assessments. NASA project and safety officials told us that progress in implementing quantitative risk assessment methods has been impeded because NASA does not have a working strategy for formalizing these methods for the shuttle program. Such a strategy would include clear and measurable goals, resource requirements, assessments of current utilization and skills within NASA, and training needs, including the need to learn by doing selected projects. Without this focus, projects and safety organizations are skeptical about the cost and benefits of using the probabilistic risk assessment model. Project and safety officials at several centers expressed concerns about the applicability of probabilistic risk assessments to the shuttle program. While officials stated they recognize probabilistic risk assessments could be used as an effective additional tool to assess risk, they see a need for more training on the methodology and the need to learn by doing selected projects. Several stated they do not have the resources needed for this type analysis but are stretched just to operate their programs. Several officials stated they believe there is a lack of trust in the probabilistic risk assessment method because people do not understand it. Many officials expressed concern about the complexity of the shuttle probabilistic risk assessment model, the lack of good data, and the dependence upon the contractor to make needed changes to the model. Several officials commented that NASA needs a “champion” at headquarters to provide a focused effort to emphasize use of these tools when appropriate. NASA headquarters safety and mission quality officials stated they have not developed a master plan for formalizing quantitative techniques within NASA or made the progress they would like in this area. However, steps are being taken to address several of the concerns expressed by project and safety officials at the centers. For example, training courses in risk management and assessment are being planned that will be offered to safety and other NASA personnel. Reference manuals on sources for data and techniques on risk assessments are under contract. According to NASA safety officials, the first effort to develop these type documents began in 1989 but was unsuccessful and the documents were not published. However, NASA has established a coordination committee to develop a standard, comprehensive approach to introduce structural design methods that can be used in the shuttle program. NASA is also trying to give this issue visibility as the agency plans to move to a single prime contractor and to assure that the statement of work contains provisions that the contractor use quantitative risk assessment techniques where appropriate. According to the National Research Council, decisionmakers within NASA must be supported by people skilled in the statistical sciences to aid in the transformation of complex data into useful information. The Council recommended that NASA develop a staff of experts in these areas to provide improved analytical support for risk management. NASA officials at several centers and at NASA Headquarters told us they lack sufficient personnel with these skills, and in one case, a center lost needed contractor skills that caused the delay or termination of a planned analytical project. A 1994 NASA survey of probabilistic methods used in structural design work found that a wide variance of knowledge exists at the centers and that a majority of working-level engineers are not familiar with and do not use probabilistic methods. Another factor that has hindered development of quantitative methods of risk assessment is that NASA’s databases do not always provide timely, accessible, accurate, and complete information. A large percentage of managers and safety representatives we surveyed believe that NASA should provide management information systems, including databases that are accessible, accurate, complete, and timely for shuttle program oversight and decision-making. However, more than half assessed NASA’s current management information systems as needing improvement. NASA has developed automated database systems to provide shuttle data used in decision-making. One system, called the Program Compliance Assurance and Status System, is a central database designed to integrate existing data, such as in-flight anomalies, from various sources in the program. Another system, the Problem Reporting and Corrective Action system, provides data to the central system and is designed to document and track problems in the program. According to NASA officials, the Program Compliance Assurance and Status System is neither timely nor fully utilized. The system is cumbersome to use because it is based on older technology, some trend and other data is not centralized in the system, and software needed to convert contractor data to NASA database format has not been developed. Program officials told us they maintain trends on some aspects of the shuttle program, but have found the centralized system to be difficult to use and not compatible with other existing databases. The officials stated that the required conversion programs have never been developed to input some contractor data into the system. In some cases, safety officials must obtain data directly from contractors to conduct quantitative risk assessments. Because the system is hard to use in real-time and the data is not always current, some officials stated they are using a different software program with faster computers to access and correlate data more rapidly. A January 1995 internal report on shuttle problem reporting system data integrity at two centers found missing criticality codes on thousands of entries. Blank entries could, therefore, be interpreted as either not applicable or inadvertently omitted. A NASA Headquarters official was not aware of any corrective action on this matter. Officials told us that the Problem Reporting and Corrective Action System records are often not reliable, lack data needed for quantitative risk assessments, and lack uniformity in categorizing problems. The system also contains entries that may not meet the definition of a “real problem.” NASA safety officials acknowledged that the system needs improvement but stated no firm decision has been made regarding the extent of improvements pending the transition to a single prime contractor. NASA has made limited progress in adopting the National Research Council’s recommendation that the agency assess risk with quantitative methods, such as probabilistic risk assessments. NASA officials, for the most part, rely on qualitative methods for assessing risk in the shuttle program when they believe risk issues are well understood. Although some progress has been made, NASA lacks an overall strategy with focused management emphasis to incorporate methods, such as probabilistic risk assessments into the shuttle program, when appropriate. Resource constraints and specific expertise are cited as barriers to increased use of these methods. In addition, NASA’s databases need improvement and are not fully utilized by decisionmakers nor are they adequate to support the use of quantitative risk assessment methodologies. We recommend that the Administrator of NASA establish a strategy, to include specific milestones, for deciding whether and how quantitative methods, such as probabilistic risk assessments, might be used as a supplemental tool to assess shuttle risk. We also recommend that the Administrator assess the shuttle program’s centralized database, as well as other databases, to insure that data required to conduct risk assessments and inform decisionmakers is accessible, timely, accurate, and complete. NASA agreed with the need to establish a strategy, with milestones, for incorporation of quantitative risk assessment methods into the shuttle’s risk management program. According to NASA, the agency will establish a team to develop the strategy. NASA also agreed that the shuttle program’s centralized databases need to be assessed. In this regard, NASA will form a team of engineers to thoroughly examine the Program Compliance Assurance and Status system. The team will be tasked to determine the adequacy of what presently exists and make recommendations for improvements as necessary. The assessment team will report to the shuttle program manager. In addition, the Problem Reporting and Corrective Action System is being examined at each center by a reengineering team. This team is searching out deficiencies and will recommend needed improvements that must be implemented by the shuttle flight operations contractor. We made additional changes to the report, where appropriate, based on NASA’s technical comments.

Pursuant to a congressional request, GAO reviewed the National Aeronautics and Space Administration's (NASA) management of risk associated with space shuttle flights, focusing on NASA attempts to: (1) increase the flow and communication of risk information; and (2) use quantitative methods for assessing risk. GAO found that: (1) NASA has successfully created numerous formal and informal communication channels and an open organizational culture that encourages people to discuss safety concerns and to elevate unaddressed concerns to higher management levels; (2) while most personnel agreed that the current culture encourages discussions of safety concerns, there was not universal agreement about the kinds of risk information needed for final launch decisions; (3) some personnel expressed concerns about the effects of pending cost reductions and program changes on shuttle safety; (4) NASA primarily relies on qualitative methods to assess and prioritize significant shuttle risk; (5) costs, lack of expertise, and lack of data have hindered NASA progress in increasing its use of quantitative methods to assess shuttle safety risks; and (6) NASA databases do not always provide timely, accessible, accurate, and complete information to facilitate quantitative assessment or decisionmaking.

You are an expert at summarizing long articles. Proceed to summarize the following text: The unique characteristics and relative abundance of wood have made it a natural material for a variety of uses, including homes and other structures, furniture, tools, vehicles, and decorative objects. Because wood varies in characteristics and volume by species, it may be heavy or light, stiff or flexible, and hard or soft. Federal agencies conduct research on the range of processes that occur between the time a tree is grown in the forest to the time it becomes a wood product and then is recycled. For purposes of our review, wood utilization research and product development refers to the activities that occur from harvesting the wood through the recycling of wood and paper products. (See fig. 1.) According to the North American Industry Classification System, the U.S. forest products industry is divided into two sectors: wood product manufacturing and pulp and paper manufacturing. The wood product manufacturing sector comprises small companies, while the pulp and paper manufacturing sector tends to have fewer, larger companies. The wood product manufacturing sector can be broken into three sub- sectors: (1) primary producers—sawmills and plywood mills; (2) secondary producers—millwork, cabinet, and furniture manufacturers; and (3) structural and reconstituted products producers—oriented strandboard (OSB), I-Joist, laminated veneer lumber, medium density fiberboard, and particleboard. The United States is the world’s leading producer of lumber and wood products used in residential construction and in commercial wood products. According to 2004 data (the most recent data available), the wood product sector employed 535,000 workers nationwide and produced shipments valued at $103 billion. The pulp and paper manufacturing sector includes two industry groups: (1) manufacturers of pulp and paper and (2) manufacturers of products made from purchased paper and other materials, such as paper bags or tissues. The vast majority of the raw material for making paper is the residue from other mills—primarily chips from sawmills. The United States is also a leader in the pulp and paper business, producing about 28 percent of the world’s pulp and 25 percent of the total world output of paper and paperboard. In 2004 (the most recent data available), the paper manufacturing sector employed 440,000 workers nationwide and produced shipments valued at $154 billion. According to a federal government report, the U.S. forest products industry faces increasing competition from its traditional competitors (Canada, the Scandinavian countries, and Japan), as well as from emerging competitors (Brazil, Chile, and Indonesia). Domestic purchases of paper and paperboard declined from 2000 to 2002, but have begun to rebound since then. Approximately 120,000 jobs were lost in the paper manufacturing sector from 1999 to 2004, representing a 21.5-percent loss. Sectors of the wood product manufacturing industry have also declined. According to a 2003 Forest Service report, during the last decade, the wood household furniture industry lost approximately one-third of its market share to imports. China now accounts for one-third of U.S. imports, up from none a decade ago. Federal research and product development in wood utilization helps provide the science and technology needed to conserve the nation’s forest resources, supply the demand for wood products, and support forest management and restoration activities. At least 12 federal agencies support wood utilization research and product development activities, but only 2 of these agencies—the Forest Service and CSREES—have programs targeted for these activities. For the Forest Service, the Forest and Rangeland Renewable Resources Act of 1978 is the primary legislation authorizing the Secretary of Agriculture to implement a comprehensive research program for forest and rangeland renewable resources, including wood utilization, and to disseminate the results. Other relevant legislation includes the following: The Biomass Research and Development Act of 2000, which requires the secretaries of Agriculture and of Energy to cooperate on policies and procedures that promote research and development leading to the production of fuels and biobased products; the act also established the Biomass Research and Development Initiative. The Energy Policy Act of 2005 established technical areas for focusing research under the Biomass Research and Development Initiative. The Healthy Forests Restoration Act of 2003 established a grant program to encourage the commercialization of woody biomass. The Forest Service’s research and development organization establishes research work units in the field by developing formal mission statements, which must be approved by the Deputy Chief for Research and other senior managers. A team from the Deputy Chief’s Office and station directors’ office formally reviews these mission statements and the unit’s work at least every 5 years, and the review often includes input from the public and private sectors. The Forest Service’s wood utilization research and product development is carried out by scientists and professional support staff in 27 research work units around the country that were operating at the time of our review. Most of the Forest Service’s wood utilization research and product development takes place at 16 research work units in the Forest Products Laboratory, which conducts research of national and international scope. The other 11 research work units are located in the Forest Service’s Northeastern, Southern, Pacific Northwest, Pacific Southwest, and Rocky Mountain Research Stations, and these units mostly focus on regional wood utilization issues. For example, research work unit 4104 of the Southern station focuses on managing Southern pine ecosystems, whereas research work unit 4701 of the Northeastern station focuses on efficiently using northern forest resources. These research work units produce 5-year research work plans that identify the mission, the problem to be solved through research, the proposed research approach, planned accomplishments, and staffing needs. CSREES provides support for wood utilization research and product development through several grant programs. CSREES awards committee- directed grants to 10 designated wood utilization research centers at 12 universities. The first three centers were established in fiscal year 1985 at Oregon State University, Mississippi State University, and Michigan State University. These three centers were established to support wood utilization and harvesting research on western conifers, southern pine, and eastern hardwoods, respectively. In fiscal year 1993, three centers with specific research focuses were added at the University of Maine, the University of Minnesota at Duluth, and North Carolina State University. In fiscal year 1999, the University of Tennessee and the Inland Northwest Forest Products Research Consortium were added. The consortium consists of the universities of Idaho and of Montana, and Washington State University. The most recent additions are the University of Alaska Southeast, in fiscal year 2000, and West Virginia University, in fiscal year 2004. Every year each center submits a grant proposal, reviewed by CSREES staff, containing information on proposed research activities, budgets, and progress to date. Funding supports scientists and graduate students and helps to pay for new equipment, supplies, and travel. In addition, CSREES provides grants to state-supported colleges and universities that can be used for, but are not specifically focused on, wood utilization research and product development through the following: The McIntyre–Stennis Act, a formula grant program, for forestry research, including two of eight potential funding areas focused on wood utilization and product development. The Hatch Act, a formula grant program, designed to fund a number of broad agricultural research areas. The National Research Initiative, a competitive grant program with several research areas, including biobased products and energy. Wood utilization research and product development grants have been awarded under this initiative, as well as under CSREES’ Small Business Innovation and Research grants and other small grants programs. Ten other agencies also support wood utilization research and product development. Table 1 provides information on these agencies’ principal authorizing legislation and a description of the programs that have supported wood utilization research and product development, and the mechanisms used for program delivery. The Federal Laboratory Consortium for Technology Transfer defines technology transfer as “the process by which existing knowledge, facilities or capabilities developed under federal research and development funding are utilized to fulfill public and private needs.” Since 1978, Congress has enacted a series of laws to promote technology transfer and to provide technology transfer mechanisms and incentives. Table 2 presents selected laws that support technology transfer for wood utilization research and product development. In addition to these laws, Executive Order 12591 (“Facilitating Access to Science and Technology”) directs federal agencies to encourage and facilitate collaboration among federal laboratories, state and local governments, universities, and the private sector—particularly small business—in order to assist in the transfer of technology to the marketplace. Technology transfer is also carried out through the nation’s extension system, established by the Smith-Lever Act in 1914, to assist in the development of practical applications of research knowledge in agriculture, including wood utilization. Under this system, thousands of county and regional extension specialists bring university expertise to the local level. Funding is provided by CSREES through annual formula grants to supplement state and county funds for extension services. The funds can be used for natural resources, including forestry or wood utilization, depending upon the priorities of the university. The Renewable Resources Extension Act of 1978 created the Renewable Resources Extension Program. Under this program, CSREES provides funds to 72 universities, which use these funds, along with state, local, and institutional funds, to deliver educational programs to forest and rangeland owners and managers. The program also provides guidance to states in developing their general extension programs for, among other things, timber utilization, harvesting, and marketing; wood utilization; and wood products marketing. These efforts have included wood utilization extension services, usually through extension specialists. Wood utilization research and product development conducted by 12 federal agencies span a broad spectrum of activities, and coordination of these activities is both formal and informal. These activities fall into five broad categories: (1) harvesting, (2) wood properties, (3) manufacturing and processing, (4) products and testing, and (5) economics and marketing. We grouped the wood utilization research and product development activities that the 12 agencies conduct into five broad categories: harvesting, wood properties, manufacturing and processing, products and testing, and economics and marketing. Table 3 shows the definitions we used for the five categories and provides examples of the types of the research and product development activities that fall into each of these categories. Table 4 shows the types of research and product development activities and examples of these activities by agency. All 12 agencies had activities in the manufacturing and processing category. The Forest Service and CSREES were the only two agencies that had wood utilization research and product development activities in all five categories. According to our analysis of the Forest Service’s 27 research work units’ plans covering fiscal years 1995 through 2005, over 80 percent of wood utilization research and product development occurred in three categories: wood properties, products and testing, and manufacturing and processing. In addition, CSREES wood utilization research centers’ annual research proposals for the same period showed that about 70 percent of their activities occurred in the following three categories: wood properties, manufacturing and processing, and economics and marketing. According to a CSREES official, the CSREES wood utilization research centers are allowed by law to use the funding to conduct technology transfer activities, which are reflected in the economics and marketing category. Appendixes II and III, respectively, provide detailed information on wood utilization research and product development activities for the Forest Service, for multiyear periods (beginning in the late 1980s) to the present; and CSREES, for fiscal years 1995 through 2005. We found instances of both informal and formal coordination of federal activities for wood utilization and product development. According to many scientists at the Forest Service, informal coordination occurs among the relatively small wood utilization research and product development community of scientists, and these scientists are often aware of related scientific research. Scientists share information at scientific and industry conferences and professional meetings and through publications, and in some cases work informally to share staff and equipment. Specific examples include the following: One Forest Service scientist associated with the Southern Research Station—with 30 years of experience in wood utilization research on Douglas Fir—shares resources and expertise with the Pacific Northwest Research Station on the plantation growth of this species. Forest Service scientists in the Southern Research Station have collaborated with colleagues in Australia, Denmark, Japan, and New Zealand on using wood from southern forests to develop wood composite products. These collaborative efforts were established primarily through professional relationships. A Forest Service scientist at the Pacific Northwest Research Station told us that scientists use annual professional meetings, such as those held by the Forest Products Society and the Society of Wood Science and Technology, as important mechanisms for coordinating their work and broadening the scope of their research area. The CSREES wood utilization research centers reported that they have more informal than formal coordination mechanisms with other wood utilization research centers and federal agencies. Like the Forest Service, these informal mechanisms include sharing information with their colleagues through professional meetings, publications, and newsletters. We also identified some formal mechanisms to coordinate wood utilization research and product development that are set up through legislative provisions, agency rulemaking, memorandums of understanding, cooperative arrangements, and other joint ventures. Specific examples include the following: The Biomass Research and Development Act of 2000 requires USDA and the Department of Energy to carry out a Biomass Research and Development Initiative under which competitively awarded grants, contracts, and financial assistance are provided to eligible entities to carry out research on fuels and products derived from biomass, including woody biomass. The agencies work together on developing grant solicitations, reviewing grant proposals, and selecting recipients. The act also created a Biomass Research and Development Board, co-chaired by the Department of Energy and USDA, to coordinate programs within the federal government for promoting the use of biobased fuels and products. The board’s mission is to maximize the benefits from federal grants and assistance by promoting collaboration and avoiding duplication of effort through strategic planning on biomass research. The board has approved the formation of a federal Woody Biomass Working Group to coordinate and focus federal efforts on woody biomass utilization. For 40 years, Forest Service wood utilization scientists have had standing annual meetings with representatives from both the paper and pulp and solid wood industries to present research results and obtain input and review from industry. When updating their research work unit plans every 5 years, these scientists also seek advice from outside sources, including industry representatives, academics, and environmental groups. Scientists also participate in research consortiums or cooperative arrangements with industry. For example, scientists in the Forest Service’s Southern Research Station participate in a consortium studying wood quality that has members from nine companies, including Weyerhaeuser and Georgia Pacific. CSREES wood utilization research centers also form cooperative arrangements. According to an Oregon scientist, these research cooperatives typically consist of 10 to 12 partners. The cooperatives set a research agenda and formally coordinate research through annual meetings and reports; each university, as well as government agencies, are asked to contribute funding annually. For example, scientists at the University of Minnesota wood utilization research center formed a productivity cooperative that includes state, county, university, and industry members (such as International Paper) to continue to strengthen applied forestry concepts and ensure the sustainability of Minnesota’s forest products industry. The Forest Service’s Northeastern Research Station formed the Furniture Steering Committee, which is composed of furniture manufacturers, consultants, equipment manufacturers, state economic development agencies, and universities to provide guidance on furniture research programs at the station and elsewhere. The steering committee recommended research on more efficient manufacturing and “just-in-time” training, which has been integrated into the research work unit’s plan. HUD’s Partnership for Advancing Technology in Housing is a voluntary partnership between leaders of the home building, product manufacturing, insurance, and financial industries; and representatives of six federal agencies concerned with housing. These six agencies work with HUD to develop technologies to improve the quality, durability, energy efficiency, and affordability of residential building materials; these materials could include wood. For example, with the partnership’s support, the Forest Service’s wood chemistry research work unit has been able to work cooperatively with laboratories in Japan, Sweden, and Finland on developing coatings to protect wood from the effects of weathering. Forest Service scientists at the Southern Research Station’s Utilization of Southern Forest Resources work unit have a memorandum of understanding with the Chinese government to host post-doctoral students from China; the station has hosted 25 students in the past 5 years. These students serve as additional staff resources to help the research work unit carry out its research activities. To construct a forest biomass life cycle assessment model, several partners established a joint venture: the Forest Service’s Pacific Southwest Research Station; the California Energy Commission’s Public Interest Energy Research Program; the University of California at Davis; several state and federal agencies; and energy, forestry, and environmental consultants. Partners will use the model to identify and analyze the social, economic, and environmental costs and benefits of using forest biomass to generate electrical power. This research project is planned in three phases over a 3- to 5-year period. Each participant shares in the cost of the venture. The 12 federal agencies we reviewed made available at least $54 million annually in financial support for wood utilization research and product development activities in fiscal years 2004 and 2005, measured either in budget authority or expenditures. Furthermore, the Forest Service employed almost 175 scientists and support staff in each of these two fiscal years. From fiscal years 1995 through 2005, the Forest Service received total budget authority of $268 million for wood utilization research and product development (or $289 million in 2004 inflation- adjusted dollars) while CSREES’ budget authority for the wood utilization research centers was about $51 million (or $55 million in 2004 inflation- adjusted dollars). For fiscal years 1995 through 2005, the Forest Service’s budget authority for wood utilization research and product development activities fluctuated moderately from year-to-year (in 2004 inflation- adjusted dollars). Over the same period, overall, CSREES’ budget authority for the wood utilization research centers increased (in 2004 inflation-adjusted dollars), in part because four new wood utilization research centers were added during fiscal years 1999, 2000, and 2004. The 12 federal agencies we identified as supporting wood utilization research and product development made available at least $54.4 million in financial support for this work, measured in either budget authority or expenditures, in fiscal year 2004, the year with the most complete data available. For fiscal year 2005, the agencies made available at least $54.3 million. Our data for fiscal year 2005 are complete except for data for the CSREES grants funded under the McIntyre-Stennis Act and the Hatch Act; the National Research Initiative; Small Business Innovation Research grants; and other small grants. See table 5. As table 5 shows, the Forest Service made available about half of the financial support for conducting wood utilization research and product development. In fiscal year 2004, the Forest Service made available about 52 percent of the $54.4 million, while four other agencies—CSREES, the Department of Energy, the National Science Foundation, and the Natural Resources Conservation Service—made available about 44 percent of the support; the remaining seven agencies together made available about 5 percent of the $54.4 million. Of the $54.4 million made available in fiscal year 2004, about $34 million ($28.3 million for the Forest Service and $5.7 million for the CSREES wood utilization research centers) was directly targeted to wood utilization research and product development. In addition, $1.9 million of other support targeted for wood utilization research and product development was made available by the Army, the Coast Guard, and the Office of Naval Research through committee-directed funding to specific universities to conduct research on wood composites. The remaining $18.5 million of the $54.4 million was made available in fiscal year 2004 from grant programs not targeted to wood utilization research and product development. That is, wood utilization research and product development was not the sole purpose of the grant or program. The Department of Energy made available the largest amount of this nontargeted support—$7.4 million. CSREES provided $3.0 million in fiscal year 2004 to support other wood utilization research and product development through grant programs authorized under the McIntyre- Stennis Act and the Hatch Act; the National Research Initiative; Small Business Innovation Research grants; and other small grants. The Natural Resources Conservation Service made available grant funding to promote greater innovation and development in all forms of biomass—including agricultural and woody biomass—with $5.3 million targeted to woody biomass research, under the Biomass Research Development Act of 2000. The other agencies made available the remaining $2.8 million. Of the 12 agencies, only the Forest Service directly employs full-time scientists and support staff to conduct wood utilization research and product development. Most of these employees work at the Forest Products Laboratory, as shown in table 6. The other 11 agencies we reviewed do not have full-time federal scientists dedicated to wood utilization research and product development, and were unable to provide information on scientists and support staff working on federal wood utilization research and product development activities. For fiscal years 1995 through 2005, the Forest Service received total budget authority for wood utilization research and product development of $268 million (which is equivalent to $289 million in 2004 inflation- adjusted dollars). As table 7 shows, during this 11-year period, the annual budget authority ranged between $24.2 million and $28.2 million (in 2004 inflation-adjusted dollars), with moderate fluctuations from year-to-year. Table 8 shows the total FTE scientists and support staff for the Forest Service’s wood utilization research work units, from fiscal years 1995 through 2005. As figure 2 shows, over the period, the levels of budget authority (adjusted for inflation) and FTE staff for wood utilization research and product development at the Forest Service fluctuated moderately. From fiscal year 1995 to fiscal year 1996, both budget authority (in 2004 inflation-adjusted dollars) and FTE staff at the Forest Service decreased by 14 percent and 4 percent, respectively. After 1996, budget authority for the most part increased through 2004 and then decreased in 2005. FTE staff continued to decrease through 1999, increased in 2000, and thereafter remained relatively stable. (See app. IV for information on changes in FTE Forest Service scientists and support staff for wood utilization research work units for each year from fiscal year 1995 through 2005.) During the 11-year period, the Forest Products Laboratory’s budget authority also fluctuated moderately. Between fiscal years 1995 and 2000, the budget authority declined by 17 percent (in 2004 inflation-adjusted dollars), from $20.8 million to $17.3 million; it increased again from fiscal years 2001 through 2004, but was still lower in 2005 than in 1995. (See table 9.) Table 10 shows the total FTE scientists and support staff for the Forest Products Laboratory’s wood utilization research work units, from fiscal years 1995 through 2005. The number of FTE Forest Products Laboratory scientists and support staff generally declined from fiscal years 1995 through 2000; then it fluctuated moderately. Figure 3 shows the changes in budget authority and FTE scientists and support staff at the Forest Products Laboratory. See appendix IV for funding and FTE staff, by research work unit, at the Forest Products Laboratory and at the research stations for fiscal years 1995 through 2005. While financial support for wood utilization research and product development at the Forest Service has fluctuated moderately during the past 11 years, Forest Service scientists and managers expressed concerns about resource constraints. They noted that increases in budget authority cover salary increases and other fixed costs, but that these increases may not be enough to cover increases in the costs of other operating expenses—such as purchasing or calibrating equipment, obtaining laboratory supplies, and traveling for research. The Forest Products Laboratory’s operating budget authority declined by about 67 percent between fiscal years 1995 and 1998 (in 2004 inflation-adjusted dollars), from about $1.95 million to $650,000; it also fluctuated within a narrow range from fiscal years 1999 to 2005, ending with $630,000. (See table 11.) Figure 4 shows changes in the dollars available for operating expenses (adjusted to 2004 dollars) in fiscal years 1995 through 2005 at the Forest Products Laboratory. Many of the scientists with whom we spoke cited instances in which fewer resources had diminished their ability to conduct research. For example, according to one scientist, he is spending less time in the laboratory because he is devoting more time to obtaining outside funding for his research work unit. Another scientist told us that his research work unit must now limit the number of wood samples from private sources that the unit has time to analyze, which it did not need to do in the past. According to Forest Service officials, due in part to funding constraints, as well as to better serve the scientific community, the Forest Products Laboratory has developed a strategic plan, and is in the process of reorganizing and consolidating its research work units and reducing the number of scientists and support staff. Table 12 shows that the total budget authority for fiscal years 1995 through 2005 for CSREES’ wood utilization research centers was about $51.2 million (which is equivalent to $54.8 million in 2004 inflation-adjusted dollars), and figure 5 illustrates that, overall, CSREES’ budget authority (adjusted for inflation) for the wood utilization research centers increased over the period. The increase in budget authority was due in part to the addition of four new wood utilization research centers, particularly when two new centers were added in fiscal year 1999; new centers were added again in fiscal years 2000 and 2004. While the increase in the number of wood utilization research centers would suggest an increased commitment to wood utilization research and product development, after adjusting for inflation, most of the centers, individually, experienced a downward trend in budget authority, as table 13 shows. (See app. IV for wood utilization research centers’ budget authority in nominal dollars over the period.) The 12 federal agencies generally rely on scientists and technology transfer specialists to transfer technologies to industry through a variety of methods, such as information dissemination, technical assistance, demonstration projects, and patents and licensing. While federal scientists are involved in some technology transfer, their primary responsibility is research; in contrast, specialists are responsible solely for technology transfer. In addition, the Forest Service has a unit dedicated to transferring the results of wood utilization research and product development: the Forest Service’s TMU. We identified a number of examples of activities that have occurred using each of the technology transfer methods, mostly from the Forest Service and CSREES wood utilization research centers. Scientists are expected to transfer the results of their work and primarily disseminate information through publications—particularly those in peer- reviewed journals—which help establish the validity of their research results. The Forest Service counts the number of articles published in these journals to assess scientists’ performance and reports this information as a performance measure for research in its annual report to Congress. Furthermore, according to Forest Service scientists, some industry officials may also read and use these journals. For example, a window and door manufacturer used the information from a journal article on the characteristics of wood from smaller trees for use in composites to develop a new and higher-value use for this wood. Instead of burning the wood as waste, the manufacturer now uses it in his products. Scientists also disseminate research results to industry through a variety of other methods, including publications that are not peer reviewed, Web sites, presentations of their work at professional meetings, and workshops. Specific examples include the following: Publications that are not peer reviewed include the Forest Service’s one- page information sheets, TechLines; technical reports; industry magazines; trade journals; and training manuals. For example, one training manual was developed after industry representatives asked a Forest Service scientist to create a publication on avoiding accidents caused by improperly constructed logging trails. Scientists also contribute to user manuals that are important to the building industry and homeowners, such as Finishes for Exterior Wood—20,000 copies sold in the past 10 years; and the Wood Mold Maintenance Manual—10,000 copies in circulation. Most of the Forest Service’s wood utilization research work units maintain Web sites that list articles or provide links to articles and contact information. For example, a research work unit in the Southern Research Station reported that 18,335 distinct users—approximately 1,528 per month—accessed its Web site in 2004, downloading 37,376 publications. Some of CSREES’ wood utilization centers also have Web sites, and some scientists have their own Web sites devoted to their wood utilization research and product development. The Forest Service’s State and Private Forestry’s Wood Education and Resource Center in West Virginia offers a grant program to transfer research results. In one instance, grant funds helped support the issuance of three newsletters informing pallet producers, shippers, and technical assistance personnel of the latest developments in implementing new international regulations. These regulations require that all pallets crossing international boundaries be treated to prevent the spread of invasive species. Additionally, three technical bulletins summarizing the results of the center’s applied research in this area were developed and distributed to an international audience. Workshops conducted by scientists for industry include the University of Minnesota’s industry-specific training on streamlined manufacturing procedures to over 75 companies, which has resulted in partnerships with 15 of them. University of Minnesota scientists reported that these partnerships have led to productivity improvements of 50 to 75 percent and cost reductions of 25 to 50 percent, with estimated financial impacts of over $750,000. Forest Service scientists have shared information through broadcasts. A radio host in Arkansas has a weekly show on forestry issues, and scientists from the Southern Research Station have discussed their research. The Forest Products Laboratory conducts “Entrepreneur Tours” in which small- to medium-size mill operators from western states tour the Forest Products Laboratory to learn about current research and how they can use it. Technology transfer specialists—at the Forest Service’s State and Private Forestry program and extension specialists and programs at universities— also play a key role in disseminating information to industry. As of February 2006, the Forest Service employed nine technology transfer specialists, who also provide other types of assistance to small businesses. Like scientists, specialists reach industry and other users through Web sites and publications—particularly those that are not peer reviewed, like trade journals, newsletters, and industry magazines. Specialists sometimes work directly with scientists to disseminate research to targeted users. For example, technology transfer specialists at Louisiana State University’s extension program publish the Dry Kiln Club newsletter, which provides updated research results from the university’s scientists on wood-drying and moisture-related wood decay to an audience of over 1,000. Extension specialists also disseminate information through targeted group education to industry and other users. This education includes short courses, continuing education courses, and workshops. Specialists often develop these courses using the results of research conducted at their university and other universities, the Forest Service, and other federal and state agencies. Specific examples include the following: Extension specialists at Virginia Tech University offered 27 short courses to industry in calendar year 2004. In one of these courses, they combined research from the College of Business with their own knowledge of wood science to teach methods for selling wood products. Extension specialists in Ohio taught a multiweek course to landowners on how to prune and manage their trees and market their products. The course was designed to help the landowners take advantage of a new pallet plant soon to be opening in their area. Extension specialists at Mississippi State’s wood utilization research center have provided logger education to over 3,000 logger firms during the past 10 years. Extension specialists at West Virginia University’s Appalachian Hardwood Center have conducted technology transfer and outreach efforts for the past 15 years. For example, in October 2004, the center hosted a log- sawing and grading workshop that focused on the efficient grading and recovery of lumber for low-grade logs. To enhance competitiveness in the region’s forest products industry, the University of Tennessee’s Forest Products Center has a wood products extension specialist who conducts workshops, issues newsletters, and takes other actions to transfer information from the CSREES wood utilization research center to industry. Technology transfer specialists also attend industry and professional conferences and meetings, where they present information and meet with industry representatives to build their networks. In addition, they disseminate information by creating directories that provide contact information for wood industries in their state. Both scientists and technology transfer specialists provide technical assistance through (1) telephone calls; (2) hands-on technical assistance; and (3) software development. Both scientists and technology transfer specialists respond to telephone calls requesting assistance from industry, consumers, and homeowners. For example, one scientist at Oregon State University estimated receiving over 200 calls per year; another scientist estimated receiving over 400. Forest Products Laboratory managers estimated that they receive 4,000 such calls per year. Scientists and technology transfer specialists also provide industry and others with hands-on technical assistance. Examples include the following: Forest Products Laboratory scientists provided technical assistance to help a small company improve its manufacturing efficiency by applying research on the fasteners and connectors used to assemble and disassemble portable flooring. This company produces flooring for the National Collegiate Athletic Association. Forest Products Laboratory scientists helped a large drumstick manufacturer solve a durability problem by developing a way to inject drumsticks with a polymer to strengthen them. Forest Products Laboratory scientists provide technical assistance by identifying wood samples for companies, as well as for private citizens. As part of this wood identification, they assist manufacturers in resolving problems they have in using different types of woods with different finishes. In 2004, they identified 600 specimens for industry, 350 specimens for government agencies, and 370 specimens of wood for the general public. For 12 years, the University of Minnesota has worked with a company to provide support in material selection, prototyping, performance testing, and market assessment and development. These efforts have helped the company introduce several new product lines in office furniture, store fixtures, and cabinet components; expand from 30 to 450 employees; and increase the company’s sales from $5 million to $50 million annually over the period. The Department of Energy offers energy assessments of facilities that manufacture wood products or produce pulp and paper, although the department requires a substantial cost investment from the company. According to the Department of Energy, these assessments have resulted in an annual savings of up to $9 million for some companies. Agencies also develop software and make it available, often for free, on Web sites. For example, a Forest Service computer program developed by researchers at the Forest Service’s Northeastern Research Station provides a realistic simulation model that allows industry to identify more efficient strategies to reduce waste in the manufacturing process. More than 700 computer program packages have been sent to industry, and follow-up telephone calls by Forest Service scientists indicate that the program is being used in planning and optimization activities by many of the recipients. Similarly, the Department of Energy’s Industrial Technologies Program provides free software tools to the forest products industry to improve energy efficiency in industry processes. Agencies also transfer research results through demonstration or pilot projects in mills, plants, and on-site at research locations. Specific examples include the following: The Forest Products Laboratory built a research demonstration house in 2001 on-site. The research in the demonstration house focuses on improving the use of traditional wood products, recycled and engineered wood composites, natural disaster resistance, energy efficiency, and indoor air quality. Features include a permanent wood foundation and engineered wood composites in the roof. In cooperation with the homebuilding and forest products industries, the Forest Products Laboratory constructed a house on the Washington, D.C., mall as part of the 2005 annual Smithsonian festival. The house showcases new technologies developed by the Forest Products Laboratory and cooperators, such as manufacturers of structural insulated panels. The house was visited by several thousand people over the course of the 10- day festival. Forest Products Laboratory scientists helped a company implement a demonstration project in its saw mill. The project showed that, with improvements to the company’s machinery for determining lumber quality, the company could increase efficiency by as much as 12 percent—thus adding an estimated $1.2 million annually in profit. Scientists at West Virginia University’s wood utilization research center have developed a new technology for using oak as a raw material in the manufacture of OSB. The Weyerhaeuser Company and other industry partners are testing the process and the produced strands in test runs to verify the results. If successful, the research work unit anticipates lower raw material costs and increased use of oak as an engineered wood product component. Success could lead to new or expanded OSB manufacturing facilities, and new jobs, in the Appalachian region. Forest Service scientists at the Southwest Wildland/Urban Interface and Forest Health Restoration research work unit, in Flagstaff, Arizona, have joined with Northern Arizona University on framing techniques using small-diameter logs. This partnership has led to a demonstration project with the Navajo Nation to develop hogans using small-diameter wood. Hogans are traditional housing structures tribes still use, and are typically built with more costly wood from larger trees. HUD, through its Partnership for Advancing Technology in Housing program, helped a builder in North Carolina to demonstrate the durability and cost of various building materials (including insulated composite wood panels) in four residential duplex units. The builder agreed to build each duplex out of a different building material, and HUD is evaluating the materials’ performance at this site. The Office of Naval Research has several demonstration projects in place using wood-plastic composite materials to replace wooden pier components, such as deck boards and fendering components. Such demonstrations help Navy engineers become familiar with new technologies and their benefits before the technologies are widely available. The Coast Guard, in a contract with the University of Maine for composite wood research, requires the university to demonstrate that the composite structures it developed could be used in a marine environment and be more durable than traditional structures. The university will build a dock for the Coast Guard to demonstrate the use of the composite material it has developed. Technology can also be transferred to industry through licensing and patenting. The Forest Service employs one full-time patent attorney, stationed at the Forest Products Laboratory, to assist scientists in patenting inventions they create as part of federally sponsored research projects; industry can then license these patents. The Forest Service Patent and Licensing Program handles all aspects of patents and licensing, including reviewing invention disclosures, filing and prosecuting patent applications, negotiating patent licenses and other technology transfer- related agreements. Between January 1, 1995, and December 3, 2005, a total of 58 patents were issued, and 12 applications related to wood utilization are currently pending, according to the Forest Service. Scientists at the CSREES wood utilization centers also obtain patents on processes and products they have developed. For example, scientists at the University of Minnesota’s wood utilization research center have obtained over 20 patents that they have then licensed to private industry. These patents include those for extracting chemicals from birch bark that can be used in medicine, in manufacturing absorbent panels, and in a foam-and-wood composite log used for siding. They also reported having a number of pending patent applications in the areas of housing systems and the extraction of natural chemicals from birch bark waste products. The Forest Service has a unit dedicated to transferring the results of wood utilization research and product development activities—the TMU, part of the State and Private Forestry Program, located at the Forest Products Laboratory. TMU’s mission is to improve wood utilization by transferring technologies developed primarily by the Forest Products Laboratory and other Forest Service research units. As of February 2006, TMU employed four technology transfer specialists with expertise in wood utilization and product development. These specialists collaborate with Forest Service scientists, primarily at the Forest Products Laboratory, to provide technical assistance to local governments, private landowners, rural communities, and forest industries to ensure the ready adoption of technologies based on forest materials. Like scientists and other technology transfer specialists, TMU’s specialists disseminate research results through publications, conferences, and workshops. Specific examples include the following: In fiscal years 2004 and 2005, TMU reported distributing 40,000 and 6,900 publications, respectively. For example, TMU’s newsletter, the Forest Products Conservation and Recycling Review, has a circulation of over 800. In fiscal year 2005, it published 19 issues of TechLines on topics ranging from the outdoor performance of wood-plastic composites; to wood flooring and roofing; to using waste wood for filtering water. TMU participated in 45 workshops, conferences, presentations, training sessions, and exhibits in fiscal year 2004 that were attended, in total, by over 5,000. In 2004, TMU cosponsored the SmallWood conference in Sacramento, California, that was attended by over 350, including harvesting contractors, rural development officials, community leaders, forest products business owners, environmental groups, and tribes. TMU provided an updated software tool that allows users to compare the unit costs of various heating fuels—the Fuel Value Calculator—allowing wood to be compared to conventional fossil fuels, such as natural gas or fuel oil. The calculator is available on TMU’s Web site. In addition, since TMU’s technology transfer specialists are located on-site with Forest Products Laboratory scientists, they have an opportunity to learn about the research from its early stages. Furthermore, when a technology is developed, the specialists can work with the scientists to conduct a market analysis to determine potential applications. For example, in 2004, TMU published Assessing the Market Potential of Roundwood Recreational Buildings, which provides information on the applicability of the Forest Products Laboratory’s research on roundwood. TMU also transfers technology to users by providing technical assistance directly to industry, communities, and individuals nationwide, as well conducting demonstration projects. Specifically, TMU specialists perform the following activities: Answer numerous phone inquiries and letters, and host visitors—over 2,000 in both fiscal years 2004 and 2005. Specialists provide answers to technical questions, point a user to key information sources, or provide a link and contact information to researchers working in a user’s area of interest. Travel to facilities to provide hands-on advice and answer questions. For example, TMU assisted a remote California logging community hard- hit by mill closures to create over 100 new jobs through a small forest products company and a nonprofit training center. Applying Forest Products Laboratory research, TMU specialists helped the company specialize in producing flooring from small-diameter trees by, among other things, providing solutions to product imperfections like warping and discoloration. Work with companies and communities in implementing research results or new technology through pilot and demonstration projects. For example, TMU staff are working with the Department of Energy’s National Renewable Energy Laboratory on a project testing small-scale biomass modular units, called “BioMax 15s,” that use wood chips to create electricity. The technology is still in the pre-commercial phase, so the department and the TMU are using a demonstration program at several sites around the country, including a high school in Walden, Colorado, and a furniture-making business at the Zuni Pueblo in New Mexico. In addition to its technology transfer responsibilities, in fiscal year 2005, the unit led the evaluation of proposals for USDA’s Woody Biomass Grant Program. This program made available over $4 million in grants designed to increase the utilization of woody biomass from or near National Forest System lands. The program is designed to improve forest restoration activities by using and creating markets for small-diameter material and low-valued trees that were removed during activities to reduce hazardous fuels. Grants could range in value from $50,000 to $250,000. We provided a draft of this report for review and comment to USDA’s CSREES, Forest Service, and Natural Resources and Conservation Service; Defense; Department of Energy; Department of Homeland Security; HUD; Interior; Department of Transportation; and the National Science Foundation. The Forest Service, DOT, Energy, and Interior provided technical comments, which we incorporated as appropriate. CSREES, Natural Resources and Conservation Service, Defense, Department of Homeland Security, HUD, and the National Science Foundation did not have comments on the draft report. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 7 days after the date of this letter. At that time, we will send copies of this report to interested congressional committees; the Secretaries of Agriculture, Defense, Energy, Homeland Security, Housing and Urban Development, Interior, and Transportation; the Director of the National Science Foundation; the Director of the Office of Management and Budget; 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 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 of Public Affairs may be found on the last page of this report. GAO staff who made major contributors to this report are listed in appendix V. This report describes (1) the types of wood utilization research and product development activities supported by federal agencies and how these efforts are coordinated; (2) the level of support federal agencies made available for these activities in fiscal years 2004 and 2005, and changes in the level of support at the U.S. Department of Agriculture’s Forest Service and at the Cooperative State Research, Education, and Extension Service (CSREES)-funded wood utilization research centers from fiscal years 1995 through 2005; and (3) how the federal government transfers technologies and products from its wood utilization research and product development activities to industry. For this review, we defined wood utilization research and product development as those activities that occur from harvesting the wood through the recycling of wood and paper products. To better understand the focus of the federal research and development efforts in wood utilization, we worked with Forest Service and CSREES program officials to develop the following five broad categories: (1) harvesting—using scientific and engineering principles to ensure cost-effective, environmentally acceptable, and safe forest operations, including planning, road building, harvesting, handling and processing, and transportation; (2) wood properties—studying the basic and applied physical, chemical, and mechanical properties of wood and wood fiber to determine the suitability of this material for various uses, from pulp to structural beams to recycled composite products; (3) manufacturing and processing—new and better manufacturing ways to extract, reduce, and convert virgin wood raw materials to useful products and the development of technology to allow the re-use of materials and products to the maximum extent possible; (4) products and testing—developing test methods and gathering and evaluating data on the differing uses of wood and wood fiber products; and (5) economics and marketing. This final category includes evaluating and tracking domestic and international supply and demand trends, and trade policies, and markets, including market opportunities; and harvesting and production costs for alternative material and energy inputs and processing options. We performed our work at 12 federal agencies that support wood utilization research and product development activities. These include CSREES, the Forest Service, and the Natural Resources Conservation Service; the Department of Defense’s (Defense) Army, Army Corps of Engineers, and the Office of Naval Research; the Department of Energy; the Department of Homeland Security’s Coast Guard; the Department of Housing and Urban Development (HUD); the Department of the Interior’s (Interior) Bureau of Indian Affairs; the National Science Foundation; and the Department of Transportation. To answer the first objective—describing the types of wood utilization research and product development activities supported by federal agencies and how these efforts are coordinated—we collected information on research and product development activities at the 12 agencies for fiscal years 2004 and 2005 and worked with the Forest Service and CSREES to place these activities into one of the five categories we had developed. Because certain Forest Service research work units and CSREES-funded wood utilization research centers are specifically dedicated to wood utilization research and product development, we collected data on research activities for fiscal years 1995 through 2005 to understand how these activities changed over time. At the Forest Service, we used a data collection instrument to systematically gather data on the 27 research work units’ plans for wood utilization research and product development, covering fiscal years 1995 through 2005. Because these plans span multiple years, some dated back as far as 1988. In total, we examined the 71 plans for the 16 research work units at the Forest Products Laboratory and 11 research work units that were associated with other research stations within the Forest Service—4 in the Northeast, 4 in the South, 1 in the Pacific Northwest, 1 in the Pacific Southwest, and 1 in the Rocky Mountains. From these plans, we collected information on each research work unit’s mission, research problems, and selected research activities. (See app. II.) We also interviewed each research work unit’s project leader on the unit’s wood utilization research and product development activities. For CSREES, we examined the 10 wood utilization research centers at 12 universities that receive congressional committee-directed grants for wood utilization research and product development. Nine of these centers are at the universities of Alaska Southeast, Minnesota-Duluth, Maine, and Tennessee; Michigan State University, Mississippi State University, North Carolina State University, Oregon State University, and West Virginia University; and the tenth center is divided among three universities— Idaho State, Montana State, and Washington State—that participate in the Inland Northwest Forest Products Research Consortium. To identify these centers’ wood utilization research and product development activities, we obtained copies of the research proposals that the centers submit annually to CSREES. We used a data collection instrument to (1) systematically review the 88 proposals for fiscal years 1995 through 2005; (2) obtain information on the research objectives, approach, and description of wood utilization research and product development activities; and (3) summarize selected activities for reporting purposes. We also obtained information on the centers’ research activities from CSREES’ Current Research Information System (CRIS) to obtain concise, nontechnical descriptions of selected activities and to ensure that the CRIS summary reflected the information in the CSREES proposals. We interviewed knowledgeable agency officials regarding the reliability of data we used from CSREES’ CRIS database and compared selected CRIS data with grant files. We used the data from CSREES for descriptive purposes only, and determined that the data were sufficiently reliable for these purposes. For reporting purposes, we primarily relied on the CRIS summary information to describe the selected research activities presented in appendix III. To identify other CSREES wood utilization research and product development activities in fiscal years 2004 and 2005, CSREES officials queried the CRIS database using key search codes to identify the wood utilization research and product development activities being conducted under other CSREES-funded grant programs. At the time of our review, the CRIS database did not contain complete information for fiscal year 2005. We reviewed the grant projects—104—that fell within our definition of wood utilization research and product development. To collect information on wood utilization research and product development from the remaining 10 agencies, we interviewed agency officials and reviewed and summarized available information on the research activities for fiscal years 2004 and 2005. To obtain information on the coordination of wood utilization and product development activities among the 12 federal agencies, we interviewed agency officials to obtain their views on the use of informal and formal coordination mechanisms. For all agencies, we obtained this information through interviews with program officials and scientists. In the case of CSREES wood utilization research centers, we obtained this information through a data collection instrument sent to the program leader at each center. In addition, we obtained documents on selected formal coordinating mechanisms, such as interagency agreements. We also attended the “Agenda 2020” meeting sponsored by the Forest Service in 2005, which is held annually to exchange information between industry and Forest Service scientists performing wood utilization research and product development activities. The Forest Service uses these meetings to seek industry views on research results and future research needs. We also examined relevant laws, regulations, and agency polices related to coordination for wood utilization research and product development. To address the second objective—describe the level of support federal agencies made available for wood utilization research and product development activities in fiscal years 2004 and 2005, and changes in the level of support at the Forest Service and CSREES wood utilization research centers from fiscal years 1995 through 2005—we collected budget authority or expenditure information from the 12 agencies for fiscal years 2004 and 2005, and from the Forest Service and CSREES’ wood utilization centers for fiscal years 1995 through 2005. We reported dollars in either budget authority or expenditure data, depending on the availability of agency data. We analyzed these data in both nominal (actual) dollars and dollars adjusted for inflation (real). Most agencies and programs received congressional committee-directed budget authority for wood utilization research and product development or allocated a portion of their budget authority for these activities. Those budget authority amounts are reported when available. However, the only data available for the other CSREES grants and for the National Science Foundation were expenditure data. For information on CSREES’ budget authority for the wood utilization research centers for fiscal years 1995 to 2005 for the grants awarded to the wood utilization research centers, the CSREES official explained how the funds were allocated across the 10 wood utilization research centers over the 11-year period. These data were used to show the historical trends of investment dollars for wood utilization research and product development over the past 11 years. (See app. IV.) In addition to the budget authority for the CSREES wood utilization research centers, we obtained expenditure data for the wood utilization research and product development activities conducted under the authority of the McIntyre–Stennis Act, the Hatch Act, the National Research Initiative, the Small Business Innovation Research Grants, and other small grants, which can fund wood utilization research and product development. We obtained specific expenditure amounts for these activities for fiscal year 2004 from the CRIS database system. Fiscal year 2005 data were not available for these CSREES activities. For the Forest Service, we obtained information on budget authority from an internal agency review of research stations and research work units. We used this information to provide an overview of the changes in budget authority for wood utilization research and product development for fiscal years 1995 through 2005. See appendix IV for the budget authority for each research work unit over this period. In addition, we interviewed Forest Service budget officials in headquarters, the Forest Products Laboratory, and the State and Private Forestry Program on budget and other funding issues, such as the allocation of funds and setting of research funding priorities. We concluded that the data provided in the agency survey were sufficiently reliable for the purposes of our review. We also reviewed and summarized information from Forest Service documents on the number of scientists and research support staff at the Forest Service—the only agency that has full-time federal employees who directly conduct wood utilization research and product development activities. We reported the number of full-time equivalent (FTE) staff at each of the 27 research work units that conducted research on wood utilization and product development for fiscal years 1995 through 2005. (See app. IV.) To collect funding information from the remaining agencies, we asked budget and program officials for budget authority or expenditure information for fiscal years 2004 and 2005 for wood utilization research and product development. Specifically, the National Science Foundation provided us with expenditure information from its Project Reports Summary and Search and Awards databases because that is the only way it could identify the amounts devoted to wood utilization research and product development. We interviewed knowledgeable agency officials regarding the reliability of these data. We used the data for descriptive purposes only, and determined that the data were sufficiently reliable for these purposes. The funding for Defense’s Army, Corps of Engineers, and Office of Naval Research; and the Department of Homeland Security’s Coast Guard were congressional committee-directed funds or budget authority. However, for the Office of Naval Research and the Coast Guard, we reported expenditures because those amounts were applicable to our time period— fiscal years 2004 and 2005. To respond to objective three—how the federal government transfers technologies and products from its wood utilization research and product development activities to industry—we obtained and reviewed relevant legislation and policies and procedures on federal technology transfer activities. At the Forest Service, we interviewed and obtained examples of successful technology transfer from project leaders at the 27 research work units that are responsible for wood utilization research and product development; a patent attorney; technology transfer program managers at the Technology Marketing Unit located at the Forest Products Laboratory; and technology transfer specialists in the State and Private Forestry Program. At CSREES, we had discussions with program research officials and extension specialists. In addition, we sent a short data collection instrument to the 10 wood utilization research centers to obtain information on how they transfer the results of their research to industry, as well as to obtain examples of successful transfer efforts. We did not assess the success of these agencies’ reported efforts, nor did we try to quantify the results of these efforts. We also conducted site visits at a limited number of federal, university, and industrial facilities—the Forest Products Laboratory; Forest Service facilities in Virginia, West Virginia, and Oregon; the wood utilization research center at Oregon State University; the Western Wood Producers Association; the APA Engineered Wood Association; and a Weyerhaeuser Company research laboratory in Washington State. We also visited a sawmill, a manufacturer of wooden steps and stair posts, a manufacturer of engineered products, and a cabinet maker, and attended the 2005 Northeast Utilization and Marketing Council’s conference. We performed our work between February 2005 and May 2006, in accordance with generally accepted government auditing standards. This appendix presents examples of work conducted and planned for the Forest Service’s research work units at the Forest Products Laboratory (table 14), and in work units associated with five research stations: Northeastern, Pacific Northwest, Pacific Southwest, Rocky Mountain, and Southern (table 15). This appendix presents information on CSREES’ wood utilization research centers, including some of their objectives, specialty areas, and research activities over 11 years—fiscal years 1995 through 2005. This center specializes in assisting the Alaska Forest Products industry through research, extension, and education activities. The consortium uses a multidisciplinary, multi-institutional approach to solving forest operations and wood utilization problems unique to the Inland Northwest region. The consortium consists of the universities of Idaho and of Montana, and Washington State University. This center specializes in all aspects of utilization concerning species indigenous to the New England area. The center specializes in sustainable hardwood utilization, with a focus on wood preservation, wood composite materials, and genetic engineering of necessary wood properties for specific product development. This center specializes in timber harvesting, transportation, and economics; lumber manufacturing and processing; wood-based composite materials; protection and preservation of wood; wood chemistry; economic evaluation; and technology transfer. This center specializes in wood machining and tooling technology. This center specializes in science, technology, and business practices that will enhance the domestic and global competitiveness of the U.S. wood products industry, especially in the western United States; this will ensure more efficient use of available wood resources. A special emphasis is placed on training future scientists, researchers, and practitioners. This center specializes in southern Appalachian hardwood utilization and manufacturing of composite materials. This center specializes in improving the utilization of upland hardwoods in Appalachian forests. This appendix presents budget authority information for the Forest Service, information on FTE scientists and support staff for the Forest Service, and budget authority information for CSREES wood utilization research centers, from fiscal years 1995 through 2005. In addition to the contact named above, Andrea Wamstad Brown, Jacqueline Adams Cook, Richard Johnson, Rebecca Shea, Jay Cherlow, Carol Herrnstadt Shulman, Jeremy Ames, and Jaelith Hall-Rivera, made key contributions to this report.

More wood is consumed every year in the United States than all metals, plastics, and masonry cement combined. To maximize their use of wood, forest product companies rely on research into new methods for using wood. At least 12 federal agencies have provided support to wood utilization research and product development activities, including the U.S. Department of Agriculture's Forest Service and Cooperative State Research, Education, and Extension Service (CSREES)-funded wood utilization research centers, which historically have specifically targeted support to these activities. GAO was asked to identify (1) the types of wood utilization research and product development activities federal agencies support and how these activities are coordinated; (2) the level of support federal agencies made available for these activities in fiscal years 2004 and 2005, and changes in the level of support at the Forest Service and at the CSREES-funded wood utilization research centers for fiscal years 1995 through 2005; and (3) how the federal government transfers the technologies and products from its wood utilization research and product development activities to industry. GAO provided a draft of this report to the 12 federal agencies for review and comment. Some of the agencies provided technical comments, which were incorporated as appropriate. Federal wood utilization research and product development span a broad spectrum of activities. These activities fall into five categories: harvesting, wood properties, manufacturing and processing, products and testing, and economics and marketing. Of the 12 federal agencies that provided support to wood utilization research and product development, only the Forest Service and the CSREES-funded wood utilization centers had activities in all five categories; although all the agencies had activities in manufacturing and processing. Coordination of these activities is both informal and formal. Scientists informally coordinate their activities by conferring with each other and sharing information at conferences and professional meetings and through publications. In some cases, coordination occurs through more formal mechanisms, such as cooperative arrangements and other joint ventures. During fiscal years 2004 and 2005, the 12 federal agencies made available at least $54 million annually for wood utilization research and product development activities, measured either in budget authority or expenditures. (Dollars are reported in either budget authority or expenditure data, depending on the availability of agency data.) The Forest Service made available about half of these funds. In addition, the Forest Service--the only agency that directly employs scientists and support staff to conduct wood utilization research and product development--reported having almost 175 full-time equivalent scientists and support staff in each of these years. For fiscal years 1995 through 2005, the Forest Service's budget authority for wood utilization research and product development activities fluctuated moderately from year-to-year (in inflationadjusted dollars). In contrast, overall, CSREES' budget authority for the wood utilization research centers increased over the period (in inflation-adjusted dollars), in part because of the addition of four new wood utilization research centers between fiscal years 1999 and 2004. To transfer technologies and products to industry, federal agencies generally rely on scientists and technology transfer specialists, who use methods such as information sharing, technical assistance, and demonstration projects. For example, applying research from the Forest Products Laboratory, Forest Service technology transfer specialists assisted a small forest products company in producing flooring from small trees by, among other things, providing solutions to product imperfections like warping and discoloration.

You are an expert at summarizing long articles. Proceed to summarize the following text: At its inception, Medicare’s design mimicked the structure of existing private insurance, which commonly included different policies for different sets of services. It also was designed, like private insurance at the time, as a passive bill payer that did not try to influence how care was delivered. In fact, because of concerns about the potential influence of such a large government program, the original Medicare statute requires that Medicare not influence providers’ practice of medicine and gives beneficiaries access to all participating providers. Medicare is administered by the HCFA, and pays for some $200 billion in health care benefits each year for about 40 million elderly and disabled Americans. Individuals who are eligible for Medicare automatically receive Hospital Insurance (HI), known as part A, which covers inpatient hospital, skilled nursing facilities (SNF), certain home health, and hospice care. Beneficiaries generally pay no premium for this coverage, having previously contributed payroll taxes from covered employment, but they are liable for required deductibles, coinsurance, and copayment amounts. (See tables 1 and 2.) Medicare-eligible beneficiaries may elect to purchase Supplementary Medical Insurance (SMI), known as part B, which covers physician, outpatient hospital, laboratory, and other services. Beneficiaries must pay a premium for part B coverage, currently $50 per month, and are also responsible for part B deductibles, coinsurance, and copayments. Most of Medicare’s 40 million beneficiaries are enrolled in both parts A and B. However, approximately 2 million are enrolled only in part A. Another 400,000 are enrolled only in part B. Those enrolled in only one part of the program often have private insurance from an employer or other source to make up the difference. Approximately 14 percent of Medicare beneficiaries enroll in Medicare+Choice plans. These plans include health maintenance organizations and other private insurers who are paid a set amount each month to provide all Medicare-covered services. Beneficiaries must be enrolled in both parts A and B to join these plans, which typically offer lower cost-sharing requirements and additional benefits compared to Medicare’s traditional fee-for-service program, in exchange for a restricted choice of providers. Medicare pays for services out of two separate trust funds. Part A services are paid for out of the HI Trust Fund. It is primarily financed through the Medicare payroll tax that is exclusively dedicated to this trust fund. Part B services are paid for out of the SMI Trust Fund. This trust fund is financed in part through the part B premium, which is adjusted each year to equal 25 percent of expected part B spending. The remaining 75 percent is paid for out of general tax revenues. Medicare’s two parts have distinct financing and participation arrangements. Modifying these arrangements could promote the use of a more comprehensive measure of Medicare’s financial health and help policymakers anticipate future fiscal imbalances. In addition to selecting such a measure or measures, Congress could also decide to establish thresholds that would trigger corrective actions designed to rebalance Medicare revenues and spending. Unification of the now separate HI and SMI trust funds would require consideration of these issues, but even without such a merger, comprehensive financial measures and associated triggers would be useful. Unification would also require Congress to determine how the current mix of payroll taxes, beneficiary premiums, and general revenues might be modified to fund the program, as well as whether beneficiaries would be obligated to participate in the full program or could obtain coverage for subsets of services. In the past, Medicare’s financial status has been generally gauged by the projected solvency of the HI trust fund. Looked at this way—and based on the latest annual report from the Medicare Trustees—Medicare is viewed as solvent through 2029. Solvency is a popular measure, in part because the consequences of insolvency are clear. If there is no money in the HI trust fund, the government cannot pay hospitals or other providers of part A services. Thus, the threat of insolvency can be a powerful driver for action. In 1997, the Medicare Trustees estimated that the HI trust fund would become insolvent in 2001. The HI trust fund had not been so close to a crisis since 1972. Following the Trustees’ 1997 report, Congress enacted the Balanced Budget Act of 1997, which contained substantial payment and other reforms designed to slow Medicare’s cost growth. These reforms, coupled with a strong economy, helped to increase the life expectancy of the HI trust fund. However, HI trust fund solvency is an incomplete measure of Medicare’s fiscal health. It does not reflect the cost of the part B component of Medicare, which covers outpatient services and is financed through general revenues and beneficiary premiums. Part B accounts for more than 40 percent of current Medicare spending and is expected to account for a growing share of future total program dollars. The concept of solvency does not apply to the trust fund for part B, SMI, because increases in expenditures are automatically matched with increases in general revenues and beneficiary premiums. In addition, HI trust fund solvency does not mean that Medicare’s part A component is financially healthy. Although the trust fund is expected to remain solvent until 2029, HI outlays are projected to exceed HI revenues beginning in 2016. As the baby boom generation retires and the Medicare- eligible population swells, the imbalance between outlays and revenues will increase dramatically. Thus, in 15 years the HI trust fund will begin to experience a growing annual cash deficit. At that point, the HI program must redeem Treasury securities acquired during years of cash surplus. The government will then need to increase taxes, increase borrowing (or retire less debt), impose spending cuts, or implement some combination of these actions. When part A expenditures outstrip payroll tax revenues, it may be tempting to reallocate some expenditures from part A to part B. This would extend the solvency of the HI trust fund, but would do little to improve Medicare’s overall financial health. For example, BBA reallocated a portion of home health spending from part A to part B. Although that action—phased in over time—reduces HI expenditures and extends that trust fund’s solvency, it also increases SMI expenditures. Consequently, the home health reallocation increases the proportion of Medicare funded by general revenues and beneficiary premiums. Clearly, it is total program spending—both part A and part B—which determines whether Medicare is sustainable over the long haul. Whether the program remains in its current configuration, or the relationship between parts A and B are restructured, a more comprehensive measure of Medicare’s financial health could help Congress anticipate future fiscal imbalances. A variety of such measures exist now. For example, the Medicare Trustees report total Medicare spending as a share of gross domestic product (GDP). This measure clearly shows that total Medicare expenditures will likely consume an increasingly larger share of the national economy. Currently, combined HI and SMI expenditures account for 2.3 percent of GDP. This percentage is expected to rise to 4.5 percent in 2030 and 8.5 percent in 2075. Another comprehensive indicator measures Medicare spending relative to the entire federal budget. We estimate that Medicare’s share of the federal budget will increase from 10 percent in 2000 to over 23 percent in 2030 if the program’s spending growth continues unchecked. The adoption of new financial health indicators for Medicare would be one step; the next would be to decide what should trigger congressional action. Congress could agree that it would take action to rebalance Medicare spending and revenues whenever a comprehensive measure reached a predetermined level. Possible actions could include increasing general revenue contributions, payroll taxes, or beneficiary premiums; reducing benefits; cutting provider payments; or introducing efficiencies to moderate spending. The 1999 Breaux-Frist Medicare reform proposal provides one example of a potential trigger. Under that proposal, the two trust funds would be unified and congressional action would be required in any year when general revenue contributions exceeded 40 percent of total Medicare expenditures. The need for measures of program sustainability and thresholds that would trigger congressional action would be most acute if the trust funds are unified. Such a reconfiguration could remove the powerful signal of the HI trust fund insolvency and reduce the apparent urgency of corrective actions. If the trust funds remain separate, comprehensive measures of Medicare’s financial health and associated triggers could avoid the shortcomings that arise from a focus on the HI trust fund’s solvency. Improved measures of Medicare sustainability and agreed-upon thresholds will not, however, alter the difficult decisions facing this and future Congresses. A growing Medicare population and advances in expensive medical technology will increase future demands for health care spending. Policymakers will need to find ways either to control Medicare’s spending growth or obtain additional revenues to pay for it. Any solution to address the financial imbalance will affect beneficiaries, taxpayers, providers, or some combination of the three groups. Better measures of Medicare’s financial health may help identify the need for action, but will not lessen the difficulty of implementing a solution. Creating a unified trust fund for Medicare parts A and B would raise several new issues Congress would need to address. One is program financing—Congress would have to specify Medicare’s revenue sources and the share that each source would contribute. Under the current arrangement, revenues come from the Medicare payroll tax, general revenues, and beneficiary premiums. Broadly speaking, the amount financed from each revenue source depends upon the amount spent on Medicare services and the classification of services into parts A and B. The payroll tax supports part A services. The amount of general revenues devoted to Medicare is set equal to 75 percent of part B expenditures. Beneficiary premiums are collected to pay for the remaining 25 percent of part B spending. If the trust funds were unified, Congress would have to specify the funding mechanism. It could, for example, determine the share that general tax revenues, payroll tax revenues, and beneficiary premiums would each contribute to total Medicare spending. Alternatively, it could adopt an allocation formula similar to the present one by designating some services to be supported by the payroll tax and others to be supported by general revenues and beneficiary premiums. Beneficiary participation issues would also arise under a restructured program with a unified trust fund. Currently, about 2 million individuals (5 percent of beneficiaries) are eligible for Medicare part B but do not participate in the voluntary program. A smaller number of individuals do not qualify for coverage under part A, although provisions allow certain individuals to buy into the program by paying a monthly premium. Under a restructured program, Congress would need to determine beneficiary participation and premium options. For example, should participation in the full program and payment of any associated premium be mandatory? If full participation is mandated, program costs could increase and some beneficiaries would receive Medicare coverage for services covered by existing private policies. If full participation is voluntary, what coverage should be provided to those individuals who choose less than full participation? Would individuals who had made payroll tax contributions but decline to pay the premium not receive coverage? Or would reduced benefits—for example, coverage only for current part A services—be available for such individuals? Rethinking the relationship between parts A and B could facilitate rationalization of cost-sharing requirements and help make Medicare more like private sector and Medicare+Choice plans. Medicare’s benefit design has changed little since its inception 35 years ago, and in many ways has not kept pace with changing health care needs and private sector insurance practices. Medicare’s current cost-sharing requirements in particular are not well structured to promote prudent use of discretionary services. At the same time, they can create financial barriers to care and leave beneficiaries with extensive health care needs liable for high out-of- pocket costs. Health insurers today commonly design cost-sharing requirements—in the form of deductibles, coinsurance, and copayments—to ensure that beneficiaries are aware there is a cost associated with the provision of services and to encourage them to use services prudently. Ideally, cost- sharing should encourage beneficiaries to evaluate the need for discretionary care but not discourage necessary care. Optimally, cost- sharing would generally require coinsurance or copayments for services that may be discretionary and could potentially be overused, and would also aim to steer patients to lower cost or better treatment options. Care must be taken, however, to avoid setting cost-sharing amounts so high as to create financial barriers to necessary care. The benefit packages of most Medicare+Choice plans illustrate cost- sharing arrangements that have been designed to reinforce cost containment and treatment goals. Most Medicare+Choice plans charge a small copayment for physician visits ($10 or less) and emergency room services (less than $50). Relatively few Medicare+Choice plans charge copayments for hospital admissions. Plans that offer prescription drug benefits typically design cost-sharing provisions that encourage beneficiaries to use cheaper generic drugs or brand name drugs for which the plan has negotiated a discount. Medicare fee-for-service cost-sharing rules diverge from these common insurance industry practices in important ways. For example, as indicated in table 2, Medicare imposes a relatively high deductible of $792 for hospital admissions, which are rarely optional. In contrast, Medicare requires no cost-sharing for home health care services, even though historically high utilization growth and wide geographic disparities in the use of such services have raised concerns about the potentially discretionary nature of some services. Medicare also has not increased the part B deductible since 1991. For the last 10 years the deductible has remained constant at $100 and has thus steadily decreased as a proportion of beneficiaries’ real income. Also unlike most employer-sponsored health plans for active workers, Medicare does not limit beneficiaries’ cost-sharing liability. Employer- sponsored plans typically limit maximum annual out-of-pocket costs for covered services to less than $2,000 per year for single coverage. In Medicare, however, current estimates suggest that the combination of cost-sharing requirements on covered services and the cost of services not covered by Medicare leaves beneficiaries liable for about 45 percent of their health care costs. The average beneficiary is estimated to have incurred about $3,100 in out-of-pocket expenses for health care in 2000— an amount equal to about 22 percent of the average beneficiary’s income.Some beneficiaries face much greater financial burdens. For example, low- income single women over age 85 in poor health and not covered by Medicaid are estimated to have spent more than half (about 52 percent) of their incomes on health care services. The average beneficiary who obtained services had a total liability for Medicare-covered services of $1,451, consisting of $925 in Medicare copayments and deductibles in addition to the $526 in annual part B premiums in 1997, the most recent year for which data are available on the distribution of these costs. The burden of Medicare cost-sharing can, again, be much higher for beneficiaries with extensive health care needs. In 1997 slightly more than 3.4 million beneficiaries (11.4 percent of beneficiaries who obtained services) were liable for more than $2,000. Approximately 750,000 of these beneficiaries (2.5 percent) were liable for more than $5,000, and about 173,000 beneficiaries (0.6 percent) were liable for more than $10,000. Different approaches could be taken to address concerns about current cost-sharing requirements. Cost-sharing for less discretionary services could be reduced or eliminated. Catastrophic protection could be added to the benefits package. In addition, the part B deductible could be raised, or the part A and B deductibles could be combined. Reducing or eliminating cost-sharing for less discretionary services, such as inpatient hospital care, could be done within the current program structure. Congress has already taken similar action by reducing and eliminating cost-sharing requirements for various cancer screening tests and vaccinations in order to ensure that affordability is not a barrier to these important services. Adding catastrophic protection by capping how much beneficiaries are required to pay out-of-pocket also could be done under current program structure. There would need to be agreement on how to allocate between parts A and B the added cost to the program and recognition of the time and resources needed to incorporate such a change into HCFA’s information systems. Raising the part B deductible or creating a combined deductible for part A and part B services has been suggested to offset some of the additional cost of providing catastrophic protection. It would also offset some of the real-dollar decline in the part B deductible, which has not been adjusted for inflation or raised in any way since 1990. These changes could be done under current program structure as well, again with recognition of the time and resources needed to incorporate the change into HCFA’s information systems. Most beneficiaries who incurred cost-sharing would likely meet a combined deductible through their use of what are now part B services. If the combined deductible is set higher than the current part B deductible, providing protection for low-income beneficiaries so that costs do not become a barrier to needed services or an undue burden would be an important consideration. Combining the deductible or providing catastrophic protection would again raise the issue of whether to maintain individuals’ ability to participate independently in A or B or to require full participation by all beneficiaries in the entire program. Requiring full participation for beneficiaries who now participate in only one part of the program could result in additional costs for beneficiaries who have alternative coverage as well as additional program costs. It also raises the issue of the entitlement for persons who have paid the required payroll tax, but choose not to pay the premium. Partial benefits could be extended to those who do not fully participate in the program. Alternatively, some of the effects of mandatory participation could be muted by phasing in a unified program so that new beneficiaries would participate in the full program while those who now participate in only part of the program could continue to do so. As noted earlier, the original Medicare statute reflected 1960s private health insurance practices that often included separate policies for different services as well as a passive bill paying approach. In contrast to Medicare, which has not changed much since its inception, private insurance has evolved over the last 40 years and now offers comprehensive policies and employs management techniques designed to improve the quality and efficiency of services purchased. Private insurers are able to undertake these efforts because many have detailed data on service use across enrollees and providers, as well as wide latitude in how they run their businesses. Regardless of whether the relationship between parts A and B is restructured, HCFA faces challenges in seeking to more efficiently manage Medicare services due to its outdated and inadequate IT systems, statutory constraints, and the fundamental need for public accountability that accompanies a large public program. These limitations have hampered the agency’s ability to administer the program and incorporate new innovations. Private insurers have taken steps to influence utilization and patterns of service delivery through efforts such as beneficiary education, preferred provider networks, and coordination of services. NASI has reviewed many of these private sector activities and concluded that they could have potential value for Medicare. However, they would need to be tested to determine their effects as well as how they might be adapted to reflect the uniqueness of Medicare as both a public program and the largest single purchaser of health care. In addition, HCFA would likely need new statutory authority to broadly implement many of these innovations. To effectively oversee claims administration and assess the effects of innovative policies that private sector insurers have adopted, HCFA needs timely and comprehensive information on services and payments in the aggregate and for individual beneficiaries. HCFA lacks that capacity today, not because it has separate contractors for parts A and B, but because of deficiencies in its information systems. Some of the agency’s vital information systems are decades old, with some operating software rarely used today by any entity other than HCFA, and lack the capacity and flexibility that newer technology can offer. Consequently, HCFA has had difficulty assembling timely and comprehensive information about provider billing patterns and beneficiary service use. Currently, data from parts A and B do flow to some common points—both during claims processing and after. During claims processing, both part A and part B claims are checked through a prepayment validation and authorization system operated by HCFA—the Common Working File (CWF). Claims approved for payment are ultimately complied in the National Claims History (NCH) file, which can be analyzed to look at broader payment trends within the program. The problem is that this compilation of information occurs long after services have been delivered and claims paid. These system limitations are unfortunate because changes in Medicare payment policy for one type of service can have reverberations in other areas. To understand these effects requires analysis across a range of services beneficiaries may be receiving. A clear example of this occurred after the implementation of a prospective payment system (PPS) for hospitals, which pays hospitals fixed, predetermined amounts for each hospital stay that vary according to patients’ diagnoses. Prior to this innovation, hospitals were paid on the basis of their costs, with little incentive to limit patient stays or provide care efficiently. Paying a fixed amount for an episode of hospital care creates incentives for hospitals to reduce lengths of stay and to shift services that had been provided in the hospital to other settings. Understanding these modifications in care delivery led to payment changes to prevent Medicare from paying twice for the same service. More recent payment changes for home health and SNF services, and the soon to be implemented PPS for inpatient rehabilitation services, will likely cause similar kinds of care shifts. It is essential that HCFA has the ability to monitor changes in care delivery in a timely and objective manner to determine how these payment policies may need to be adjusted in the future. Recent experience has also demonstrated HCFA’s difficulties in developing information to measure the effects of changing Medicare policies on beneficiaries and providers in a comprehensive and timely manner. The Balanced Budget Act of 1997 (BBA) payment reforms represented bold steps to control Medicare spending by changing the financial incentives for delivering care efficiently. Reforms affected hospitals, home health agencies, SNFs, and providers of other services. Affected providers presented anecdotal evidence asserting that the BBA’s payment reforms caused them financial difficulties and would impair beneficiary access, urging Congress to undo some of the act’s provisions. HCFA analysts were ill-equipped to assess the validity of these charges because the necessary program data were not readily available. Better and more timely information is a prerequisite to more effective program management. It is essential to the development and refinement of payment methods for different service providers. It can also help policymakers understand the desirable and undesirable consequences of changes on beneficiaries, providers, and the trust funds. Generating these data is not dependent on unifying part A and part B, but rather on merging part A and part B data in a modern information system capable of supporting timely, pertinent analyses. An expert panel convened by NASI has suggested that Medicare may benefit from moving away from its passive bill paying approach by adopting some private insurers’ practices designed to improve the quality and efficiency of care. The panel focused on provider and beneficiary education, preferred provider networks, and coordination of services as potential improvements in Medicare. Educating beneficiaries or providers could improve the use of important preventive and other services currently being underused and minimize questionable use of services. Developing a system of preferred providers selected on the basis of quality as well as cost could improve care and help achieve savings. More actively coordinating care across provider settings for beneficiaries with chronic diseases like diabetes or who have recently experienced heart attacks might also help improve quality and efficiency. HCFA has begun to implement some innovations and experiment with others. Broadly implementing the experimental innovations that prove successful may require new statutory authority. Other private sector innovations, however, may be difficult to incorporate, given Medicare’s size and the need for transparency in a public program. HCFA has been able to implement broad-based education efforts but has been stymied in implementing approaches targeted to individual beneficiaries most likely to need the help. For example, it has an extensive effort underway to encourage colon cancer screening that includes dissemination of more than 23,000 innovative posters. The posters include tear-off sheets that beneficiaries can hand to physicians to facilitate discussions that otherwise might be avoided because of the unfamiliar words, sensitive issues, and unpleasant options that can be involved. HCFA is also involved in a multifaceted effort to increase flu vaccinations and mammography use among beneficiaries. However, HCFA may be less able to undertake more targeted education efforts that some private insurers are using, such as sending out reminders to identified enrollees about the need to obtain a certain service. Because of Medicare’s size and status as a federal program, beneficiaries and others might have concerns about HCFA using personal medical information from claims data to target educational efforts. Providers might also object to a government insurance program advocating certain medical services for their patients. HCFA is providing more information to physicians about service use and typical practice patterns in an effort to educate them about how their practice patterns compare to the norm. For example, the Medicare peer review organizations encourage those who have unusual practice patterns to reconsider their service provision. However, private insurers can go one step further and terminate providers who continue to have aberrant practice patterns. HCFA’s ability to terminate providers is much more limited because of statutory requirements intended to protect beneficiaries’ choice of providers. HCFA’s ability to encourage use of preferred providers is also limited. The Medicare statute generally allows any qualified provider to participate in the program. HCFA has experimented with bundling payments for certain expensive procedures performed by designated providers. For example, it tested the impact of making single “global” payments to hospitals for all services–both hospital and physician—related to coronary artery bypass graft surgery. The hospitals chosen for the experiment were among those with the best outcomes for these surgeries. The experiment cut program costs by 10 percent for the 10,000 coronary artery bypass surgeries performed, and saved money for beneficiaries through reduced part B coinsurance payments. More important, compared to a group of beneficiaries not receiving this bundled care, beneficiaries who were treated in one of the selected hospitals had lower mortality rates, were more satisfied with the quality of the nursing care, and appreciated the simplicity of a single coinsurance amount. HCFA has begun a similar experiment at selected acute care hospitals, which involves bundling payments for hospital, physician, and other health care professionals’ services provided during a beneficiary’s hospital stay for selected cardiovascular and orthopedic procedures. However, more wide scale Medicare implementation of such hospital and physician partnership arrangements may be difficult. Providers have raised concerns about a government program designating some providers as delivering higher quality care than others. In addition, bundling services for hospitals and doctors added administrative burdens to the hospitals and took control of payments away from doctors. In the end, it is not the separation of parts A and B that would impede efforts to promote such preferred provider arrangements. Rather, it may be more deep-seated concerns about government promotion of certain providers at the expense of others that serve as a barrier to this and other types of preferred provider arrangements. HCFA has also been conducting demonstrations to test how to better coordinate care for certain patients since the 1980s. In addition, BBAmandates that HCFA find budget neutral ways to test methods of coordinating a range of services for chronically ill beneficiaries in at least nine urban and rural sites. The law authorizes the Secretary of Health and Human Services to incorporate any components proven to be cost- effective into Medicare through regulations and to expand the number of demonstration sites.

Medicare faces many challenges. The overarching issue is how to sustain the program for future generations. Meeting that challenge will require difficult decisions that will affect beneficiaries, providers, and taxpayers. However, the financing issue should not obscure other important challenges. Medicare's current cost-sharing arrangements do not encourage the efficient use of services without discouraging necessary care. Moreover, the lack of catastrophic coverage can leave some beneficiaries liable for substantial Medicare expenses. Finally, some aspects of Medicare's program management are inefficient and lag behind modern private sector practices. Changes in Medicare's program management could improve both the delivery of health care to beneficiaries and the program's ability to pay providers appropriately. Some view restructuring of the relationship between parts A and B as an important element of overall Medicare reform. Fundamentally, assessing the program as a whole is an important first step in addressing Medicare's challenges. Solutions to many of these challenges could be crafted without restructuring. However, restructuring may provide opportunities to implement desired reforms--with or without unifying the Hospital Insurance and Supplemental Medical Insurance trust funds--while undoubtedly raising issues that will have to be considered.

You are an expert at summarizing long articles. Proceed to summarize the following text: Networks of related entities are a feature of modern business organizations. Many legitimate reasons explain why a business owner (or owners) may choose to use a network of related entities to conduct operations. While this list is not exhaustive, a network may be used legitimately to: isolate one line of business from the potential liabilities or risk of business loss of another; isolate regulated industries into separate entities to manage ownership, reporting, or licensing requirements; manage a business’s financing arrangements; separate ventures based in different states and countries; or separate activities for which ownership is restricted from those for which ownership is not restricted (such as when subchapter S corporation ownership restrictions apply). A variety of entities can be linked in networks and report taxes in different ways. Table 1 briefly describes some of the entities that will be discussed in this report. Certain entities file tax returns with IRS to report their taxes owed, such as subchapter C corporations (C corporations), which file Form 1120, U.S. Corporation Income Tax Return. Other entities may operate as pass-throughs. A pass-through entity generally has the legal right to impute or pass net income or losses through to its partners, shareholders, and beneficiaries untaxed. Pass-through entities are required to provide each partner, shareholder, or beneficiary with a Schedule K-1 stating the individual share of net income or loss to be reported. The entities also provide this information to IRS. The partners, shareholders, or beneficiaries are responsible for reporting this income or loss on their individual income tax returns and paying any tax. Entities that may serve as pass-throughs include subchapter S corporations (S corporations) and partnerships. The various types of entities that make up networks can be linked in multiple ways. Table 2 summarizes how a select set of individuals, various forms of businesses, and trusts may own or control other entities. The ownership, beneficiary status, or family connections within a network may not be initially apparent. Individual entities connected to an owner may in turn own other entities or be the beneficiaries of other trusts, thus creating the potential for a large, complex network. For illustrative purposes, appendix II includes diagrams showing how certain entities can be linked and how the income generated by these entities can pass around a network. When taxpayers use multiple pass-through entities, they create what IRS calls a “multitiered” network. In IRS’s definition, a multitiered network exists when a pass-through entity is itself a partner, shareholder, or beneficiary of another pass-through entity, leading to a situation where income is allocated from one pass-through entity to another. Figure 1, adapted from an IRS study, is an illustration of a hypothetical, complex network. In IRS’s example, the allocation from the observed partnership on the far left side of the diagram crosses nine pass-through entities along the red line before it reaches one of its ultimate owners on the right. Owners of a network could use transactions among entities in the network to create tax evasion schemes in which taxpayers improperly conceal property ownership or income by diverting assets or income from one entity to another; improperly inflate an asset’s basis to reduce capital gains taxes by selling the asset within the network; improperly generate losses or tax deductions, which are passed through to other entities that use the losses or tax deductions to offset gains; inappropriately shift losses, deductions, or credits from entities not subject to U.S. federal income tax, such as foreign entities, to those who are; or inappropriately shift income from those entities subject to U.S. federal income tax to those entities that are not. One example of a network tax evasion scheme is what IRS calls an installment sale bogus optional basis transaction (iBOB). In an iBOB scheme, taxpayers use commonly owned or controlled entities to artificially adjust the basis of an asset and evade capital gains taxes. The scheme can involve many layers of ownership, can take place over many tax years, and can be shrouded by legitimate transactions. IRS understands how the scheme works and has alerted examiners to its existence. IRS’s Web site also describes a similar abusive transaction. In cooperation with IRS, we developed a video explaining how an iBOB works and the challenges IRS faces in ensuring those who are engaged in such schemes are caught. In our simplified example, a hypothetical taxpayer, Mr. Jones, sells a hotel that has appreciated in value resulting in capital gains that are taxable income. Mr. Jones uses an iBOB to evade paying capital gains taxes. Successful tax evasion schemes exacerbate the tax gap, which is the difference between the tax amount—including individual income, corporate income, employment, estate, and excise taxes—that should have been paid voluntarily and on time and the amount that was actually paid for a specific year. IRS most recently estimated that the tax gap was a net of $290 billion in 2001. The tax-gap estimate relies on National Research Program (NRP) data. NRP compiled data on taxpayers’ noncompliance by randomly sampling from the population of individual filers, intensively reviewing tax returns in the sample to determine the extent of noncompliance, and using the sample results to produce noncompliance estimates for the entire population. IRS has four operating divisions—Wage and Investment (W&I), Small Business/Self-Employed (SB/SE), Large and Mid-Size Business (LMSB), and Tax Exempt and Government Entities (TE/GE). Each division has its own compliance programs, such as conducting examinations. W&I generally addresses individual taxpayers filing Form 1040; SB/SE addresses small businesses with assets of less than $10 million and self- employed taxpayers; LMSB addresses C corporations, S corporations, and partnerships with assets of $10 million or more; and TE/GE addresses pension plans, exempt organizations, and government entities. IRS’s Criminal Investigation (CI) unit also investigates cases of fraud that may involve networks. CI has investigative jurisdiction over tax, money laundering, and bank secrecy laws. The Office of Tax Shelter Analysis (OTSA), the Lead Development Center (LDC), and the Servicewide Abusive Transaction Executive Steering Committee (SAT ESC) are three groups within IRS with responsibilities that may touch on network tax evasion. OTSA is an LMSB group that collects and analyzes information, some of which is reported by taxpayers about certain tax shelters. LDC in SB/SE acts as the clearinghouse to receive, identify, and develop leads on individuals and entities that promote and/or aid in the promotion of abusive tax avoidance transaction schemes. IRS has charged SAT ESC with coordinating information about tax shelter schemes—including those that might involve networks—that individual operating divisions identify. IRS does not have an estimate of the total amount of revenue lost through network tax evasion because of cost and complexity constraints. IRS faces challenges in developing an NRP-type study to estimate the amount of network tax evasion because it does not know the population of networks. Therefore, IRS does not know what portion of the $290 billion net tax gap is network related. Nor does IRS routinely track the amount of network tax evasion it identifies through its enforcement programs. As will be discussed in more detail below, IRS’s enforcement programs have traditionally focused on single entities as the unit of analysis, such as an individual or corporation, rather than networks. While IRS does not know the population of networks, it has estimated the size of a subset of that population. Based on a study of networks with two or more pass-through entities, IRS estimated that in tax year 2008, more than 1 million of these networks existed, of which about 2 percent had 11 or more different entities’ returns. Although IRS lacks an estimate of network tax evasion, IRS officials said they have evidence of a problem because of their experiences with abusive tax shelters. Some of the tax schemes that IRS considers impermissible necessarily involve, or could involve, networks. IRS maintains a list of tax avoidance transactions on its Web site; any taxpayer engaging in such a listed transaction, or a transaction substantially similar to a listed transaction, must disclose to IRS certain information about that transaction. IRS’s list of tax avoidance transactions includes examples of abusive tax shelters involving networks. The iBOB scheme previously described is an example of network tax evasion involving a tax shelter. IRS officials have cited trends that they said indicate an increased risk of network tax evasion. These officials noted the increased use of pass- through entities. This suggested to them that the use of networks is growing, that networks are becoming increasingly complex, and that the risk of tax evasion is growing. Figure 2 illustrates the extent to which partnership and S corporation tax return filings have increased from creased from calendar years 1998 to 2008. calendar years 1998 to 2008. Schedule K-1 filings from pass-through entities also have increased. From 2008 to 2009, submission of Schedules K-1 increased from 19.8 million to 21.2 million for partnerships filing Form 1065, U.S. Return of Partnership Income. Meanwhile, submission of Schedule K-1 forms for S corporations filing Form 1120S, U.S. Income Tax Return for an S Corporation, stayed about the same at about 7 million from 2008 to 2009. IRS examiners we spoke with who have experience in network-related examinations said that, anecdotally, they have noticed an increase in the use of disregarded entities in a network, which they said is another risk factor for network tax evasion. A disregarded entity can be part of a network, but its connection to a taxpayer may not be clear in the tax information IRS uses to detect network tax evasion. The total number of disregarded entities is unknown, but IRS estimated that there were at least 443,000 disregarded entities during a period between July 2007 and August 2008. IRS’s programs for addressing network-related tax evasion include its examinations (or audits) in which IRS examiners analyze taxpayers’ records to ensure that the proper tax was reported. IRS’s examination practices have made contributions to tax enforcement. In fiscal year 2009, IRS examined 1.6 million tax returns, identifying over $49 billion in additional recommended tax. IRS traditionally has conducted examinations on a return-by-return basis, beginning with a single tax return in a particular tax year as the unit of analysis and examining other tax returns connected with the original return, if necessary, in what can be called a bottom-up approach. The examination selection process generally involves identifying a pool of high-risk returns and from that group, determining which returns to examine. CI follows a similar approach. It starts with a taxpayer suspected of criminal violations of the Internal Revenue Code or related financial crimes and then branches out to related entities. When investigators want to find connections between the suspected taxpayer and other entities, they use Reveal, a network visualization tool. Reveal draws on data from multiple sources that CI uses to analyze intelligence and to detect patterns of criminal and terrorist activities. Data that Reveal uses include certain cash transactions, tax information, and counterterrorism information. Its outputs include a visual representation containing names, Social Security numbers, addresses, and other personal information of individuals suspected of financial crime or terrorist activity. Because of CI’s authority to access sensitive information, only in rare instances do non-CI staff use Reveal, according to CI data security staff. IRS’s traditional enforcement efforts are not designed to identify networks, select those networks that appear to be involved in tax evasion, or follow up with in-depth examination or investigation. Specifically, IRS’s traditional efforts are challenged in dealing with network tax evasion by the combined effects of a number of factors such as the following. A bottom up approach focusing on a single taxpayer. As with the businesses in the iBOB scheme previously described, an entity involved in a network may not raise suspicions when examined in isolation. The tax evasion may only be apparent in how it relates to other entities in the network. Internal divisional boundaries. A single network may contain many types of entities that cross the responsibilities of IRS’s operating divisions (i.e., W&I, SB/SE, LMSB, TE/GE). While IRS has the SAT ESC in place for overseeing abusive transaction issues, examiners on any particular audit may not have the expertise or authority to pursue the network connections of the taxpayer under review. For example, SB/SE examiners auditing a small partnership may not have the time, expertise, or authority to recognize or pursue a related large S corporation that is a member of the partnership. Single tax year examinations. IRS examiners typically begin examinations by looking at tax return data for a single tax year, limiting their opportunity to notice multiyear schemes. The iBOB is an example of a scheme in which the transactions creating the tax evasion can occur in multiple tax years. Competing time and resource priorities. IRS generally aims to conduct examinations in a manner that maximizes the amount of tax noncompliance found while minimizing an examiner’s time commitment. Network examinations may be highly time-consuming for an examiner and the outcome is less predictable. Examiners’ ability to follow network connections also is restricted in another way. The Taxpayer Browsing Protection Act prohibits federal employees from willfully inspecting taxpayer information without authorization. To comply with the law, IRS restricts the access examiners have to certain tax information. According to IRS, the law helps protect the confidentiality of taxpayer information, but examiners told us it also may restrict an examiner’s flexibility to explore leads, without manager approval, across different tax forms that could reveal network abuse. IRS has been creating specific programs and tools that address network tax evasion more directly than its traditional examination approach. Under GHWI, IRS identifies certain high-wealth individuals and then examines each individual’s network. According to the Commissioner of Internal Revenue, the intent is to take a unified look at the entire complex web of business entities controlled by a high-wealth individual to assess the tax compliance of the network, rather than of the separate entities individually. IRS initiated GHWI in 2009. Although it resides in LMSB, IRS plans for GHWI to include staff with expertise that crosses divisional boundaries. For example, GHWI examiners might address small partnerships included in a network, even though small partnerships otherwise would be under the purview of SB/SE. As a result, GHWI is expected to directly examine tax issues that otherwise might have been missed. SB/SE launched the EOT project in January 2010 to gather data on the owners and locations of new businesses through employer identification number (EIN) applications. Primarily, IRS officials said they are interested in identifying what they refer to as the responsible party, which is the true beneficial owner of the business in this context. As of January 2010, the EIN application form requests additional information from business owners, such as the Social Security number of the responsible party and location of incorporation, which IRS previously did not request. The goal of the project is to link the new data to existing information in IRS’s databases for identifying related businesses or a network of businesses. As the operating division responsible for the EIN process, W&I will implement the program once design is complete, which is tentatively scheduled for January 2012. The network tool that is furthest along in development and most widely used at IRS is yK-1. yK-1 is a network visualization tool that is now being used by some IRS staff in doing examinations and in reviewing networks. Users enter a taxpayer identification number (TIN) into the yK-1 software, which produces a picture showing how that TIN is connected to other entities through information filed on Schedule K-1. Figure 3 shows an example of yK-1 output. In this example, the numbers along the arrows represent the flow of money among the three different types of entities. yK-1 diagrams can help examiners and other yK-1 users determine a specific entity’s sources and amounts of income and whether other entities in the taxpayer’s network need further examination. Examiners and users can then access other tax information about the entities in the network from IRS databases as well as non-IRS information from sources such as Accurint, a financial information database, and the Internet. Programmers are continuing to work on expanding yK-1’s capabilities, such as adding estate and gift tax data and data on international taxpayers. IRS’s Research, Analysis and Statistics group is developing another tool related to yK-1 called GraphQuery. GraphQuery is a pattern-matching tool being designed to facilitate top-down identification and selection of those networks that have the highest risk for noncompliance. In this top-down approach, users would enter into GraphQuery a specified pattern, such as the structure of a known tax evasion scheme; the program would search for other networks showing the same pattern and list the TINs of the entities in those networks. IRS’s Office of Performance Evaluation and Risk Analysis has demonstrated a program called NetReveal, which can build a diagram of related entities or individuals using a wider variety of data, including nontax return data, than are used by yK-1. NetReveal, which is unrelated to CI’s Reveal program, remains under consideration by IRS and has not yet been made available to the operating divisions for tax compliance purposes. Judged according to 14 network analysis criteria we developed, IRS’s work on creating new network programs and tools already shows promise. We used interviews with academic experts and users of network analysis programs at other federal agencies to develop the 14 criteria, which are listed in table 3, for assessing network analysis programs and tools. Appendix I discusses what the criteria entail and how we developed them. While the criteria describe good management practices that could apply to a wide variety of programs, the experts we spoke with cited these criteria as directly relevant to network analysis. In particular, the criteria highlight the crosscutting nature of network-related problems. The experts we spoke with also noted that network problems, such as network tax evasion, include by definition multiple entities that could cut across databases and an oversight agency’s organizational units. As a logical consequence, they emphasized using criteria that call for an agencywide strategy, access to a wide range of data, and good collaboration across an agency’s organizational structures. For IRS, criteria focused on the crosscutting nature of network analysis are directly relevant to the problem of network tax evasion. A variety of entities could comprise a network, which could be under the purview of different IRS divisions. Similarly, data on the tax accounts for the different entities could be in different IRS databases. Our assessment of IRS’s new programs and tools against the criteria is shown in table 3. The assessment is of IRS’s progress to date—the programs and tools are still under development. The assessment also indicates areas where IRS’s efforts to date do not satisfy the criteria. These areas present opportunities to make further progress. As table 3 indicates, IRS’s efforts to focus more directly on network tax evasion, while still under development, are consistent with our criteria for judging network analyses but do not fully satisfy them. The efforts are supported by upper management, offer new analytical approaches that more directly address network tax evasion, and attempt to cut across IRS’s divisional boundaries and databases. As a result, these efforts show promise at being able to detect and pursue network tax evasion more effectively than IRS’s traditional enforcement programs. However, table 3 also shows where opportunities exist to provide more overall direction to IRS’s efforts and perhaps hasten the development of specific programs and tools. For example, the table notes the lack of agencywide strategy and goals for IRS’s various network efforts that are spread throughout the agency. Without agencywide strategy or goals to coordinate and prioritize these efforts, two risks exist. First, IRS could make redundant investments; second, IRS could fail to concentrate investments on the programs and tools with the greatest potential. IRS may need to take an incremental approach to managing these risks because of the uncertainties. As already discussed, the population of networks is not known, networks can be complex, and IRS does not know which programs and tools will be most effective. Further, the costs could be significant. IRS’s current organizational structure, work processes, and data systems do not support using a network as a unit of analysis and adjusting them to do so could disrupt other important priorities and programs. In light of this uncertainty about potential benefits and the cost, IRS will need to be careful in reallocating resources from other compliance programs to its new network efforts. As IRS gathers more information, management will be better positioned to more fully develop its strategy. IRS also faces challenges in responding to the criteria for programming and data. As noted in table 3, adding new data, updating existing data, and making existing data more readily available in electronic form all could enhance IRS’s capabilities to identify and pursue network tax evasion. Similarly, IRS could potentially benefit from more complete consideration of the potential relevance of the array of analytical techniques developed in the research literature and available in existing software applications. However, as also noted above, such efforts would have costs. This reinforces the need for a strategy that would prioritize investments in better data and analytical capabilities. IRS has not assessed the impact and effectiveness of its new network analysis tools, as described in table 3. For example, the benefits of using yK-1 relative to the additional time it takes examiners to use it have not been studied, but anecdotal evidence from users and management indicate yK-1 is a useful tool. Effectiveness assessments have costs which can be managed by judgments about the depth of the assessment needed. However, without effectiveness assessments, IRS managers are left without information that could help with the development of a strategy and with decisions about prioritizing investments in better data. Table 3 stresses the importance of regular communications and training among all types of staff involved in identifying, analyzing, and pursuing network evasion schemes. Without these, auditors could be missing information they need and network schemes could go undetected. IRS officials said that the direct costs for these actions tend to be minor, but that they must be mindful of how these actions might affect other priorities. For example, they said the initial 2-hour training for yK-1 imposes minor costs. However, the officials also said that learning yK-1 requires accessing it enough to appreciate all of its capabilities. IRS’s network compliance efforts have the potential to address a significant part of the tax gap. However, IRS does not know the extent of this compliance problem or how effective its new programs and tools will be. Nor does IRS have a strategic approach to coordinate these network efforts across the agency. IRS needs to walk a middle course between doing too much too soon versus doing too little too slowly. If it does too much, IRS risks taking resources from other priorities without assurance that the investment in the network efforts will reduce network tax evasion. If it does too little, IRS runs the risk of not learning more about networks and how to detect their tax evasion schemes. To successfully balance these trade-offs, IRS would benefit from having a more strategic approach to coordinate and focus its various network efforts across the agency. As IRS learns more, that strategic approach would work toward developing a set of goals and measures to guide future efforts and consider ways to assess the impacts of the various programs and tools that are to be developed. Effectiveness assessments have costs, but without any assessments, managers lack valuable information. With such information, IRS would have a better sense of the pace at which it should invest its resources into expanding the network analysis program, including adding the analytical tools, data, and staff expertise that would be needed to address the specific compliance issues that IRS would be discovering. IRS’s efforts to develop network programs and tools would also be enhanced by ensuring that staff understand the benefits of using the tools and are provided with a mechanism to provide feedback on the tools’ and programs’ effectiveness. We recommend that the Commissioner of Internal Revenue take the following three actions. Establish an IRS-wide strategy with goals, which may need to be developed incrementally, to coordinate and plan ongoing and future efforts to identify and pursue network tax evasion. The strategy should include: assessing the effectiveness of network analysis tools, such as yK-1; determining the feasibility and benefits of increasing access to existing IRS data, such as scanning additional data from Schedule K-1, or collecting additional data for use in its network analysis efforts; putting the development of analytical techniques and tools that focus on networks as the unit of analysis, such as GraphQuery, on a specific time schedule; and deciding how network efforts will be managed across IRS, such as whether a core program team or management group is needed. Ensure that staff members who will be using current and additional network tools fully understand the tools’ capabilities. Establish formal mechanisms for front-line users to interact directly with tool programmers and program analysts to ensure future network analysis tools, such as GraphQuery, are easy to use and help achieve goals. In a September 8, 2010, letter responding to a draft of this report (app. IV), IRS’s Deputy Commissioner for Services and Enforcement provided comments on our findings and recommendations as well as information on additional agency efforts, changes, and studies to address network tax noncompliance. The letter also provided technical comments that we incorporated into our report as appropriate. The Deputy Commissioner said that IRS agreed with our draft on the challenges involving network tax compliance and the status of IRS’s network-related efforts. IRS also generally agreed with our recommendations to establish an IRS-wide strategy with goals, ensure that staff understand the capabilities of IRS’s network tools, and establish a more formal way for IRS staff to collaborate as new network tools are developed and implemented. In agreeing with our strategy recommendation, IRS’s response noted that it may be more effective for IRS to consciously and appropriately include network issues in broader strategic plans, rather than develop a separate strategy for networks. We agree. Our recommendation is that IRS develops a strategy. We leave IRS with the discretion on how to articulate the strategy and point out that it may need to be developed incrementally. As agreed with your offices, unless you publicly release the contents earlier, we plan no further distribution of this report until 30 days from its 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. The 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 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. The objectives of this report were to (1) describe what the Internal Revenue Service (IRS) knows about network tax evasion and how well IRS’s traditional enforcement efforts address network tax evasion and (2) assess IRS’s progress in addressing network tax evasion and opportunities, if any, in making further progress. To describe what IRS knows about network tax evasion and how well the traditional enforcement efforts the agency has in place address network tax evasion, we reviewed IRS statistics, policy manuals, and planning documents, including strategic plans. We also interviewed relevant IRS officials and staff. We developed a video to highlight one type of network tax evasion. To develop this video describing the installment sale bogus optional basis adjustment (iBOB), we reviewed IRS technical information on iBOB schemes, out of which we developed a simplified, hypothetical example. IRS suggested the iBOB as a scheme that would make an appropriate example. IRS management and technical staff reviewed the video throughout its development, and we incorporated their technical comments where appropriate. Because no existing criteria that we could find directly applied to reviewing the progress of IRS’s network analysis programs, we developed our own. We conducted two groups of interviews with network analysis users and experts to develop our criteria for network analysis program development and implementation. The first group of interviews was with academic researchers considered to be experts whom we identified through detailed literature reviews and recommendations from other experts. The second group of interviews was with federal agencies that use network analysis tools. We also interviewed IRS auditors about their work. To identify relevant academic experts, we reviewed the research literature using network analysis and related methods. We then created a literature search matrix and entered all studies obtained through the search that involved some quantitative/automated form of network analysis and an empirical application to a substantive area that had potentially direct applications to our review. We selected a subset of these studies for a more detailed review and used professional judgment to focus on studies of most immediate relevance. The literature review was the primary tool used for selecting researchers and experts for further follow up, which was ultimately based on ensuring a balance of experts with expertise across the entire array of substantive research topics and methodological approaches that we identified in our search and on determining that individual experts’ research agendas were both broad and deep. We conducted semistructured interviews with these experts, during which time we asked for recommendations of other network analysis and data mining experts. Often these recommendations were for researchers or experts we had already identified. Not every expert we identified was available to speak with us. The experts we spoke with included Wayne E. Baker, University of Michigan; Stephen P. Borgatti, University of Kentucky; Kathleen M. Carley, Carnegie Mellon University; Sean Everton, Naval Postgraduate School; Mark Granovetter, Stanford University; David Jensen, University of Massachusetts Amherst; Mark Mizruchi, University of Michigan; Carlo Morselli, University of Montreal; Daniel M. Schwartz, Criminal Intelligence Service Ontario; Duncan Watts, Yahoo! Research; and Jennifer Xu, Bentley University. We used our interviews with these experts to aid only in developing our criteria; they did not otherwise contribute to the content of the report. To identify federal agencies to interview, we first reviewed academic literature and reports on government agencies that conduct network analyses, including our own reports. Through this review, we identified Customs and Border Patrol (CBP); Federal Bureau of Investigation; Financial Crimes Enforcement Network; Immigration and Customs Enforcement; Risk Management Agency at the United States Department of Agriculture; and the Securities and Exchange Commission. We also identified the Financial Industry Regulatory Authority (FINRA), which is not a federal agency but has an oversight and enforcement component similar to that of federal financial regulators. We conducted semistructured interviews with relevant program staff that use network analysis tools at these agencies and FINRA. During each interview, we asked about what works well in their network analysis program; what about their network analysis program needs improvement; what tools they feel could improve their program; what are best practices for developing a network analysis program; and what other agencies use network analysis programs. Of those other agencies that were mentioned that had network analysis programs, we chose not to meet with the Central Intelligence Agency and National Security Agency due to time constraints and data sensitivity issues. The Drug Enforcement Agency (DEA) was also recommended to us to speak with; while we did not directly speak with DEA due to time constraints, we were able to speak with a DEA liaison at CBP who briefly described DEA’s network analysis program. From these two rounds of interviews, we distilled the common themes in those responses to establish the criteria. We first read through all the interviews, recording potential criteria. We then systematically reviewed the entire set of interviews to identify all that contained our initial criteria; this resulted in the rephrasing or elimination of some of these criteria, as well as the addition of a number of new ones. The themes that emerged from the interviews fell into the following categories: strategy, management support, program evaluation, data management, staffing, collaboration, methodology, and other. We determined that for our review of IRS, it would not be appropriate to set criteria for the exact methodology the agency should use in its network analysis program, or particular software packages. Therefore, we eliminated any particular research or methodological approaches and techniques from our final criteria list. We also eliminated ideas where there was a clear division of opinion among the experts we interviewed. For example, experts and users did not agree on the benefits of including narrative data in network analysis programs. We presented the criteria to IRS for its feedback. The final 14 criteria were categorized by theme: overall strategy; programming and data; and collaboration. The criteria were neither prioritized nor made to be specific to IRS. Each criterion was supported, at minimum, by five interviews; many were supported by eight or more interviews. The criteria with the fewest interviews for support generally pertain to organizational structure issues. The academic experts generally did not address these issues because they tend to use network analysis programs for research purposes compared to a federal agency’s use for enforcement purposes. In these instances, we also had support from prior GAO work. To assess IRS’s progress in identifying and addressing network tax noncompliance, we reviewed IRS documentation on its auditing procedures and interviewed officials involved with identifying and addressing noncompliance related to networks. We then compared the evidence we collected in these reviews and interviews with the criteria we had developed and identified specific instances where IRS has demonstrated progress towards meeting each of the criteria. We also identified opportunities for further progress in meeting the criteria. We determined for the purposes of this review that the data used were reliable. Because some of the efforts to address noncompliance were under development during the time of our review, we presented the assessment to IRS officials for their feedback and for related updates that might affect the assessment. Our review of key studies applying quantitative network analysis methods to areas of noncompliance or illicit activity (see app. III) focused on identifying analytical approaches that individuals developing network analysis systems may find useful. The criteria for selection of these studies were similar to those used in selecting experts. In particular we ensured that the studies taken as a whole group covered a broad set of topics and methodologies and also that the individual studies were supported by broad and deep individual research agendas. We included two additional criteria to ensure more direct applicability of the studies to the report topic. The selected studies applied network analysis directly to a specific set of activities most directly related to the report topic, particularly criminal intelligence, organized crime, fraud detection, public safety or security, and international trafficking. Studies focused on counterterrorism applications of network analysis and studies in the link analysis research area, which is focused on algorithms for identifying relationships among items in large databases of textual/narrative information, were largely excluded. We conducted this performance audit from June 2009 through September 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 network may comprise a variety of entities. Four types of entities that IRS recognizes that also can form networks are corporations, partnerships, trusts, and individuals. While these are not the only types of entities or connections that may exist in networks, they are entities that the Internal Revenue Service (IRS) has emphasized. The following examples show how networks can be connected and how income can flow among different entities. These examples are hypothetical and any resemblance with a known network is purely coincidental. Figure 4 shows a network that includes two C corporations and two partnerships. Here, income and tax attributes (such as expenses, deductions, and losses) earned by the partnerships would flow back to C corporation B. However, the extent that C corporation A might also have received income from C corporation B depends on their business arrangements. S corporation A and Individuals A and B represent other partners that overlap with C corporation A’s network. S corporations are pass-through entities that pass income on to shareholders. In figure 5, Individual A receives income and other tax attributes earned by S corporations A and B and Partnership A. Likewise, Individuals B and C receive income and tax attributes earned by S corporation C, which in turn receives income from Partnership B. S corporation A passes income on to all three individuals in this example. Figure 6 shows how partnerships can be layered and seemingly unconnected individuals can be connected. Individuals A and D have no direct connection but both ultimately receive income and other tax attributes from Partnership A. Individuals A through D are also connected to Individual E because of the financial ties between Individuals D and E through Partnership X. Trusts can be connected to other entities in a network in several ways. In figure 7, Trusts A and B are partners in Partnership B and, along with Individual A, receive income and tax attributes from Partnership B. Trust A is a type of trust that is allowed to own shares in S corporation X, which passes income and tax attributes to its beneficiary, Individual B. Trust C is a partner in Partnership C and, along with Trust B, sends its income and tax attributes to Individual D. This appendix presents examples of research that have used formal quantitative network analysis techniques and methods to analyze network noncompliance, criminal, or illicit activity. Individuals developing network analysis programs may find relevant analytical approaches and techniques from this research. The research is summarized under four approaches to network analysis of illicit or criminal behavior. Key technical terms used in this summary include the following. Network: A set of actors and the set of ties representing some relationship or lack of relationship between the actors. Centrality: The number of direct contacts between a given network member and all other network members. Brokerage/network efficiency: Extent to which network members’ connections are not to each other or are not within the same group (nonredundancy). Cut-point: A network member that serves as the only connection among people or groups of people within a network. Key players: The set of network members whose removal will most disrupt or who can most efficiently diffuse information through a network. Density: The proportion of existing links out of all possible links in a network. Centralization: Extent to which a network is organized around a few central members. Clustering: Extent to which a network is subdivided into distinct, heavily interconnected subgroups. Connectedness: Extent to which all network members can reach each other along unbroken paths. Hierarchy: Extent to which the links in a network flow in one direction. Chain: A network structure where a high proportion of network members can only reach each other via some other network member. These studies use network visualization and measurement techniques to develop qualitative explanations of illicit/criminal behavior. This research has two major implications for network tax noncompliance. First, these studies suggest that both individual- and network-level measures of position and structure may be useful diagnostics for identifying criminal/illicit behavior. For example, higher centrality of individuals in a network may be associated with higher levels of criminal activity. Further, high levels of brokerage/network efficiency may be associated with a leadership role in a criminal network and with success in criminal activity. At the network level, chain structures often characterize criminal networks, though more interconnected structures (measured as density) in criminal networks may correspond with higher- risk activities. Second, tracking how network measures change may provide insight into how criminal behavior evolves. One study suggests that network leaders more effectively disguise involvement in criminal networks over time by using indirect relationships. Changes in the structure of noncompliance networks may correspond to changes in strategy and management. For example, management crisis in a noncompliance network may produce new relationships between previously disconnected individuals or change the extent of hierarchy in the network. Numerous studies have used core network visualization and measurement techniques to develop interventions into criminal networks for enforcement purposes. A key implication is that intervention decisions should arise from analyzing network structures and processes. These studies suggest that effectively identifying intervention strategies may require varied network analysis approaches, ranging from basic to complex. Basic network measures and constructs such as centrality or cut-points may effectively identify interventions in some contexts but not others. For example, in some contexts, using algorithms to find sets of key players may enable more efficient disruption or surveillance of criminal networks than approaches using centrality measures and cut-points. Extending the key player approach by incorporating data on individuals’ or entities’ attributes also may help. Approaches identifying cohesive subgroups and clusters, including the presence or absence of links between them, may suggest effective interventions. For example, if a network has disconnected or weakly connected subgroups that are themselves heavily connected, it may be appropriate to focus on the more cohesive subgroups, rather than on central individuals across the network. Relatedly, it may be more productive to disrupt decentralized criminal networks than more centralized ones. This research covers various approaches from the computational sciences, relying on data-mining, machine learning, and simulation techniques. The approaches develop methods that may help detect unknown aspects of noncompliance networks. Possibilities include the following: relational machine learning approaches that identify systems of statistical relationships among attributes of network entities, such as individual roles, status and experience, and firms’ locations, using complex relational data; risk-assessment methods that use probabilistic models to identify firms and employees with a high risk for misconduct. For example, algorithms have been developed to identify individuals that are atypically moving together among locations or organizations, which may help assess non- compliance risk; methods for identifying links, identities, or groups in a network. Link prediction, for example, uses machine-learning to identify unknown links in a network. An alternative method is anomalous link detection, which identifies links that are more likely to involve illicit/criminal/fraud activity. A third method is anonymous identity matching, which uses known relationships of unknown entities to predict their identities. Pattern matching or clustering algorithms can identify groups of entities occupying similar positions in the overall network; and dynamic simulation approaches that model networks’ likely responses to varied interventions and assess the effectiveness of the interventions. These studies use regression analysis or other multivariate statistical methods to examine collusion, unethical behavior, and adoption of illegal innovations. They emphasize statistically significant associations and causal relationships between measures of network position, overall structure, behaviors, and outcomes, while controlling for an array of individual and organizational attributes. Key implications include: Comparing different types of networks by their structural characteristics can help identify illicit activity. For example, illegitimate networks may be more hierarchical than legitimate networks. A network’s need for secrecy, typically associated with illicit activity, as well as its information- processing demands, may determine the degree of centralization exhibited by the network. Important relationships between network and non-network variables can influence illicit behavior. For example, common codes of conduct may mitigate the likelihood that hierarchical or asymmetric relationships produce unethical behavior. While lower-status middle managers usually are the most vulnerable network participants, higher-status upper-level managers may be more vulnerable in centralized networks than in decentralized networks. Appendix IV: Comments from the Internal Revenue Service GAO recommends that the Commissioner of the Internal Revenue Service take the following actions: Establish an IRS-wide strategy with goals, which may need to be developed incrementally, to coordinate and plan ongoing and future efforts to identify and pursue network tax evasion. The strategy should include: 1. Assessing the effectiveness of network analysis tools, such as yK-1 2. Determining the feasibility and benefits of increasing access to existing IRS data, such as scanning additional data from Schedule K-1, or collecting additional data for use in its network analysis efforts 3. Putting the development of analytical techniques and tools that focus on networks as the unit of analysis, such as GraphQuery, on a specific time schedule 4. Deciding how network efforts will be managed across IRS, such as whether a core program team or management group is needed Because of the broad impact of networks and the complex organizational responses required, developing a separate strategy to address network compliance will be useful, but may not be as effective as ensuring that network issues are consciously and appropriately included in broader strategic plans. In any event, a better articulated strategy for deploying, maintaining, and improving tools for network analysis is needed. The IRS agrees that it is useful to assess the effectiveness of analysis tools, but it would be necessary to balance the costs of such an assessment. The IRS agrees with this recommendation. The IRS agrees that it would be useful to better structure and support the development of analytical tools. The IRS will look at this issue. It may not be possible nor appropriate to manage network compliance activity centrally. However, at a minimum, we will consider how to manage better the analytic tools and whether a core program team would be useful in this regard. Ensure that staff members who will be using current and additional network tools fully understand the tools’ capabilities. The IRS agrees that training of compliance employees in the use of analytic tools can be improved. Establish formal mechanisms for front-line users to interact directly with tool programmers and program analysts to ensure future network analysis tools, such as GraphQuery, are easy to use and help achieve goals. Currently, the system developers have access to appropriate field employees, but we will consider improving the ability of field employees to have direct input and feedback to systems and risk assessment activities. In addition to the contact named above, Tom Short, Assistant Director; Lydia Araya; Katie Arredondo; Russ Burnett; David Dornisch; Robert Gebhart; Eric Gorman; Sherrice L. Kerns; Melissa L. King; Adam Miles; Danielle Novak; Melanie Papasian; Ernest L. Powell Jr.; and A.J. Stephens made key contributions to this report.

A taxpayer can control a group of related entities--such as trusts, corporations, or partnerships--in a network. These networks can serve a variety of legitimate business purposes, but they also can be used in complex tax evasion schemes that are difficult for the Internal Revenue Service (IRS) to identify. GAO was asked to (1) describe what IRS knows about network tax evasion and how well IRS's traditional enforcement programs address it and (2) assess IRS's progress in addressing network tax evasion and opportunities, if any, for making further progress. To do this, GAO reviewed relevant documentation about IRS programs and interviewed appropriate officials about those programs and IRS's plans for addressing such tax evasion. GAO also interviewed relevant experts and agency officials in developing criteria needed to perform the assessment. IRS views network-based tax evasion as a problem but does not have estimates of the associated revenue loss in part because data do not exist on the population of networks. IRS does know that at least 1 million networks existed involving partnerships and similar entities in tax year 2008. IRS also knows that many questionable tax shelters and abusive transactions rely on the links among commonly owned entities in a network. IRS generally addresses network-related tax evasion through its examination programs. These programs traditionally involve identifying a single return from a single tax year and routing the return to the IRS division that specializes in auditing that type of return. From a single return, examiners may branch out to review other entities if information on the original return appears suspicious. However, this traditional approach does not align well with how network tax evasion schemes work. Such schemes can cross multiple IRS divisions or require time and expertise that IRS may not have allocated at the start of an examination. A case of network tax evasion also may not be evident without looking at multiple tax years. IRS is developing programs and tools that more directly address network tax evasion. One, called Global High Wealth Industry, selects certain high-income individuals and examines their network of entities as a whole to look for tax evasion. Another, yK-1, is a computerized visualization tool that shows the links between entities in a network. These efforts show promise when compared to GAO's criteria for assessing network analyses. They represent new analytical approaches, have upper-management support, and cut across divisions and database boundaries. However, there are opportunities for more progress. For example, IRS has no agencywide strategy or goals for coordinating its network efforts. It has not conducted assessments of its network tools, nor has it determined the value of incorporating more data into its network programs and tools or scheduled such additions. Without a strategy and assessments, IRS risks duplicating efforts and managers will not have information about the effectiveness of the new programs and tools that could inform resource allocation decisions. Among other items, GAO recommends that IRS establish an IRS-wide strategy that coordinates its network tax evasion efforts. Also, IRS should assess its network programs and tools and should evaluate adding more data to its current tools. IRS generally agreed with these recommendations and noted additional organizational changes the agency is making that will address networks.

You are an expert at summarizing long articles. Proceed to summarize the following text: Federal government real estate that is no longer needed is not automatically sold. Rather, the Federal Property and Administrative Services Act of 1949 (the Property Act) requires a screening process in which the appropriate government officials explore transferring the property with or without payment to another government or nonprofit agency. For example, DOD first screens excess property for possible use by other DOD organizations and then by other federal agencies. If no federal agency has a need for the excess property, it is declared surplus to the federal government and generally is made available to private nonprofit and state and local agencies. First, as stipulated by the Stewart B. McKinney Homeless Assistance Act, the surplus property is made available to providers of services to the homeless. If none of these providers opt to take the property, it is offered to public benefit agencies such as state or local jurisdictions or qualifying nonprofit organizations for other authorized purposes. Any property that remains is available for negotiated sale to a state or local government. Finally, if no state or local government wishes to acquire the property, it is offered for sale to the general public. Title XXIX of the National Defense Authorization Act for fiscal year 1994 contained a number of amendments to the Property Act and the Base Realignment and Closure (BRAC) acts of 1988 and 1990. These amendments enabled the state and local governments and the general public to receive government property at no cost if it is used for economic development. DOD’s interim regulations also grant these communities a 60-percent share of net proceeds from the sale or lease of properties transferred under this authority, unless the secretary of the military department concerned determines that a different division of net profits is appropriate. The information contained in this report reflects the May 1, 1994, status of property disposal plans at 37 of the 120 installations closed by the 1988 and 1990 legislation (see fig. 1). A former Secretary of Defense stated that the number of closures in 1995 could exceed those of the previous years because closures have not kept pace with staff and force structure reductions. The Army is credited for almost all of the $69.4 million in property sales revenue and for $5.3 million of the $22.2 million in pending sales. Its largest sale, $38.5 million, was to the state of Hawaii for land at the Kapalama Military Reservation. The Army has also sold 761 family housing units in various locations for an average of about $40,000 per unit. The only non-Army sale was for about 400 family housing units—detached single family houses and apartments—that the Navy sold for an average of about $420 per unit (total of $168,000) to the Beeville Redevelopment Corporation in Beeville, Texas. The Air Force has about $16.9 million in pending sales. About $19 million of the $92 million in sales and pending sales was merely a transfer of funds from one federal agency to another—not a revenue gain for the federal government. Planned sales of 9,400 acres of property will result in additional revenue once final property disposition decisions are made and cleanup or remediation is in place. As we reported earlier, DOD has been reducing the estimates for land sales revenue as it receives better information on property values and sales data. The primary reason for the low property sales revenues is that 88 percent of the property at the bases we reviewed will be retained by DOD or transferred at no cost to other federal agencies and state and local jurisdictions. Current plans call for the sale of only about 5 percent of the land. The remaining 7 percent remains in an undetermined status. Appendix I shows the planned disposition of property. Over 110,000 of the approximately 192,000 acres of the total land available at the bases we reviewed are being retained by DOD or transferred to other federal agencies. Nearly half of this land is contaminated with unexploded ordnance—about 7,200 acres at Fort Ord and 47,500 acres at Jefferson Proving Grounds. The federal government’s retention of the contaminated land could significantly reduce cleanup costs since the land will remain undeveloped. DOD will retain 26,000 of the 110,000 acres. Nearly 10,000 acres at 14 bases will be retained for use by Reserve and National Guard units. DOD will also retain over 1,000 acres of military housing at 6 bases for use by personnel assigned to nearby bases. The largest acreage planned for retention by DOD will be 13,000 acres at Fort Wingate for the Ballistic Missile Defense Office for missile testing in conjunction with the White Sands Missile Range in New Mexico. As shown in figure 2, 84,000 of the 110,000 acres will be transferred to other federal agencies, including the Bureau of Land Management, the Fish and Wildlife Service, and the Bureau of Prisons. About 79,000 acres of mostly undeveloped property, wetlands, and natural habitats will be transferred to the Fish and Wildlife Service or the Bureau of Land Management at eight bases. This includes the land contaminated with unexploded ordinance at Jefferson Proving Ground and Fort Ord. The Bureau of Prisons will receive 1,800 acres at 3 bases for federal prisons. Other federal agencies receiving properties are the National Park Service (1,480 acres at the Presidio of San Francisco) and the National Aeronautics and Space Administration (1,440 acres at Moffett Naval Air Station). About 60,000 acres of the 192,000 acres likely will be transferred at no cost to state and local jurisdictions and nonprofit organizations. Most of the property, about 40,000 acres, will be used for public benefit purposes such as airports, parks and recreation, education, and homeless assistance. (Fig. 3 shows the breakdown of these no-cost transfers). An additional 19,500 acres will be transferred for economic development purposes. Of the 24 bases with airfields, 16 will be transferred to local communities for public use, 2 will be retained by federal agencies, 5 will be used for nonaviation purposes, and the reuse of 1 is yet to be determined. Including property to be used to help finance the operation of the airfields, over 30,000 acres will be transferred for public aviation uses. The communities are hoping to convert military airfields into civilian airports. In two instances, Bergstrom Air Force Base and Myrtle Beach Air Force Base, the airfield transfers will meet Federal Aviation Administration-identified needs for primary commercial airports. The Federal Aviation Administration has categorized the potential use of most of the rest of the airfields as general aviation airports, with those in metropolitan areas also potentially serving as reliever airports that can provide alternative landing sites when major airports are congested. Local redevelopment authorities report difficulties in attracting aviation-related tenants, and they are competing with existing general aviation airports as well as with each other for tenants. General aviation traffic has declined nationwide by about 32 percent in the past 14 years. Bases in rural areas—e.g., Wurtsmith, Loring, and Eaker Air Force Bases—have a particularly difficult time attracting commercial tenants. We analyzed the grants to communities at the 16 bases where attempts to reuse military airfields as civilian airports was the centerpiece of the reuse plan (see fig 4). The results of our analysis show that while communities at these 16 bases are developing and implementing reuse plans for 28 percent of the total acres of the 37 bases, they have received 78 percent of the $66 million in planning and infrastructure grants. At 15 of the 37 bases, communities are requesting about 6,800 acres for parks and recreation. The largest transfer will be at Fort Ord about 2,600 acres, including beaches and sand dunes. At Mather Air Force Base, about 1,500 acres will be transferred to the county for park and recreation use and at Fort Benjamin Harrison, a 1,100-acre parcel will become a state park. As of May 1994, about 2,000 acres at 16 bases were planned for transfer through the Department of Education to qualified organizations for educational purposes, with the largest conveyances at Fort Ord, Williams Air Force Base, and Lowry Air Force Base. At the time of our review at Fort Ord, 2,700 acres were requested for an education, science, and technology center focusing on environmental sciences. It will include a new California State University campus, a University of California research and technology center, and a language training institute emphasizing Pacific Rim languages. Local officials recently changed their request for Fort Ord so that they can qualify for an economic development transfer. An economic development conveyance would avoid the restrictions required for educational transfers that the donee continuously uses the property for educational purposes for up to 30 years. At Williams Air Force Base, over 600 acres, including many of the core base facilities, have been requested for an education, research, and training consortium focusing on aviation-related training and research and involving nearby Arizona State University, Maricopa Community College, and 21 other educational institutions. Plans at Lowry Air Force Base call for conversion of an Air Force training center into an educational consortium that will emphasize training new and displaced workers and involve the local community college and various other schools. As of May 1994, 17 of the 37 bases were planning to convey property at no cost to homeless assistance organizations (see fig. 5 for locations). Several other bases will likely do so once they complete their property screening process. As mentioned earlier, under the McKinney Act, homeless organizations that have been certified by the Department of Health and Human Services generally have priority over organizations not representing the homeless when requesting surplus government property. The property may be used to provide temporary housing for the homeless, alcohol and drug recovery centers, abuse shelters, and distribution facilities for food and clothing. The amount of property involved thus far is relatively small (see app. II for details). It amounts to about 500 acres (0.3 percent of the total property). The property includes about 1,600 family housing units (5 percent of the total) and 1,000 single housing units. At each of three California bases—Tustin Marine Corps Air Station, Fort Ord, and Long Beach Naval Station—plans call for homeless providers to receive more than 200 family housing units. Reuse authorities at 10 bases plan to request about 19,500 acres in economic development transfers. Under these provisions, reuse authorities can request property at no cost for economic development and job creation purposes. The local authorities can then lease or sell the property to companies that will create jobs. The net proceeds from leasing or selling this property are shared with the federal government—generally 60 percent for the community and 40 percent for the government. Rules implementing these new provisions will not be finalized until early 1995, and some local authorities are waiting until then to make final decisions on these conveyance requests. Another 9,400 acres have been planned for sale to the public. The disposition of the remaining 12,900 acres is still undetermined by local reuse authorities. This is the last step in the process. Land can be sold after all qualifying entities have decided they do not want the land. Communities are asking the federal government to provide (1) cash grants; (2) marketable revenue-producing properties, such as golf courses and housing units, to help pay for reuse activities; and (3) funds for upgrading buildings and infrastructure. Cash grants are available to communities through federal programs administered by such agencies as DOD’s Office of Economic Adjustment, the Federal Aviation Administration, the Department of Labor, and the Economic Development Administration in the Department of Commerce. As of May 1, 1994, the communities at the 37 bases we examined had received $107 million in federal grants to assist in developing and implementing reuse plans. According to DOD officials, most of the funds were provided by DOD to the administering agency because their use is related to a base closure. Additional grants are likely to be forthcoming. The Office of Economic Adjustment provides 3- to 5-year grants to local communities to develop and implement reuse plans. If the plan calls for a civilian airport, communities can request additional funds from the Federal Aviation Administration for airport planning and improvements. If infrastructure improvements are needed, communities can request grants from the Economic Development Administration. As of May 1994, the Office of Economic Adjustment had provided approximately $19.1 million to local authorities for reuse planning. The Federal Aviation Administration had provided $3.8 million, the Economic Development Administration $43.1 million, and the Department of Labor $40.5 million in grants. See appendix III for the distribution of grants for the 37 installations we reviewed. Most cash grants have gone to communities trying to establish civilian airports. The local reuse authority at Eaker Air Force Base has received $1.7 million from the Office of Economic Adjustment thus far, and a DOD official projected that funding may be required for 6 years. The Economic Development Administration grants at Wurtsmith Air Force Base amounted to $9.7 million to tie the base water supply and sewer to the municipal system, shut down base wells, and construct large water intakes from Lake Huron. Communities are also asking DOD to provide property that can easily generate revenue to support reuse activities unrelated to the property. Community officials say they need revenue-generating properties, such as golf courses and family housing units, to help fund operating expenses while they implement their reuse plans, such as airports or educational institutions. At England Air Force Base, local authorities are asking for the entire base, including family housing units and a golf course, to help support the airport. The reuse plan predicts it will be at least 10 years before the airport will be self-sustaining. At Fort Ord, officials of the prospective California State University, Monterey Bay, plan to lease 1,250 units of family housing to support university operations. A Fort Ord housing official stated that the university is also asking for the profits that DOD has received from leasing the housing prior to its conveyance. At some installations, local reuse authorities, educational institutions, and other reuse groups are seeking federal funds to renovate buildings, upgrade utility systems, construct roads, or improve other infrastructure for properties being conveyed. At Fort Ord, $15 million was appropriated out of DOD’s operations and maintenance accounts to renovate buildings at California State University, Monterey Bay. A university official estimated that an additional $140 million is needed from the federal government over the next 10 years to complete renovations. The state is providing $12 million in operating funds for the campus. The official said that, along with the conveyance of the requested land and buildings at no cost, federal funds for the renovation of buildings were essential for the campus to become a reality, and continued federal support will be needed until the California economy improves. California voters recently rejected a ballot proposition that would have provided authority to issue bonds and use the proceeds to construct or renovate buildings and acquire related fixtures at the state’s colleges and universities. According to a base official, the Army spent $69 million at the Presidio of San Francisco to renovate infrastructure and buildings prior to the installation’s transfer to the National Park Service. At Castle Air Force Base, base closure officials reported that the gas distribution system on that installation will have to be rebuilt, the sewer and electrical systems upgraded, and buildings brought into compliance with state and federal standards, such as the Americans With Disabilities Act. DOD has so far funded an Economic Development Administration grant of $3.5 million to connect the installation with the municipal sewer system. A community official estimated that $200 million would have to be spent at Tustin Marine Corps Air Station on access roads and other infrastructure improvements to enable development of the installation. The community is asking that the costs of such improvements be subtracted from the federal government’s revenue from the sale of the property. Reuse planning and disposition of property at closing bases have been delayed for a number of reasons. Disagreements between various agencies and jurisdictions have stalled reuse decisions at some bases. Some communities are waiting until regulations are established implementing new property disposition provisions before finalizing their reuse plans. DOD responsibility for environmental cleanup further delays disposal of base property. DOD has the discretion to determine what the highest and best use for the property is and relies heavily on local reuse plans to make this determination. The one exception is that DOD officials maintain that they cannot deny homeless requests that are approved by the Department of Health and Human Services. When conflicts arise, DOD base closure officials urge agencies and local officials to try to reach an accommodation at the local level. DOD officials urge local communities to form a single reuse authority and unite behind a single reuse plan. In several cases, jurisdictional and reuse disputes within the local community have delayed base conversion. For example, at George and Myrtle Beach Air Force Bases disputes between cities and counties over who should have the reuse authority and how large the airport should be have been major problems. At Myrtle Beach, the state of South Carolina finally intervened to establish a single reuse authority and determine what the reuse plan should be. Indian groups have expressed interest in acquiring property at 14 of the 37 bases we reviewed (see fig. 6 for locations). These requests include use of base property for education and job training, cultural and craft centers, housing, health facilities, economic development, and casinos. At seven of the bases, the Department of Interior has requested property that would be held in trust by the Bureau of Indian Affairs for tribal programs by local Indian groups. At the time of our review, DOD had not approved any of the Indian groups’ requests, nor had DOD determined whether requests through the Department of Interior should be given federal agency priority consideration. Thus, property disposition decisions at these bases have been delayed. In some cases, Indian groups were not represented on local reuse committees, and Indian requests and local reuse plans were in conflict. Furthermore, the Indian groups maintain that they should have sovereignty over property they receive, while the local jurisdictions want to maintain zoning and land use control. In Seattle, the Muckleshoot Tribe has requested a major portion of Puget Sound Naval Station, which the city plans to use to house the homeless and hold recreation, cultural, and other activities. In several cases, federal agency requests conflicted with local reuse plans. While these conflicts can delay local reuse planning, they are usually resolved through negotiation between DOD and the community. For example, at Williams Air Force Base, the Army Reserve requested property that local officials said was essential for their planned educational consortium. At the time of our review, this case remained unresolved but subsequently the Reserve and local officials came to mutual agreement. Disputes between communities and homeless providers over the extent of base property to be conveyed for the homeless have led to delays at some bases. The Department of Health and Human Services could deny homeless provider requests if it determined the provider lacked experience or financial viability for such a program. However, in deciding whether to approve homeless requests, the Department of Health and Human Services officials believed the McKinney Act gave them no discretion to consider whether the request would disrupt the local reuse plan. In October 1994, Congress passed and sent to the President for signature legislation that would give communities more flexibility in developing plans to meet homeless needs and federal agencies more discretion in approving such plans. The new legislation allows communities to develop reuse plans that incorporate the needs of the homeless either at the base or elsewhere in the community. If the Secretary of Housing and Urban Development determines that the community’s plan provides a reasonable amount of property and assistance to meet the needs of the homeless, then direct applications by homeless assistance providers to the federal government under the McKinney Act for base property would be eliminated. In 1993, Congress passed legislation to expedite the base conversion process and support economic development in communities facing base closures. Communities in the midst of reuse planning had to choose whether to continue under the old base conversion procedures or to request to come under the new provisions. Many decided to delay decisions until implementing regulations were finalized. DOD issued interim rules in April 1994, and DOD officials expected the rules to be finalized in early 1995. DOD officials told those communities deciding to request economic development transfers under the new rules they would have to also go through an additional McKinney Act homeless screening under the new rules, which could add an additional 8 months to the process. Furthermore, several communities requested delays in federal approval of homeless requests until congressional action was completed on the amendment to the McKinney Act. All the closing bases we visited had environmental cleanup that needed to be done, which in many cases is the most difficult obstacle to getting property into productive reuse. Generally, base property cannot be transferred until cleanup is completed or the government warrants in its deed that all environmental remediation measures are in place. However, DOD has the authority to transfer property for the cost of cleanup to any person who agrees to perform the environmental restoration. In a related assignment, we will report on the difficulties in cleaning up bases, the effect of environmental contamination on DOD’s ability to transfer property, the federal government’s liabilities from environmental contamination, and DOD’s long-term plans for addressing environmental problems at closing bases. We collected information from 37 of the 120 installations closed by the 1988 and 1991 Base Closure Commissions. These bases were selected because they were, for the most part, the larger installations and they had base transition coordinators assigned by DOD. Our review included 12 closures by the 1988 Commission and 25 closures by the 1991 Commission. The closures involve the disposal of 192,000 acres of land in 21 states. We performed our work at the DOD Base Transition Office, the Office of Economic Adjustment, and the military services’ headquarters in Washington, D.C., area. We also contacted base closure and community officials at the 37 closed bases. We visited Pease, Chanute, and Eaker Air Force Bases; Forts Sheridan and Ord; Chase Field Naval Air Station; and Naval Station Puget Sound (Sand Point). We also visited offices of the Federal Aviation Administration, the Economic Development Administration and the General Services Administration to discuss issues involving base closure. We reviewed the most recent land sales data from the military services’ base closure offices. We compared the 6-year land revenue estimates from DOD’s base realignment and closure fiscal years 1991-95 budget justifications for BRAC-I (the bases closed in 1988) and its fiscal years 1993-95 justifications for BRAC-II (the bases closed in 1991). To determine the current plans for reusing property at closing military installations, we reviewed community reuse plans where available and interviewed base transition coordinators, community representatives, and DOD officials. Where community reuse plans had changed or were not available, we identified the most likely reuses planned by these parties. When the parties involved disagreed over reuse plans, we categorized the property as undetermined. As requested, we did not obtain written agency comments. However, we discussed the report’s contents with DOD officials and their comments have been incorporated where appropriate. Our review was performed between July 1993 and September 1994 in accordance with generally accepted government auditing standards. 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 to the Secretaries of Defense, the Army, the Navy, and the Air Force; the Directors of the Defense Logistics Agency and the Office of Management and Budget; and other interested parties. We will also make copies available to others upon request. Please contact me at (202) 512-8412 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix IV. Children’s home, gym Administrative offices, other buildings (continued) We have issued the following reports related to military base closures and realignments: Military Bases: Letters and Requests Received on Proposed Closures and Realignments (GAO/NSIAD-93-173S, May 25, 1993). Military Bases: Army’s Planned Consolidation of Research, Development, Test and Evaluation (GAO/NSIAD-93-150, Apr. 29, 1993). Military Bases: Analysis of DOD’s Recommendations and Selection Process for Closure and Realignments (GAO/T-NSIAD-93-11, Apr. 19, 1993). Military Bases: Analysis of DOD’s Recommendations and Selection Process for Closures and Realignments (GAO/NSIAD-93-173, Apr. 15, 1993). Military Bases: Revised Cost and Savings Estimates for 1988 and 1991 Closures and Realignments (GAO/NSIAD-93-161, Mar. 31, 1993). Military Bases: Transfer of Pease Air Force Base Slowed by Environmental Concerns (GAO/NSIAD-93-111FS, Feb. 3, 1993). Military Bases: Army Revised Cost Estimates for the Rock Island and Other Realignments to Redstone (GAO/NSIAD-93-59FS, Nov. 23, 1992). Military Bases: Navy’s Planned Consolidation of RDT&E Activities (GAO/NSIAD-92-316, Aug. 20, 1992). Military Bases: Letters and Requests Received on Proposed Closures and Realignments (GAO/NSIAD-91-224S, May 17, 1991). Military Bases: Observations on the Analyses Supporting Proposed Closures and Realignments (GAO/NSIAD-91-224, May 15, 1991). Military Bases: Processes Used for 1990 Base Closure and Realignment Proposals (GAO/NSIAD-91-177, Mar. 29, 1991). Military Bases: Varied Processes Used in Proposing Base Closures and Realignments (GAO/NSIAD-91-133, Mar. 1, 1991). Military Bases: Process Used by Services for January 1990 Base Closure and Realignment Proposals (GAO/NSIAD-91-109, Jan. 7, 1991). Military Bases: Relocating the Naval Air Station Agana’s Operations (GAO/NSIAD-91-83, Dec. 31, 1990). Military Bases: Information on Air Logistics Centers (GAO/NSIAD-90-287FS, Sept. 10, 1990). Military Bases: Response to Questions on the Realignment of Forts Devens and Huachuca (GAO/NSIAD-90-235, Aug. 7, 1990). Military Bases: An Analysis of the Commission’s Realignment and Closure Recommendations (GAO/NSIAD-90-42, Nov. 29, 1989). 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. 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. 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 (301) 258-4097 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

GAO provided information on the Department of Defense's (DOD) projected revenues from property sales from closed military bases, focusing on the: (1) revenues the government has received and expects to receive from military base property sales; (2) amount of additional resources the government has given to support communities' reuse plans; and (3) factors which delay the transfer of property to communities. GAO found that: (1) revenues from military base property sales are expected to be far less than DOD anticipated; (2) the majority of the disposed property will be retained by DOD or transferred to other federal agencies, states, and localities at no cost; (3) where Congress has not specifically authorized a property transfer without reimbursement, it has specified that agencies receiving transferred property should reimburse DOD for 100 percent of the property's estimated fair-market value or acquire a reimbursement waiver; (4) $69.4 million of the projected $92 million in revenues from military base property sales has been realized and an additional $22.2 million is expected from pending property sales; (5) about $19 million in property sales has been the result of interagency transfers; (6) DOD could increase its revenues by selling an additional 9,400 acres of military property; (7) DOD continues to reduce its property sales revenue estimates as it obtains better property value and property availability information; (8) in addition to transfers of large portions of land at no cost, many communities have asked the government for cash grants, marketable revenue-producing properties, and building and infrastructure upgrades; (9) as of May 1994, 37 communities have received $107 million in cash grants; (10) additional funding requirements will increase as the base closure process continues; and (11) reasons for the delays in property transfers include disagreements over reuse plans between competing interests, changing laws and regulations, and unresolved environmental cleanup efforts at some bases.

You are an expert at summarizing long articles. Proceed to summarize the following text: All six projects serve adults who are economically disadvantaged, with a range of reasons why they have been unable to get and keep a job that would allow them to become self-sufficient. Many participants lack a high school diploma or have limited basic skills or English proficiency; have few, if any, marketable job skills; have a history of substance abuse; or have been victims of domestic violence. The projects we visited had impressive results. Three of the sites had placement rates above 90 percent—two placed virtually all those who completed their training. The other three projects placed two-thirds or more of those who completed the program. The sites differ in their funding sources, skills training approaches, and client focus. For example: We visited two sites that are primarily federally funded and target clients eligible under the Job Training Partnership Act (JTPA) and Job Opportunities and Basic Skills (JOBS) program. These sites are Arapahoe County Employment and Training in Aurora, Colorado, which is a suburb of Denver, and The Private Industry Council (TPIC) in Portland, Oregon. Both of these sites assess clients and then follow a case management approach, linking clients with vocational training available through community colleges or vocational-technical schools. The Encore! program in Port Charlotte, Florida, serves single parents, displaced homemakers, and single pregnant women. Encore!’s 6-week workshop and year-round support prepare participants for skill training. It is primarily funded by a federal grant under the Perkins Act and is strongly linked with the Charlotte Vocational Technical Center (Vo-Tech). The Center for Employment Training (CET) in Reno, Nevada, focuses on three specific service-related occupations and serves mainly Hispanic farmworkers. Participants may receive subsidized training from sources such as Pell grants, JTPA state funds, and the JTPA Farmworker Program, as well as grants from the city of Reno. Focus: HOPE, in Detroit, Michigan, also serves inner-city minorities but emphasizes development of manufacturing-related skills. Its primary funding source in 1994 was a state economic development grant. STRIVE (Support and Training Results in Valuable Employment), in New York City’s East Harlem, primarily serves inner-city minorities and focuses on developing in clients a proper work attitude needed for successful employment rather than on providing occupational skills training. STRIVE is privately funded through a grant from the Clark Foundation, which requires a two-for-one dollar match from other sources, such as local employers. Projects also differ in other ways, such as the way project staff interact with clients—customizing their approach to what they believe to be the needs of their participants. For example, STRIVE’s approach is strict, confrontational, and “no-nonsense” with the East Harlem men and women in their program. In contrast, Encore! takes a more nurturing approach, attempting to build the self-esteem of the women, many of them victims of mental or physical abuse, who participate in the program in rural Florida. One important feature of these projects’ common strategy is ensuring that clients are committed to participating in training and getting a job. Each project tries to secure client commitment before enrollment and continues to encourage that commitment throughout training. Project staff at several sites believed that the voluntary nature of their projects is an important factor in fostering strong client commitment. Just walking through the door, however, does not mean that a client is committed to the program. Further measures to encourage, develop, and require this commitment are essential. All the projects use some of these measures. Some of the things that projects do to ensure commitment are (1) making sure clients know what to expect, so they are making an informed choice when they enter; (2) creating opportunities for clients to screen themselves out if they are not fully committed; and (3) requiring clients to actively demonstrate the seriousness of their commitment. To give clients detailed information about project expectations, projects use orientation sessions, assessment workshops, and one-on-one interviews with project staff. Project officials say that they do this to minimize any misunderstandings that could lead to client attrition. Officials at both STRIVE and Arapahoe told us that they do not want to spend scarce dollars on individuals who are not committed to completing their program and moving toward full-time employment; they believe that it is important to target their efforts to those most willing to take full advantage of the project’s help. For example, at STRIVE’s preprogram orientation session, staff members give potential clients a realistic program preview. STRIVE staff explain their strict requirements for staying in the program: attending every day—on time, displaying an attitude open to change and criticism, and completing all homework assignments. At the end of the session, STRIVE staff tell potential clients to take the weekend to think about whether they are serious about obtaining employment and, if so, to return on Monday to begin training. STRIVE staff told us that typically 10 percent of those who attend the orientation do not return on Monday. Both CET and Focus: HOPE provide specific opportunities for clients to screen themselves out. They both allow potential clients to try out their training program at no charge to ensure the program is suitable for them. Focus: HOPE reserves the right not to accept potential clients on the basis of their attitude, but it does not routinely do this. Instead, staff will provisionally accept the client into one of the training programs, but put that client on notice that his or her attitude will be monitored. All six projects require clients to actively demonstrate the seriousness of their commitment to both training and employment. For example, all projects require clients to sign an agreement of commitment outlining the client’s responsibilities while in training and all projects monitor attendance throughout a client’s enrollment. In addition, some project officials believed that requiring clients to contribute to training is important to encouraging commitment. Focus: HOPE requires participants—even those receiving cash subsidies—to pay a small weekly fee for their training, typically $10 a week. A Focus: HOPE administrator explained that project officials believe that students are more committed when they are “paying customers,” and that this small payment discourages potential participants who are not seriously committed to training. All the projects emphasize removing employment barriers as a key to successful outcomes. They define a barrier as anything that precludes a client from participating in and completing training, as well as anything that could potentially limit a client’s ability to obtain and maintain a job. For example, if a client lacks appropriate basic skills, then providing basic skills training can allow him or her to build those skills and enter an occupational training program. Similarly, if a client does not have adequate transportation, she or he will not be able to get to the training program. Because all the projects have attendance requirements, a lack of adequate child care would likely affect the ability of a client who is a parent to successfully complete training. Moreover, if a client is living in a domestic abuse situation, it may be difficult for that client to focus on learning a new skill or search for a job. The projects use a comprehensive assessment process to identify the particular barriers each client faces. This assessment can take many forms, including orientation sessions, workshops, one-on-one interviews, interactions with project staff, or a combination of these. For example, at TPIC’s assessment workshop, clients complete a five-page barrier/needs checklist on a wide variety of issues, including food, housing, clothing, transportation, financial matters, health, and social/support issues. At the end of this workshop, clients must develop a personal statement and a self-sufficiency plan that the client and case manager use as a guide for addressing barriers and for helping the client throughout training. Encore! and Arapahoe have similar processes for identifying and addressing barriers that clients face. Rather than relying on a formal workshop or orientation process, CET identifies clients’ needs through one-on-one interviews with program staff when a client enters the program. Throughout the training period, instructors, the job developer, and other project staff work to provide support services and address the client’s ongoing needs. All the projects arrange for clients to get the services they need to address barriers, but—because of the wide range of individual client needs—none provides all possible services on-site. For example, although all six projects recognize the importance of basic skills training, they arrange for this training in different ways. Arapahoe contracts out for basic skills training for clients, while CET, Encore!, and Focus: HOPE provide this service on-site and TPIC and STRIVE refer clients out to community resources. Only Focus: HOPE provides on-site child care; however, all five other projects help clients obtain financial assistance to pay for child care services or refer clients to other resources. Because some of the projects attract many clients who have similar needs, these projects provide certain services on-site to better tailor their services to that specific population. For example, because it serves Hispanic migrant farmworkers with limited English proficiency, CET provides an on-site English-as-a-second-language program. Likewise, because a major barrier for many of Encore!’s clients is low self-esteem resulting from mental and/or physical abuse, Encore! designed its 6-week workshop to build self-esteem and address the barriers that these women face so that they are then ready to enter occupational training. Each project we visited emphasizes employability skills training. Because so many of their clients have not had successful work experiences, they often do not have the basic knowledge others might take for granted about how to function in the workplace. They need to learn what behaviors are important and how to demonstrate them successfully. These include getting to work regularly and on time; dressing appropriately; working well with others; accepting constructive feedback; resolving conflicts appropriately; and, in general, being a reliable, responsible, self-disciplined employee. Each project coaches students in employability skills through on-site workshops or one-on-one sessions. For example, CET provides a human development program that addresses such issues as life skills, communication strategies, and good work habits. Similarly, Arapahoe helps each client develop employment readiness competencies through a workshop or one-on-one with client case managers. Some of the projects also develop employability skills within the context of occupational skills training, with specific rules about punctuality, attendance, and, in some cases, appropriate clothing consistent with the occupation for which clients are training. STRIVE concentrates almost exclusively on employability skills and, in particular, attitudinal training. This project has a very low tolerance for behaviors such as being even a few minutes late for class, not completing homework assignments, not dressing appropriately for the business world, and not exhibiting the appropriate attitude. We observed staff dismissing clients from the program for a violation of any of these elements, telling them they may enroll in another offering of the program when they are ready to change their behavior. Program staff work hard to rid clients of their attitude problems and “victim mentality”—that is, believing that things are beyond their control—and instill in them a responsibility for themselves, as well as make them understand the consequences of their actions in the workplace. All the projects have strong links with the local labor market. Five of the six projects provide occupational skills training, using information from the local labor market to guide their selection of training options to offer clients. These projects focus on occupations that the local labor market will support. Project staff strive to ensure that the training they provide will lead to self-sufficiency—jobs with good earnings potential as well as benefits. In addition, all but one of the six projects use their links to local employers to assist clients with job placement. While their approaches to occupational training and job placement differ, the common thread among the projects is their ability to interpret the needs of local employers and provide them with workers who fit their requirements. All five projects that provide occupational training are selective in the training options that they offer clients, focusing on occupational areas that are in demand locally. For example, CET and Focus: HOPE have chosen to limit their training to one or a few very specific occupational areas that they know the local labor market can support. Focus: HOPE takes advantage of the strong automotive manufacturing base in the Detroit area by offering training in a single occupation serving the automotive industry—machining. With this single occupational focus, Focus: HOPE concentrates primarily on meeting the needs of the automotive industry and the local firms that supply automotive parts. Students are instructed by skilled craftspeople; many senior instructors at Focus: HOPE are retirees who are passing on the knowledge they acquired during their careers. The machines used in training are carefully chosen to represent those that are available in local machine shops—both state-of-the-art and older, less technically sophisticated equipment. Job developers sometimes visit potential work sites, paying close attention to the equipment in use. This information is then used to ensure a good match between client and employer. While offering a wide range of training options, Vo-Tech, which trains Encore! participants, is linked to the local labor market, in part by its craft advisory committees. These committees involve 160 businesses in determining course offerings and curricula. Vo-Tech recently discontinued its bank teller program shortly after a series of local bank mergers decreased demand for this skill. It began offering an electronics program when that industry started expansion in the Port Charlotte area. Vo-Tech also annually surveys local employers for feedback on its graduates’ skills and abilities, using the feedback to make changes to its programs. When feedback from local employers in one occupation indicated that Vo-Tech graduates were unable to pass state licensing exams, the school terminated the instructors and hired new staff. All the projects assist clients in their job search. Five of the six projects had job developers or placement personnel who work to understand the needs of local employers and provide them with workers who fit their requirements. For example, at Focus: HOPE the job developers sometimes visit local employers to discuss their required skill needs. Virtually all graduates of Focus: HOPE are hired into machinist jobs in local firms. The placement staff that works with Encore! graduates noted that there are more positions to fill than clients to fill them. They believe that because of their close ties with the community and the relevance of their training program they have established a reputation of producing well-trained graduates. This reputation leads employers to trust their referrals. Mr. Chairman, that concludes my prepared statement. At this time I will be happy to answer any questions you or other members of the Subcommittee may have. For information on this testimony, please call Sigurd R. Nilsen, Assistant Director, at (202) 512-7003; Sarah L. Glavin, Senior Economist, at (202) 512-7180; Denise D. Hunter, Senior Evaluator, at (617) 565-7536; or Betty S. Clark, Senior Evaluator, at (617) 565-7524. Other major contributors included Benjamin Jordan and Dianne Murphy Blank. 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. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO discussed the merits of 6 highly successful employment training programs for economically disadvantaged adults. GAO found that the programs: (1) serve adults with little high school education, limited basic skills and English language proficiency, few marketable job skills, and past histories of substance abuse and domestic violence; (2) have a fairly successful placement rate, with three of the programs placing 90 percent of their clientele; (3) ensure that the clients are committed to training and getting a good job, and as a result, require them to sign an agreement of commitment outlining their responsibilities; (4) provide child care, transportation, and basic skills training to enable clients to complete program training and acquire employment; (5) improve their clients employability through on-site workshops and one-on-one sessions; (6) have strong links with the local labor market and use information from the local market to guide training options; and (7) aim to provide their clients with training that will lead to higher earnings, good benefits, and overall self-sufficiency.

You are an expert at summarizing long articles. Proceed to summarize the following text: I would like to begin by summarizing the roles and responsibilities of the GSEs, describing their potential risks to taxpayers and the financial markets, and offering certain principles on governance and oversight to help ensure that the GSEs’ activities are safe, sound, and consistent with their public missions. Over the past century, Congress established GSEs to address concerns that private financial institutions were not adequately meeting the credit needs of homebuyers and agricultural interests (see table 1). The GSEs are government-sponsored, privately owned and operated corporations whose public missions are to enhance the availability of mortgage and agricultural credit across the United States. It is also generally understood that the housing GSEs’ public missions include the obligation to meet the needs of targeted groups of borrowers. The GSEs generally carry out their missions by (1) borrowing funds in the capital markets and purchasing assets from financial institutions or making loans to the institutions or (2) securitizing assets and providing a credit guarantee to security holders. These activities may provide mortgage or real estate credit to homebuyers, businesses, or farmers at rates or conditions more favorable than those that would be available in the absence of these GSEs. It is important to note that the GSEs’ debt and security offerings are not explicitly guaranteed or insured by the U.S. government. Let me now briefly discuss the missions and activities of each of the GSEs: Fannie Mae and Freddie Mac’s mission is to enhance the availability of mortgage credit across the nation during both good and bad economic times by purchasing mortgages from lenders (banks, thrifts, and mortgage lenders) that use the proceeds to make additional mortgages available to homebuyers. Most mortgages purchased by Fannie Mae and Freddie Mac are conventional mortgages, which have no federal insurance or guarantee. The companies’ mortgage purchases are subject to a conforming loan limit that currently stands at $333,700 for a single-family home in most states. Although Fannie Mae and Freddie Mac hold some mortgages in their portfolios that they purchased, most mortgages are placed in mortgage pools to support MBS. Fannie Mae and Freddie Mac issued MBS are either sold to investors (off-balance sheet obligations) or held in their retained portfolios (on-balance sheet obligations). Fannie Mae and Freddie Mac guarantee the timely payment of interest and principal on MBS that they issue. The 12 FHLBanks traditionally made loans—also known as advances— to their members (typically banks or thrifts) to facilitate housing finance and community economic development. FHLBank members are required to collateralize advances with high quality assets such as single-family mortgages. More recently, the FHLBanks initiated programs to purchase mortgages directly from their members and hold them in their retained portfolios. This process is similar to Fannie Mae and Freddie Mac’s traditional business activities, although the FHLBanks do not currently have the authority to securitize mortgages. FCS, of which Farmer Mac is an independent institution, is a nationwide network of borrower-owned financial institutions and specialized service organizations. FCS consists of six Farm Credit Banks and one Agricultural Credit Bank, which provide funding and affiliated services to locally owned Farm Credit associations and numerous cooperatives nationwide. Among other activities, FCS provides credit and related services to farmers, ranchers, producers, and rural homeowners. Farmer Mac’s mission is to provide for a secondary marketing arrangement for agricultural real estate and rural housing loans subject to its underwriting standards. Farmer Mac purchases mortgages directly from lenders for cash and purchases bonds from agricultural lenders. Farmer Mac securitizes mortgages and issues AMBS and, like Fannie Mae and Freddie Mac, guarantees the timely payment of interest and principal on these securities. Farmer Mac holds most of the AMBS that it issues in its retained portfolio. As a result of their activities, the GSEs’ outstanding debt and off-balance sheet financial obligations are large. The GSEs’ financial obligations were $4.4 trillion as of September 30, 2003. By comparison, the U.S. Treasury had $6.8 trillion in total obligations for the same date. The GSEs face the risk of losses primarily from credit risk, interest rate risk, and operational risks. Although the federal government explicitly does not guarantee the obligations of the GSEs, it is generally assumed on Wall Street that assistance would be provided in a financial emergency. In fact, during the 1980s the federal government provided financial assistance to both Fannie Mae and FCS when they experienced difficulties due to sharply rising interest rates and declining agricultural land values, respectively. The potential exists that Congress and the Executive Branch would determine that such assistance was again necessary in the event that one or more of the GSEs experienced severe financial difficulties. Because the markets perceive that there is an implied federal guarantee on the GSEs’ obligations, the GSEs are able to borrow at interest rates below that of private corporations, which—as I discussed earlier—allows them to extend credit to financial institutions at favorable rates. The GSEs also pose potential risks to the stability of the U.S. financial system. In particular, if Fannie Mae, Freddie Mac, or the FHLBank System were unable to meet their financial obligations, other financial market participants depending on payments from these GSEs, may in turn become unable to meet their financial obligations. This risk, called systemic risk, is often associated with the housing GSEs because of the sheer size of their financial obligations. For example, as discussed in OFHEO’s 2003 report on systemic risk, if either Fannie Mae or Freddie Mac were to become insolvent, financial institutions holding the enterprise’s MBS could be put into a situation where they could no longer rely on those securities as a ready source of liquidity. Depending on the response of the federal government, the financial health of the banking segment of the financial services industry could decline rapidly, possibly leading to a decline in economic activity. As another example, derivatives counterparties holding contracts with a financially troubled GSE could realize large losses if the GSE were no longer able to meet its obligations. If such a hypothetical event were to occur, widespread defaults could occur in derivatives markets. To prevent the need for the federal government ever to have to provide financial support to a GSE and to minimize the risks of financial instability, it is critical to ensure that proper corporate governance, reasonable transparency, and effective oversight systems are in place. There are several lines of defense to ensure that GSEs’ activities are conducted in a safe and sound manner including management, boards of directors, auditors, and regulators. As we have seen in recent private sector instances such as Enron and Worldcom, these critical lines of defense can and do fail. Consequently, the private sector, Congress, and regulators have initiated actions—such as the passage and implementation of the Sarbanes-Oxley Act—to ensure that the risk of such failures of governance and oversight are minimized. In my view, it is all the more important that strong safeguards are established for the GSEs because such institutions are not subject to the same degree of market discipline as other privately run businesses. As a result of the perception of an implied guarantee of GSE obligations, customers and creditors may be less willing to monitor the companies’ risk-taking, which could encourage managers to take on excessive risks. Not only should GSEs be sensitive to good governance but it is all the more important they lead by example in connection with accountability, integrity, and public trust. In particular, GSEs should strive to have a truly independent board, compensation arrangements consistent with their public mission and private shareholder obligations, and appropriate transparency of their financial activities. Under model governance theory, the board of directors works in the best interest of the shareholders and the CEO works for the board. Board members should be independent and be able to provide strategic advice to management in order to help maximize shareholder value. The board should also help manage risk to shareholders and have a clear responsibility to hold management accountable for results both currently and over time. I note that in the context of the GSEs, boards could also have a responsibility to ensure that the GSEs’ activities fulfill their public missions. In some cases, there can be a tension between maximizing shareholder value and fulfilling public missions. GSE boards and executives must have the requisite commitment and talent to respond to this challenge. To adhere to model governance theory, it is also important for the board to ensure that overall executive compensation is aligned with achievements related to the company’s long-term strategic objectives and less on short-term accomplishments such as quarterly or annual earnings. Further, it is not just the total amount of compensation but the form and structure of executive compensation arrangements that is important as well. Finally, transparency through timely and reliable financial and performance information and reasonable disclosures is necessary to enable capital markets and investors to understand related values and risks associated with the GSEs. Market discipline works best when firms fully and publicly disclose their financial obligations and activities. A regulatory system of GSE oversight must have the necessary strength, independence, and capability to protect against the significant risks and potential costs to taxpayers posed by the GSEs. We have consistently supported and continue to believe in the need for the creation of a single regulator to oversee both safety and soundness and mission of the housing GSEs, which, as I will describe later, are currently divided among OFHEO, HUD, and FHFB. A single regulator could be more independent and objective than separate regulatory bodies and could be more prominent than either one alone. Although the housing GSEs operate differently, the risks they manage and their missions are similar. We believe that valuable synergies could be achieved and expertise in evaluating GSE risk management could be shared more easily within one agency. In addition, we believe that a single regulator would be better positioned to oversee the GSEs’ compliance with mission activities, such as special housing goals and any new programs or initiatives any of the GSEs might undertake. This single regulator should be better able to assess these activities’ competitive effects on all three housing GSEs and better able to ensure consistency of regulation for GSEs that operate in similar markets. Further, a single regulator would be better positioned to consider potential trade-offs between mission requirements and safety and soundness considerations, because such a regulator would develop a fuller understanding of the operations of these large and complex financial institutions. Some critics of combining safety and soundness and mission have voiced concerns that doing so could create regulatory conflict for the regulator. However, we believe that a healthy tension would be created that could lead to improved oversight. The trade-offs between safety and soundness and compliance with mission requirements could be best understood and accounted for by having a single regulator that has complete knowledge of the GSEs’ financial condition, regulates the mission goals Congress sets, and assesses efforts to fulfill them. To be effective, the single regulator must have all the powers, authorities, and technical expertise necessary to oversee the GSEs’ operations and compliance with their missions. Without clearly defined measures of the GSEs’ benefits, it is not possible for Congress, accountability organizations, and the public to determine whether the federal government should be subject to the financial risks associated with the GSEs’ activities. I acknowledge that developing such measures may prove challenging for several reasons. First, isolating the GSEs’ effects on mortgage and agricultural credit markets is a complex and technical undertaking. Second, the GSEs’ financial activities have evolved over the years and become increasingly sophisticated, which further complicates any analysis of the GSEs’ benefits and costs. Third, in some cases, there is a lack of measurable mission-related criteria that would allow for a meaningful assessment of the GSEs’ mission achievement or whether the GSEs’ activities are consistent with their charters. Nevertheless, past actions by Congress and regulators demonstrate that developing such quantifiable measures is possible. For example, in 1992, Congress required HUD to set numeric housing goals for Fannie Mae and Freddie Mac to help ensure that their mortgage purchases served the needs of low-income households as well as other targeted groups. Now that I have laid out the risks associated with the GSEs and principles for effective governance and oversight, I would like to turn my attention to how the current system compares with those principles. While there is some positive information to report about the GSEs, there are also weaknesses in the areas of corporate governance, regulatory oversight, and mission compliance reporting. In each of these areas, there are steps we believe Congress, the regulators, or GSEs can take to address weaknesses in GSE governance and oversight that we have identified. The GSEs’ corporate governance practices are not fully consistent with the principles that I previously mentioned. The first principle I discussed is independence of the board and the role of the board of directors. There are instances where the GSEs can further their efforts in ensuring board independence. To illustrate: Like CEOs at many other publicly traded companies, the CEO of Fannie Mae and the CEO of Freddie Mac currently serve as chairman of their respective boards of directors. In addition, Fannie Mae’s COO and CFO both serve as vice chairmen of the board. All too frequently, such individuals will have significant influence over who is asked to join the board and who is asked to leave it. OFHEO, in its special examination of Freddie Mac (OFHEO report), recommended that Freddie Mac should separate the functions of the CEO and the board chairman to improve the effectiveness of the board of directors and Freddie Mac has agreed to do so. I also note that OFHEO recently submitted proposed corporate governance reforms to the Office of Management and Budget that would require the GSEs to separate the CEO and chair positions; and A recent FHFB study on board governance of the FHLBanks found that the selection process for board and committee chairpersons and assignment of committee memberships at some FHLBanks lacked transparency or inclusiveness. The study concluded that committee selection processes relying on only one person or the recommendations of senior management may diminish the independence of directors. FHFB recommended the FHLBanks strengthen their boards of directors by using a transparent and inclusive selection process. In practice, GSE boards may face difficulties in complying with modern governance standards because of statutory and regulatory requirements regarding the structure, selection, and composition of such boards. For example, Fannie Mae and Freddie Mac’s boards include five seats that are appointed annually by the President, serve one-year terms, and represent various interests including the real estate industry, the mortgage lending industry, and consumer interests. Treasury has proposed eliminating the presidentially appointed directors at Fannie Mae and Freddie Mac because the perceived roles of these directors contradict best practices of corporate governance. OFHEO agrees with Treasury’s position because it has found that the appointed members do not play meaningful roles on the GSEs’ boards. While there may be reasons to eliminate these positions, should Congress decide to retain them, it should consider (1) lengthening the terms of the appointed directors so that they have sufficient time to understand the GSEs’ complex activities, (2) establishing criteria to ensure that qualified individuals serve on the boards who have expertise in financial activities and understand the GSEs’ mission responsibilities, and (3) establishing fiduciary responsibilities to serve the special public purpose of the GSE. I would also like to point out that FHFB appoints at least 6 directors, known as public interest directors, to serve on the board of the FHLBanks, whose boards each consist of at least 14 members. We believe that a selection process that uses a regulator to select the directors of the regulated entities could jeopardize the independence of those directors as well as FHFB. As another example, our recent study of Farmer Mac provides an illustration of how congressionally established board structure can complicate a GSE’s compliance with board independence requirements. We noted that the statutory structure of the Farmer Mac board requires a majority of the directors to come from institutions that utilize Farmer Mac’s services. This raises questions as to the independence of that board. In the area of compensation, there are indications that the structure of executive compensation arrangements and the process of determining compensation levels at the GSEs are not in line with best practices for corporate governance. As examples, According to the OFHEO report, approximately 54 percent of the total cash compensation (salaries, bonuses, and other compensation) paid by Freddie Mac to executive officers for performance in 2001 was based on corporate performance for that year. The study found that the compensation of senior executives, in particular, the size of the bonus pool, was tied, in part, to meeting or exceeding annual specified earnings per share targets. OFHEO concluded that the importance of achieving such targets contributed, in part, to the improper accounting and management practices of the GSE. As such, OFHEO recommended that Freddie Mac should develop financial incentives for executives and employees based on long-term goals. Our study at Farmer Mac also identified an aggressive stock option vesting plan whereby stock options for employees and directors were fully vested within 2 years. By comparison, companies have average vesting periods of 4 to 5 years. Farmer Mac has since changed its vesting program to be more aligned with those of other companies. Finally, in my view, adequate transparency is important because the housing GSEs engage in complex transactions, such as securitizations, guarantees, and hedging of risk which introduce many financial reporting complexities. With the exception of Farmer Mac, GSEs are exempt from the securities laws, and are not required to file disclosure documents with the Securities Exchange Commission (SEC) with respect to their securities issuances. Nevertheless, in October 2000, Fannie Mae and Freddie Mac adopted six voluntary commitments aimed at increasing their financial disclosures. More recently, Fannie Mae has registered its stock with SEC on a voluntary basis and Freddie Mac has stated its intention to do the same. Although financial disclosure may improve transparency, its impact on the GSEs and their customers or funding parties may be limited if the GSEs are perceived to have implicit government backing. For this reason, while market discipline can play a role in curbing risky behavior by GSEs, it also has its limitations. Effective oversight thus takes on more importance as a means for limiting inappropriate risk-taking behavior by the GSEs. Now let me move on to the last line of defense, that is, oversight by regulators. Unfortunately, the current housing GSE regulatory structure is fragmented, which limits the federal government’s ability to oversee the GSE’s activities. Congress now has the opportunity to rationalize the current GSE regulatory structure through the creation of a single regulator that would oversee the housing GSEs’ safety and soundness and mission activities. Congress should also ensure that the new GSE regulator has the authorities necessary to carry out its critical responsibilities. Although the housing GSEs share similar risks and missions, there are three regulators overseeing either their safety and soundness, their missions, or both. Currently, OFHEO regulates Fannie Mae and Freddie Mac on matters of safety and soundness, while HUD is the mission regulator. FHFB serves as the safety and soundness and mission regulator of the FHLBanks. Available evidence raises questions about the capacity of the current regulatory structure to effectively monitor the GSEs’ safety and soundness and mission compliance. To illustrate: OFHEO did not identify the substantial financial accounting problems at Freddie Mac at an early stage. In fact, OFHEO’s 2001 and 2002 examinations of Freddie Mac gave high marks to the GSE in such relevant areas as corporate governance and internal controls, despite the widespread deficiencies later identified in these areas. OFHEO’s current director has stated that the agency plans to strengthen its examination program, create an office of the chief accountant, and elevate the important area of corporate accounting into its oversight process. As of July 2002, FHFB employed just 10 examiners to review the increased risks and complexity of the 12 FHLBanks and the agency’s reviews of key activities—such as internal controls—were limited. Although FHFB has initiated a program to triple the number of examiners to 30 by the end of FY 2004 and has revised its examination program, it is too soon to judge the effectiveness of FHFB’s initiatives. For example, as FHFB continues the process of developing a sufficient and capable force of examiners, it must cope with the fact that several FHLBanks reported losses or weak financial results in late FY 2003 and some FHLBanks continue to expand their mortgage purchase programs. HUD officials we contacted said that the department lacks sufficient staff and resources necessary to carry out its GSE mission oversight responsibilities. HUD officials said that although the GSEs’ assets have increased nearly six-fold since 1992, HUD’s staffing has declined by 4,200 positions and GSE oversight—which now consists of about 13 full-time positions—must compete with other department priorities for the limited resources available. The President’s 2005 budget includes a proposal that would allow HUD to assess Fannie Mae and Freddie Mac for the cost of its mission oversight. I also note that HUD (1) has not proposed a rule to ensure that the GSEs’ nonmortgage investments (such as long-term corporate debt) are consistent with their housing mission as the department committed to do in response to a 1998 GAO report and (2) it is not clear that HUD has the expertise necessary to review sophisticated financial products and issues, which are associated with nonmortgage investments and new program applications. As I stated previously, a single GSE regulator offers many advantages over the fragmented structure that exists today including prominence in government, the sharing of technical expertise, and the ability to assess trade-offs between safety and soundness considerations and certain mission compliance activities. In determining the appropriate structure for a new GSE regulator, we note that Congress has authorized two different structures for governing financial regulatory agencies: a single director and board. Among financial regulators, single directors head the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS) and OFHEO while boards or commissions run FHFB, SEC, and the Board of Governors of the Federal Reserve System, among others. The single director model has advantages over a board or commission; for example, the director can make decisions without the potential hindrance of having to consult with or obtain the approval of other board members. In our previous work, however, we have stated that a “stand-alone” agency with a board of directors would better ensure the independence and prominence of the regulator and allow it to act independently of the influence of the housing GSEs, which are large and politically influential. A governing board may offer the advantage of allowing different perspectives, providing stability, and bringing prestige to the regulator. Moreover, if the board included the secretaries of Treasury and HUD or their designees, the potential exists that safety and soundness and housing mission compliance concerns would both be represented. We are mindful, though, based on recently completed work, of some of the disadvantages of a stand-alone agency with a board of directors that is divided along party lines. Tensions and conflicts between board members potentially diminish some of these benefits. I would note that in other regulatory sectors—besides financial regulation—Congress has established alternative board structures that could be considered as potential models for the new GSE regulator. One such alternative structure would be to have a presidentially appointed and Senate confirmed director, and a board of directors comprised of the secretaries from relevant executive branch agencies, such as Treasury and HUD. Board members being from the same political party could lessen some of the tensions and conflicts observed at boards purposefully structured to have a split in membership along party lines. A board comprised of members all from the same political party may, though, not benefit from different perspectives to the same extent as a board with members from different political parties. Therefore, an advisory committee to the regulator could be formed, to include representatives of financial markets, housing, and the general public. This advisory committee could also be required to have some reasonable representation from different political parties. I would now like to comment on issues surrounding the potential funding arrangements for a new housing GSE regulator. Similar to FHFB, OCC, and OTS, OFHEO funds its operations through assessments on its regulated entities, Fannie Mae and Freddie Mac. However, unlike these agencies that are exempt from the appropriations process, OFHEO can only collect the assessments when approved by an appropriations bill and at a level set by its appropriators. While testifying on GSE regulatory reform, the director of OFHEO noted that the appropriations process has placed severe constraint on OFHEO’s operations and has hindered its ability to hire additional resources it needs to strengthen its oversight. Exempting the new GSE regulator from the appropriations process would provide the agency the financial independence necessary to carry out its responsibilities. More importantly, without the timing constraints of the appropriations process, the regulator could more quickly respond to budgetary needs created by any crisis at the GSEs. However, being outside the appropriations process can create trade-offs. First, while the regulator will have more control over its own budget and funding level, it will lose the checks and balances provided by the federal budget and appropriations processes or the potential reliance on increased appropriations during revenue shortfalls. As a result, the regulator would need to establish a system of budgetary controls to ensure fiscal restraint. Second, removing the regulator from the appropriations process could diminish congressional oversight of the agency’s operations. This trade-off could be mitigated through increased oversight by the regulator’s congressional authorizing committees, such as a process of regular congressional hearings on the new GSE regulator’s operations and activities. The new GSE regulator must have adequate powers and authorities to address unsafe and unsound practices, respond to financial emergencies, and ensure that the GSEs comply with their public missions. In our previous work, we have stated that each GSE housing regulator administers its own statutory scheme and these schemes contain various types of powers and authorities, which although similar, are not identical. Further, the GSE housing regulators’ powers and authorities differ from that of banking regulators in key areas. The following describes some of these differences, which Congress may wish to consider in determining the appropriate authorities for a new GSE housing regulator: Unlike bank regulators and FHFB, OFHEO’s (1) authority to issue Cease and Desist Orders does not specifically list an unsafe and unsound practice as grounds for issuance and (2) powers do not include the same direct removal and prohibition authorities applicable to officers and directors; Bank regulators have prompt corrective authorities that are arguably more robust and proactive than those of OFHEO and FHFB. These authorities require that bank regulators take specific supervisory actions when bank capital levels fall to specific levels or provide the regulators with the option of taking other actions when other specified unsafe and unsound actions occur. Although OFHEO has statutory authority to take certain actions when Fannie Mae or Freddie Mac capital falls to predetermined levels, the authorities are not as proactive or broad as those of the bank regulators. OFHEO has also established regulations requiring specified supervisory actions when unsafe developments are identified that do not include capital, but OFHEO’s statute does not specifically mention these actions. FHFB’s statute does not establish prompt corrective action scheme, but FHFB officials believe they have all the authority necessary to carry out their safety and soundness responsibilities; and Unlike bank regulators—-which can place insolvent banks into receivership—-and FHFB, which can take actions to liquidate an FHLBank, OFHEO is limited to placing Fannie Mae or Freddie Mac into a conservatorship. I note that should Congress decide to grant the new GSE regulator receivership authority, it should task the regulator to develop rules and procedures that would reduce the adverse impacts that a GSE liquidation could have on housing finance and the stability of financial markets. In summary, I believe Congress can review the regulatory authorities at OFHEO, FHFB, and bank regulators and, where appropriate, ensure that the new regulator has sufficient authorities to carry out its critical responsibilities. In important cases, it is clear that the GSEs have fulfilled the public missions for which they were initially created. Since the establishment of Fannie Mae and the FHLBank System in the 1930s, for example, the nation’s mortgage finance market has progressed from a regionally based system characterized by periodic credit shortages to a nationwide and liquid system. Furthermore, it is generally agreed that Fannie Mae and Freddie Mac’s mortgage purchase activities have lowered the interest rates on qualifying mortgages below what they otherwise would be. In a 1996 report, we estimated that Fannie Mae and Freddie Mac’s activities lowered the rate on qualifying mortgages by about 15 to 35 basis points or a monthly savings of between $10 and $25 on a typical mortgage of $100,000. Subsequently, federal agencies and researchers, academics, and the GSEs have initiated studies that have estimated the extent of the benefits provided by the GSEs’ activities and the recipients of such benefits (i.e., homebuyers vs. investors and management), which have reached differing conclusions. Additional studies may be needed to more precisely estimate the extent to which the GSEs’ activities benefit homebuyers. In other areas, however, there is substantially greater uncertainty regarding the benefits of the GSEs’ activities and more research is needed to clarify these issues. Although the GSEs have expanded rapidly and become more complex in recent years, for example, it is not always clear how the GSEs’ growth and complexity have enhanced their public missions. For instance, at year-end 2002, Fannie Mae and Freddie Mac held a combined $1.4 trillion of mortgage assets in their retained portfolios, including MBS, while the FHLBanks hold about a combined $100 billion of MBS. Although holding mortgage assets in their portfolios may enhance the profitability of the GSEs, it also exposes them to interest rate risk, which requires the use of sophisticated financial strategies—such as the use of hedging which includes the use of derivatives—to manage effectively. In addition, derivatives may also be used by financial institutions to take positions on interest rate movements, which can enhance their profitability but which is also inherently risky. Over the years, questions have been raised as to whether the GSEs’ portfolio investments in MBS generate benefits to borrowers. Additionally, the lines that initially existed between Fannie Mae and Freddie Mac on the one hand and the FHLBank System on the other have blurred. In addition to making advances to their members, for example, FHLBanks have now purchased about $108 billion in mortgages directly from their members, which is essentially Fannie Mae and Freddie Mac’s traditional business. Although the FHLBanks’ mortgage purchases may enhance competition in the market for secondary mortgage purchases, they can just as easily raise questions as to whether there is a need for an additional GSE performing essentially the same mission and incurring similar risks. In some cases, the absence of specific criteria and guidance complicates efforts to assess the benefits of the GSEs’ activities. Our recent work concluded that Farmer Mac’s statute contains broad mission purpose statements and lacks specific or measurable criteria that would help determine whether the GSE is meeting its policy goals. Farmer Mac’s nonmission-related assets—such as long-term corporate bonds—declined from 66 percent of assets in 1997 to 37 percent in 2002. However, the composition and criteria for nonmission investments could potentially lead to investments that are excessive in relation to Farmer Mac’s financial operating needs or otherwise would be inappropriate to the statutory purpose of Farmer Mac. We suggested that Congress should consider establishing clearer mission goals for Farmer Mac with respect to the agricultural and real estate market to allow a determination as to whether Farmer Mac had achieved its public policy goals. Finally, I would also like to point out that there are other limitations in the evidence and research on the benefits provided by the GSEs’ activities. The following are some examples that we have identified: There is limited information as to the extent to which the FHLBank System’s more than $500 billion in outstanding advances, as of mid- year 2003, have facilitated mortgage availability. Although anecdotal information is available on the benefits of FHLBank advances, studies using quantitative analysis to assess the impacts of FHLBank advances on housing and community development have not been produced. There is limited information available on the extent to which Fannie Mae and Freddie Mac’s investments in nonmortgage assets—such as long-term corporate bonds—serve their public missions. As I described earlier, HUD has not acted on its general regulatory authority to review the appropriateness of the GSEs’ nonmortgage investments as it committed to do in response to a 1998 GAO report. Given that HUD has not acted in this area for the past 6 years, we again recommend that Congress legislate nonmortgage investment criteria for HUD or any new GSE regulator that may be established through legislation. There is virtually no information available as to whether Farmer Mac’s activities have benefited agricultural real estate markets. For example, the depth and liquidity of the demand for AMBS in the current market is unknown. Without quantifiable measures and reliable data, Congress and the public cannot judge the effectiveness of the GSEs in meeting their missions or whether the benefits provided by the GSEs’ various activities are in the public interest and outweigh their financial risks. To improve the quality of information about the GSEs’ activities, I believe that the GSEs, the new housing GSE regulator, and FCA—the regulator of Farmer Mac and FCS— should research the areas that we have identified as well as others and periodically report their findings to the public. Mr. Chairman, this concludes my statement. In summary, I believe that the following steps can be taken to strengthen GSE governance and oversight: Fannie Mae and Freddie Mac should ensure that their executives report to independent boards; FHLBank directors should be chosen through transparent and inclusive processes; and GSE compensation packages should include short and long-term performance measures; Congress should create a single housing GSE regulator that is governed by a board or a hybrid board and director and has adequate authorities to fulfill its safety and soundness and mission compliance oversight responsibilities; and Congress should provide clearer direction to the GSEs in fulfilling their missions—such as in the case of the GSEs’ nonmortgage investments— and the GSEs, the new GSE regulator, and FCA should research certain aspects of the GSEs’ financial activities and periodically report to the public as to how these activities are consistent with mission requirements. I would now be happy to respond to any questions that you or other members of the Committee may have. For further information regarding this testimony, please contact Thomas J. McCool at (202) 512-8678 or William B. Shear at (202) 512-4325. Individuals making contributions to this testimony include Diane Brooks, M’Baye Diagne, Rachel DeMarcus, Andrew Pauline, Wesley M. Phillips, Mitchell Rachlis, and Karen Tremba. Farmer Mac: Some Progress Made, but Greater Attention to Risk Management, Mission, and Corporate Governance Is Needed. GAO-04-116. Washington, D.C.: October 16, 2003 Federal Home Loan Bank System: Key Loan Pricing Terms Can Differ Significantly. GAO-03-973. Washington, D.C.: September 8, 2003. Financial Regulation: Review of Selected Operations of the Federal Housing Finance Board. GAO-03-364. Washington, D.C.: February 28, 2003. OFHEO’s Risk Based Capital Stress Test: Incorporating New Business Is Not Advisable. GAO-02-521. Washington, D.C.: June 28, 2002. Farm Credit Administration: Oversight of Special Mission to Serve, Young, Beginning, and Small Farmers Needs to Be Improved. GAO-02-304. Washington, D.C.: March 8, 2002. Federal Home Loan Bank System: Establishment of a New Capital Structure. GAO-01-873. Washington, D.C.: July 20, 2001. Comparison of Financial Institution Regulators’ Enforcement and Prompt Corrective Action Authorities. GAO-01-322R. Washington, D.C.: January 31, 2001. Capital Structure of the Federal Home Loan Bank System . GAO/GGD-99- 177R. Washington, D.C.: August 31, 1999. Farmer Mac: Revised Charter Enhances Secondary Market Activity, but Growth Depends on Various Factors. GAO/GGD-99-85. Washington, D.C.: May 21, 1999. Federal Housing Finance Board: Actions Needed to Improve Regulatory Oversight. GAO/GGD-98-203. Washington, D.C.: September 18, 1998. Federal Housing Enterprises: HUD’s Mission Oversight Needs to Be Strengthened. GAO/GGD-98-173. Washington, D.C.: July 28, 1998. Risk-Based Capital: Regulatory and Industry Approaches to Capital and Risk. GAO/GGD-98-153. Washington, D.C.: July 20, 1998. Government-Sponsored Enterprises: Federal Oversight Needed for Nonmortgage Investments. GAO/GGD-98-48. Washington, D.C.: March 11, 1998. Federal Housing Enterprises: OFHEO Faces Challenges in Implementing a Comprehensive Oversight Program. GAO/GGD-98-6. Washington, D.C.: October 22, 1997. Government-Sponsored Enterprises: Advantages and Disadvantages of Creating a Single Housing GSE Regulator. GAO/GGD-97-139. Washington, D.C.: July 9, 1997. Housing Enterprises: Investment, Authority, Policies, and Practices. GAO/GGD-91-137R. Washington, D.C.: June 27, 1997. Comments on “The Enterprise Resource Bank Act of 1996.” GAO/GGD-96-140R. Washington, D.C.: June 27, 1996. Housing Enterprises: Potential Impacts of Severing Government Sponsorship. GAO/GGD-96-120. Washington, D.C.: May 13, 1996. Letter from James L. Bothwell, Director, Financial Institutions and Markets Issues, GAO, to the Honorable James A. Leach, Chairman, Committee on Banking and Financial Services, U.S. House of Representatives, Re: GAO’s views on the “Federal Home Loan Bank System Modernization Act of 1995.” B-260498. Washington, D.C.: October 11, 1995. FHLBank System: Reforms Needed to Promote Its Safety, Soundness, and Effectiveness. GAO/T-GGD-95-244. Washington, D.C.: September 27, 1995. Housing Finance: Improving the Federal Home Loan Bank System’s Affordable Housing Program. GAO/RCED-95-82. Washington, D.C.: June 9, 1995. Government-Sponsored Enterprises: Development of the Federal Housing Enterprise Financial Regulator. GAO/GGD-95-123. Washington, D.C.: May 30, 1995. Farm Credit System: Repayment of Federal Assistance and Competitive Position. GAO/GGD-94-39. Washington, D.C.: March 10, 1994. Farm Credit System: Farm Credit Administration Effectively Addresses Identified Problems. GAO/GGD-94-14. Washington, D.C.: January 7, 1994. Federal Home Loan Bank System: Reforms Needed to Promote Its Safety, Soundness, and Effectiveness. GAO/GGD-94-38. Washington, D.C.: December 8, 1993. Improved Regulatory Structure and Minimum Capital Standards are Needed for Government-Sponsored Enterprises. GAO/T-GGD-91-41. Washington, D.C.: June 11, 1991. Government-Sponsored Enterprises: A Framework for Limiting the Government’s Exposure to Risks. GAO/GGD-91-90. Washington, D.C.: May 22, 1991. Government-Sponsored Enterprises: The Government’s Exposure to Risks. GAO/GGD-90-97. Washington, D.C.: August 15, 1990. 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.

Congress established government sponsored enterprises (GSE)-- such as Fannie Mae, Freddie Mac, the FHLBank System, and the Farm Credit System--to facilitate the development of mortgage and agricultural lending in the United States. Although the federal government does not explicitly guarantee the GSEs' approximately $4.4 trillion in financial obligations, the potential exists that the government would provide financial assistance in an emergency as it has done in the past. Recent financial reporting problems at Freddie Mac have raised concerns about the quality of the GSEs' corporate governance and regulatory oversight. To assist Congress in reviewing the adequacy of GSE oversight, this testimony provides information on GSE corporate governance, regulatory oversight, and mission compliance measures. GSEs should lead by example in connection with governance, accountability, integrity, and public trust issues. GSEs should strive to achieve model corporate governance structure, provide reasonable transparency of financial and performance activities, and adopt compensation arrangements that focus on both long-term and short-term results. However, GSE corporate governance has not always reflected best practices. For example, currently, the Chief Executive Officers (CEO) of Freddie Mac and Fannie Mae also serve as the chairmen of their respective GSE boards, which is not consistent with model governance standards that call for officers to work for an independent board. GAO notes that as part of its regulatory agreement, Freddie Mac has agreed to separate the position of CEO and the position of chairman within a reasonable period of time. However, Fannie Mae has yet to take this step. With respect to compensation arrangements, Freddie Mac's focus on short-term financial results as performance targets appears to have contributed to the GSE's recent financial reporting problems. GSE regulators must be capable, credible, strong, and independent. However, the regulatory structure for the housing GSEs--Fannie Mae, Freddie Mac, and the FHLBank System--is fragmented with safety and soundness and mission oversight responsibilities divided among three regulators. A single housing GSE regulator offers many advantages over this fragmented structure including prominence in government, the sharing of technical expertise, and the ability to assess trade-offs between safety and soundness considerations and certain mission compliance activities, such as affordable housing initiatives. Although there are advantages of a single director model for the new housing GSE regulator, GAO believes on balance that a board or a hybrid board and director might make the most sense to oversee the GSEs' safety and soundness and mission oversight. To be effective, the single GSE regulator must also have all the regulatory oversight and enforcement powers necessary to carry out its critical responsibilities. Because of a lack of clear measures, it is difficult for Congress, accountability organizations, and the public to determine whether the benefits provided by the GSEs' activities are in the public interest and outweigh their financial risks. Available evidence and data indicate that the housing GSEs have made, in some cases, progress in benefiting homebuyers. For example, it is generally agreed that Fannie Mae and Freddie Mac's activities have lowered mortgage interest rates, although there is debate over the degree of these benefits. However, it is not clear that the housing GSEs' large holdings of mortgage-backed securities benefit borrowers. There is also limited information as to the extent to which the FHLBank System's more than $500 billion in outstanding loans to financial institutions have facilitated mortgage lending.

You are an expert at summarizing long articles. Proceed to summarize the following text: Sudan is the largest country in Africa (see fig. 1), and its population, estimated at about 40 million, is one of the continent’s most diverse. Sudan’s population comprises two distinct major cultures, Arab and black African, with hundreds of ethnic and tribal subdivisions and language groups. More than half of Sudan’s population lives in the northern states, which make up most of Sudan and include the majority of the urban centers; most residents of this area are Arabic-speaking Muslims. Residents of the southern region, which has a predominantly rural, subsistence economy, practice mainly indigenous traditional beliefs, although some are Christian. The South contains many tribal groups and many more languages than are used in the North. Darfur is another distinct region of Sudan, located in the west, and was an independent sultanate for most of the period between 1600 and 1916, when the British captured it and incorporated it into the Sudanese state. Darfur’s population is predominantly Muslim. For most of its existence since gaining independence from Britain and Egypt in 1956, Sudan has endured civil war rooted in cultural and religious divides. The North, which has traditionally controlled the country, has sought to unify it along the lines of Arabism and Islam, whereas non- Muslims and other groups in the South have sought, among other things, greater autonomy. After 17 years of war, from 1955 to 1972, the government signed a peace agreement that granted the South a measure of autonomy. However, civil war began again in 1983, when the President of Sudan declared Arabic the South’s official language, transferred control of Southern armed forces to the central government, and, later that year, announced that traditional Islamic punishments drawn from Shari’a (Islamic law) would be incorporated into the penal code. The South’s rebellion was orchestrated by the Sudan People’s Liberation Movement/Army (SPLM/A). In 1989, the conflict intensified when an Islamic army faction, led by General Omar Hassan al-Bashir, led a coup of the government and installed the National Islamic Front. In 2001 President Bush named former Senator John Danforth as his Presidential Envoy for Peace in Sudan, assigning him to explore a U.S. role in ending the civil war and enhance the delivery of humanitarian aid to Sudan’s affected population. On January 9, 2005, the Sudanese government and the SPLM/A signed a set of agreements called the Comprehensive Peace Agreement, providing for a new constitution and new arrangements for power sharing, wealth sharing, and security applicable throughout Sudan. On July 9, 2005, Bashir assumed the presidency under the new arrangements, with the SPLM/A Chairman assuming the office of First Vice President. In 2011, Southern Sudan will hold a vote to determine whether to become independent. To assist in implementing the peace agreement, the UN Security Council established the UN Mission in Sudan (UNMIS), which currently has a force of more than 7,000. While the North-South agreement was nearing completion, a rebellion broke out in Darfur, located in western Sudan with an estimated preconflict population of about 6 million (see fig. 2). The South’s success motivated rebel groups in Darfur to fight for a similar outcome. In early 2003, Darfur rebels attacked Sudanese police stations and the airport in El Fasher, the capital of North Darfur (see fig. 3 for an interactive timeline of key events associated with Darfur and app. II for a related description of events). In El Fasher, the rebel groups destroyed numerous military aircraft, killed several Sudanese soldiers, and kidnapped a Sudanese general. After the government armed and supported local tribal and Arab militias—the Janjaweed—fighting between the rebel groups and the Sudan military and Janjaweed intensified during late 2003. The principal rebel groups, the Sudan Liberation Movement/Army (SLM/A) and the Justice and Equality Movement (JEM), represent agrarian farmers who are black African Muslims. The SLM/A has recently split into two factions—one faction, with the larger military force, led by Minni Minawi and the other led by Abdulwahid El Nour. In addition to disrupting the lives of almost 4 million Darfurians, Janjaweed and Sudanese government attacks in Darfur have resulted in many thousands of deaths. The Agreement on Humanitarian Ceasefire was signed by the Sudanese government, the SLM/A and the JEM on April 8, 2004, in N’Djamena, Chad. In signing the agreement, the parties agreed to accept an automatically renewable cessation of hostilities; to refrain from any military action and any reconnaissance operations; to refrain from any act of violence or any other abuse on civilian populations; to ensure humanitarian access; and to establish a Ceasefire Commission to monitor the agreement, along with a Joint Commission to which the Ceasefire Commission would report. The African Union was to monitor cease-fire compliance. Peace negotiations continued under African Union auspices with Chadian participation, and additional interim agreements were also reached. However, after a relatively calm 2005, cease-fire violations and violent incidents reportedly began to increase in the final months of that year and into 2006. On May 5, 2006, the government of Sudan and the Minawi faction of the SLM/A signed the Darfur Peace Agreement, establishing agreements in key areas such as power sharing, wealth sharing, and security arrangements. Power sharing. The Darfur Peace Agreement creates the position of Senior Assistant to the President—the fourth-highest position in the Sudanese government—appointed by the President from a list of nominees provided by the rebel movements. The Senior Assistant to the President will also serve as Chairperson of the newly created Transitional Darfur Regional Authority, which is responsible for the implementation of the agreement and coordination among the three states of Darfur. Further, a referendum will be held by July 2010 to allow Darfurians to decide whether to establish Darfur as a unitary region with a single government or to retain the existing three regions. Wealth sharing. The Darfur Peace Agreement creates a Darfur Reconstruction and Development Fund to collect and disburse funds for the resettlement, rehabilitation, and reintegration of internally and externally displaced persons. The government of Sudan will contribute $300 million to the fund in 2006 and at least $200 million annually in 2007 and 2008. Further, the government of Sudan will place $30 million in a fund for monetary compensation for those negatively affected by the conflict in Darfur. Security arrangements. The Darfur Peace Agreement calls for the verifiable disarmament of the Janjaweed by the Sudanese government by mid-October 2006. This disarmament must be verified by the African Union before rebel groups undertake their own disarmament and demobilization. Demilitarized zones are to be established around IDP camps and humanitarian assistance corridors, into which rebel forces and the Sudanese military cannot enter, and buffer zones are to be established in the areas of the most intense conflict. Rebel group forces will be integrated into the Sudanese military and police: 4,000 former combatants will be integrated into the armed forces; 1,000 former combatants will be integrated into the police; and 3,000 will be supported through education and training programs. The UN estimates that displaced and affected persons are located in more than 300 locations, including camps and other gatherings, with populations up to 90,000 people. Figure 4 shows the camp dispersion and estimated population at many of the camps throughout Darfur, as of October 2005. Since 2004, the African Union has been responsible for peace support operations in Darfur through AMIS. Subsequent to its establishment of an African Union observer mission in Darfur in May 2004, the African Union Peace and Security Council established a specific mandate for AMIS in October 2004 (see app. III for a discussion of the evolution of AMIS). AMIS’s mandate has three components: To monitor and observe compliance with the April 2004 humanitarian cease-fire agreement and all such agreements in the future; To assist in the process of confidence building; and To contribute to a secure environment for the delivery of humanitarian relief and, beyond that, the return of IDPs and refugees to their homes, in order to assist in increasing the level of compliance of all parties with the April 2004 cease-fire agreement and to contribute to the improvement of the security situation throughout Darfur. Regarding the first component of the mandate, per the terms of the cease- fire agreement, related agreements, and African Union Peace and Security Council guidance, military observers were to investigate and report on allegations of ceasefire violations, with a protection force presence as needed. Final investigation reports, prepared by the Ceasefire Commission headquartered in El Fasher, Darfur, were to be submitted to the Joint Commission. The Joint Commission was mandated to make consensus- based decisions on matters brought before it by the Ceasefire Commission. According to a senior African Union official, the Joint Commission was to submit Ceasefire Commission reports to African Union headquarters in Addis Ababa, Ethiopia, for appropriate action. (Fig. 5 illustrates the established process for investigating, and reporting on, cease-fire agreement violations.) The council determined that AMIS would, in the framework of its mandate, “protect civilians whom it encounters under imminent threat and in the immediate vicinity, within resources and capability, it being understood that the protection of the civilian population is the responsibility of the government of Sudan.” The council also determined that AMIS would have, in addition to military observers and protection force troops, civilian police, to monitor the actions of Sudanese police and interact with IDPs and civilians, as well as appropriate civilian personnel. The AMIS force authorized and deployed in Darfur to execute its mandate has grown incrementally over time from several hundred personnel in 2004 to 7,271 personnel (military observers, protection force troops, and civilian police) deployed as of April 30, 2006. Numerous studies by the African Union, the UN, and others reviewing the performance of AMIS have been conducted that discuss the operations of this effort undertaken by the newly created African Union (see the bibliography for a listing of these reviews). The May 2006 Darfur Peace Agreement establishes several new responsibilities for AMIS, such as verifying the eventual disarmament of the Janjaweed by the Sudanese government. The 2006 agreement also designates AMIS as responsible for actions such as designing and running awareness programs in Darfur to ensure that local communities and others understand, among other things, the AMIS mandate; patrolling and monitoring demilitarized zones around IDP camps; patrolling buffer zones established in areas of the most intense conflict; and developing and monitoring implementation of a plan for the regulation of nomadic migration along historic migration routes. The U.S. government has been active in addressing the Darfur conflict. After the conflict began, senior State officials traveled to Sudan on a half- dozen occasions, stressing the need to end the violence. On July 22, 2004, the U.S. House and the Senate each passed separate resolutions citing events in Darfur as acts of genocide. Further, on September 9, 2004, in testimony before the Senate Foreign Relations Committee, the U.S. Secretary of State announced that “genocide” had been committed in Darfur, and noted that the Sudanese government had supported the Janjaweed, directly and indirectly, as they carried out a “scorched earth” policy toward the rebels and the African civilian population in Darfur. In a press release the same day, President Bush stated that genocide was occurring and requested the UN to investigate events in Darfur, as the Secretary of State had also done. On October 13, 2006, President Bush signed into law the Darfur Peace and Accountability Act of 2006, which imposes sanctions against persons responsible for genocide, war crimes, and crimes against humanity; supports measures for the protection of civilians and humanitarian operations; and supports peace efforts in Darfur. Although the UN has not identified the events in Darfur as genocide, it has repeatedly expressed concern over the continuing violence. In July 2004, the UN, with the government of Sudan, issued a communiqué emphasizing a commitment to facilitating humanitarian assistance to the region and establishing a commitment by the Sudanese government to disarm the Janjaweed. In September 2004, the UN Security Council adopted a resolution stating that the UN Secretary-General should “rapidly establish an international commission of inquiry in order immediately to investigate reports of violations of international humanitarian law and human rights law in Darfur by all parties, to determine also whether or not acts of genocide have occurred, and to identify the perpetrators of such violations with a view to ensuring that those responsible are held accountable.” In January 2005, the UN issued a report stating that “the Government of Sudan and the Janjaweed are responsible for serious violations of international human rights and humanitarian law amounting to crimes under international law.” The report concluded that a policy of genocide had not been pursued but noted that “the crimes against humanity and war crimes that have been committed in Darfur may be no less serious and heinous than genocide.” The UN Security Council has also adopted resolutions establishing a travel ban and asset freeze for those determined to impede the peace process or violate human rights and referring the situation in Darfur to the prosecutor of the International Criminal Court and calling on the government of Sudan and all other parties to the conflict to cooperate with the court. Further, in creating UNMIS to support implementation of the Comprehensive Peace Agreement, the council requested the UN Secretary- General to report to the council on options for the mission to reinforce the effort to foster peace in Darfur through appropriate assistance to AMIS. Large-scale international humanitarian response to the displacement in Darfur did not begin until fiscal year 2004. In October 2003, USAID’s Office of Food for Peace began to contribute food aid to the UN World Food Program for distribution in Darfur and USAID set an internal goal of meeting at least 50 percent of Sudan’s food aid needs as assessed by the World Food Program. In addition, USAID’s Office of Foreign Disaster Assistance established a Disaster Assistance Response Team in Darfur to respond to the humanitarian needs of the population affected by the conflict once the cease-fire agreement was signed. The United States was the largest donor of humanitarian assistance for Darfur in fiscal years 2004 to 2006, providing approximately 47 percent of all humanitarian assistance to the region (the UN has reported $1.9 billion in total pledges and obligations of assistance from all donors). The European Union and the United Kingdom provided the largest amounts of assistance pledged or obligated by other international donors. Figure 6 shows the percentages of total humanitarian assistance pledged or obligated for Darfur by international donors. In fiscal years 2004 through 2006, the United States provided almost $1 billion for food and other humanitarian aid in Darfur. More than 68 percent of the U.S. obligations as of September 30, 2006, supplied food aid in the form of commodities provided to the UN World Food Program and the International Committee of the Red Cross. In addition, the United States provided assistance to meet a range of nonfood needs, such as health care and water. During this period, humanitarian access and coverage for IDPs and affected residents of Darfur improved significantly. In addition, IDP malnutrition and mortality rates decreased over time, a trend that U.S., UN, and other officials attribute in part to humanitarian assistance. U.S. obligations for food and other humanitarian aid in Darfur totaled approximately $996 million in fiscal years 2004 through 2006 (see fig. 7). From 2004 to 2005, obligations for food and nonfood assistance increased from about $186 million to $444 million, or by 58 percent. In fiscal year 2006, obligations decreased to about $366 million, or by 18 percent. Funds provided in supplemental appropriations accounted for about $71 million— 16 percent of the total—in 2005 and $205 million—56 percent of the total—in 2006. For fiscal years 2004 through 2006, USAID provided $681 million (over 68 percent) as food aid for Darfur—approximately $113 million in 2004, $324 million in 2005, and $243 million in 2006 (see table 1). As table 1 shows, after rising from fiscal year 2004 to fiscal year 2005, U.S. food aid funding for Darfur decreased from fiscal year 2005 to fiscal year 2006 by approximately 25 percent and the quantity of food provided decreased by almost 13 percent. The UN World Food Program planned assistance to Sudan also fell by more than 16 percent between calendar years 2005 and 2006, while the food aid component of planned assistance decreased by 29 percent. According to World Food Program and USAID officials, in fiscal years 2005 and 2006, USAID supplied at least half of the 2005 and 2006 food aid assistance requested for Sudan by the UN World Food Program. A World Food Program official in Washington, D.C., stated that the U.S. government provided essential food aid contributions in fiscal year 2006 and that the reduction in the level of U.S. funding did not negatively impact the food situation in Darfur. USAID Food for Peace obligated aid for Darfur for fiscal years 2004 through 2006, primarily for commodities intended to meet minimum nutritional requirements, to the UN World Food Program and the International Committee of the Red Cross. Obligations to the UN World Food Program. As table 1 shows, USAID Food for Peace obligated $658.6 million for commodities, including transportation and other shipping costs, to the World Food Program to address emergency food needs in Darfur in fiscal years 2004 through 2006. According to a USAID official, this assistance included commodities previously allocated for assistance to southern Sudan, which Food for Peace and the World Food Program reallocated to respond to the emergency situation in Darfur before the official emergency program began. World Food Program officials said that U.S. food aid funding allowed the program to preposition food in various storage facilities in Darfur, enabling the program to avoid costly air drops. World Food Program officials indicated that prepositioning food helps avoid shortfalls during rainy seasons resulting from the typical 6- month time lag between confirmation and distribution of food aid donations. Obligations to the Red Cross. USAID Food for Peace obligated $22.8 million for commodities to the International Committee of the Red Cross. This assistance was intended particularly for rural village residents who had not been displaced by the ongoing conflict and whose needs had not been addressed by other agencies in the region. During our field work in Darfur, we visited World Food Program warehouses outside Nyala, in South Darfur, built to expedite the distribution of food aid during the rainy season; we observed local staff repackaging U.S. wheat from bags that were damaged in transit to the storage facility in Nyala (see fig. 8). Additionally, we witnessed NGOs distributing rations in Zam Zam IDP camp (although the funds and commodities are transferred to the UN World Food Program, NGOs operating in Darfur distribute the rations in IDP camps), where U.S.-provided sorghum, vegetable oil, lentils, and wheat were distributed as part of the monthly rations (see fig. 9). In addition to providing food aid, as of September 30, 2006, the United States had obligated approximately $315 million for other humanitarian assistance in a range of sectors, including shelter, water and sanitation, health care, and nutrition. This assistance was provided through USAID’s Office of Foreign Disaster Assistance and Office of Transition Initiatives as well as State’s Bureau of Population, Refugees and Migration. The U.S. government has provided nonfood assistance to the affected residents of Darfur through 31 NGOs and 10 UN agencies, which implement programs and activities to aid the people of Darfur (see app. IV for a list of NGOs and UN agencies that received U.S. nonfood assistance funding for fiscal years 2004 to 2006). Of this assistance, the largest amounts have been obligated for health care, water and sanitation, logistics, protection, and food security/agriculture (see fig. 10). Health. The United States obligated $57.4 million for the health sector, supporting activities such as medical clinics, immunizations, and maternal health care. We visited five NGO-operated health clinics in Darfur IDP camps. These clinics, which served between 110 to 1,200 IDPs per day, provided basic medical examinations, referring serious illnesses to Sudanese hospitals. The clinics also provided vaccinations, reproductive health services for pregnant women, and medical services for victims of gender-based violence (see fig. 11). Water and sanitation. The United States provided about $53.5 million for water and sanitation activities, which consisted of building and rehabilitating wells, installing hand pumps and latrines, and conducting hygiene programs. According to NGO officials, the Kalma camp water facilities we visited served approximately 45,000 IDPs and dispensed approximately 18 liters of chlorinated water per person per day (above the Sphere standard of 15 liters) to provide for IDPs’ personal needs and to allow them to water their animals. According to NGO officials, in Abu Shouk camp, a water tank and hand pumps provided 13.5 liters of water per person per day (see fig. 12). Protection and income-generation activities. The United States provided about $28.6 million for protection activities and $9.1 million for income- generation activities, which USAID and NGO officials indicated helped protect women and girls by minimizing their exposure to violence. We observed women building fuel-efficient stoves, which, by requiring less wood, are intended to reduce the frequency of women’s wood-collecting forays outside the camp and, thus, their vulnerability to attacks (see fig. 13). We also observed IDPs preparing goods that could be sold—including making baskets and other goods, preparing fresh pasta, and sewing garments—to provide sources of income that would reduce their need to go outside the camps to earn money. Literacy and educational training was also provided to IDPs in camps in conjunction with income-generation and protection activities. Since fiscal year 2004, when the United States and other international donors began providing humanitarian assistance, the numbers of humanitarian organizations and staff have grown, and the amount of humanitarian assistance and the coverage for IDPs and affected residents have increased. Also, since 2004, malnutrition and mortality rates among IDPs and affected residents have diminished. Increased presence of humanitarian organizations. According to UN and NGO officials, U.S. assistance contributed to growth in the number of humanitarian organizations and staff in Darfur. UN humanitarian profiles show that from April 2004 to July 2006, the number of international and national humanitarian aid workers in Darfur expanded from 202 to about 13,500 staff of 84 NGOs and 13 UN agencies. NGO and UN officials in Darfur indicated that the U.S. contribution was essential to their operations, in some cases making up the totality of their budget, and that they would be unable to provide services inside and outside the camps without U.S. funding. Increase coverage for affected residents and IDPs. Each aid sector in Darfur provided humanitarian assistance to increasing numbers of affected residents or IDPs between April 2004 and July 2006 (see fig. 14). The total affected population receiving assistance such as food, water, and health care increased, although substantial numbers of affected persons did not receive assistance, especially in inaccessible areas, owing to continued security concerns. In addition, after August 2005, the percentage of the targeted population receiving such assistance began to decrease, according to the UN, as continued conflict and insecurity in Darfur limited access to, and distribution of, humanitarian aid. NGOs and UN agencies reported that assistance provided only to IDPs also expanded. For example, the number of IDPs receiving sanitation assistance increased more than sixtyfold, from about 21,000 IDPs in April 2004 to more than 1.4 million IDPs in July 2006. Reduced malnutrition and mortality rates. Since 2004, malnutrition rates recorded in Darfur have decreased significantly. A UN World Food Program survey in Darfur showed that malnutrition rates were significantly lower in 2005 than in 2004. In addition, although nutrition among IDPs in Darfur remains precarious, UN nutritional reports show improvement since 2004 and attribute the improvement partly to external assistance and large-scale food aid. According to UN Emergency Food Security and Nutrition Assessments, the prevalence of global acute malnutrition in Darfur was reported at 11.9 percent in March of 2006, a significant decrease from the 21.8 percent reported in October 2004. Furthermore, several mortality surveys have concluded that mortality rates in Darfur decreased from 2004 to 2005. For example, surveys conducted by the World Health Organization and Médecins Sans Frontières (also known as Doctors Without Borders) reported mortality rates ranging between 1.5 to 9.5 deaths per 10,000 people per day in 2004. In September 2005, the UN World Food Program reported that the crude mortality rate in Darfur had dropped below the emergency threshold of 1 death per 10,000 persons per day, as defined by Sphere. Humanitarian assistance provided for Darfur by the United States and other international donors has been cited as contributing to improved mortality rates in Darfur. Experts and NGO, UN, and U.S. officials noted that other factors, such as reduced violence, can also contribute to a decrease in mortality rates. Despite the efforts of the humanitarian organizations to increase the numbers of people receiving humanitarian assistance, as well as provide assistance to help reduce malnutrition and mortality rates, the situation in Darfur remains precarious. Continued insecurity restricts humanitarian organizations’ access to IDPs and affected residents of Darfur. In addition, NGO and UN officials indicated that mortality and malnutrition rates would likely rise above emergency levels if necessary funding were not continued. Since the beginning of the humanitarian crisis in Darfur, entities delivering U.S. humanitarian assistance to affected residents and IDPs have faced numerous challenges. Continued insecurity in the region has limited the ability of NGOs and UN agencies to access parts of Darfur and reach all affected residents and IDPs. In addition, the Sudanese government and rebel groups have placed restrictions and requirements on NGOs that have severely limited the NGO staffs’ ability to travel to and in Darfur and to provide services to affected residents and IDPs. Further, the late timing of U.S. funding in 2006 initially limited the operations of NGOs and UN agencies and threatened to force some reduction in services in Darfur. Meanwhile, the large size of Darfur and the large quantity of U.S. humanitarian assistance have challenged USAID’s ability to ensure accountability for the assistance provided. In addition, targeting of humanitarian assistance for IDPs is complicated by the difficulty of counting and managing the numbers of people who receive assistance and their use of the goods provided. The frequent violence and continued conflict within all three Darfur states have negatively impacted the ability of NGOs and UN agencies to provide humanitarian assistance within Darfur. Attacks on, and harassment of, humanitarian staff, as well as banditry and theft of humanitarian convoys, have increased throughout Darfur since the beginning of the humanitarian response; and according to the UN, violence, sexual abuse, and displacement have dramatically increased since May 2006. NGO, UN, and U.S. personnel have been injured, abducted, and killed in attacks against the humanitarian community, and humanitarian staff have regularly reported harassment from Sudanese government officials. According to UN and USAID reports, UN and NGO humanitarian staff were attacked and harassed with increasing frequency in 2005, and NGO staff members were attacked and abducted. In several instances, drivers and other humanitarian staff were abducted or killed during attacks on humanitarian aid convoys. USAID reported more than 200 incidents of harassment, arrest, or attack against UN, NGO, or AMIS personnel in 2005. USAID and the UN also reported that increasing violence had resulted in the deaths of nine humanitarian staff in July 2006—more than the number of staff killed in the past 2 years. Further, in August 2006, the UN reported that attacks against humanitarian staff were at a record high. In addition, banditry and looting of NGO convoys occur with regularity, according to UN and USAID reports. USAID reported and some UN officials confirmed the theft of vehicles, cash, food, and other humanitarian aid. However, many NGO and UN officials told us that the banditry has mainly resulted in the theft of communications equipment and cash, rather than the humanitarian aid in the convoy. A World Food Program official estimated that less than 1 percent of total food aid in Darfur was lost to banditry, but that the incidents typically resulted in the theft of petty cash, fuel, or the trucks carrying the World Food Program supplies. Furthermore, humanitarian access to affected residents and IDPs has been curtailed as a result of continued conflict, especially in rural areas. USAID, NGO, and UN officials in Darfur stated that the lack of security has forced humanitarian organizations to limit access to insecure areas. For example, in response to continued attacks and insecurity in West Darfur, in January 2006, the UN Department of Security and Safety announced the withdrawal of UN staff from most of West Darfur for 2 months, and USAID also removed its staff from West Darfur. (Although UN access was restricted, some NGOs did not evacuate the area and were able to continue operations.) According to USAID, the situation dramatically curtailed the ability of organizations to access the affected residents and IDP population in the area and to implement life-saving programs in West Darfur. Additionally, the UN reported that, as a result of significant insecurity in North Darfur, approximately 460,000 Darfurians were cut off from emergency food aid in July 2006, and in August 2006, 355,000 Darfurians remained blocked from receiving food aid. According to the UN, as of August 2006, humanitarian aid organizations’ access to IDPs and affected residents in Darfur was at its lowest levels since 2003, and areas of inaccessibility were expanding. Meanwhile, an estimated 50,000 people were displaced between June and August 2006. The government of Sudan and, to a lesser extent, the rebel groups have hindered the humanitarian community from accessing affected residents and IDPs in Darfur. According to UN and NGO officials and USAID, as well as UN reports, the government of Sudan has restricted access to Darfur for NGOs and UN agencies since the initial international humanitarian response by delaying or denying visas and travel permits. NGO officials noted that issuance of visas for staff is often delayed or denied without explanation. In addition, according to NGO officials, although the government of Sudan requires NGO officials to purchase travel permits for all travel within Darfur, government police and other authorities do not always accept the permits and often deny access to NGO staff. According to USAID officials, in September 2006, the government of Sudan restricted movement of U.S. government personnel to within 25 miles of the presidential palace in Khartoum, which has forced USAID to remove all personnel from Darfur. This travel ban remained in place as of October 20, 2006. Rebel groups also place requirements on NGOs that delay transportation of humanitarian aid or services into rebel-controlled areas. For example, NGO and UN officials stated that they must contact numerous rebel leaders to safely transport humanitarian aid into a rebel- controlled area. Sudanese government officials in Darfur deny NGO and UN officials allegations that the government restricts access and travel in Darfur and insist that the government attempts to help NGOs and UN agencies provide assistance to the people of Darfur. However, USAID, NGO and UN officials indicated that although the Sudanese government has an official policy of cooperation with humanitarian assistance in Darfur, the government’s actions have severely limited humanitarian assistance within the region. Delayed provision of more than half of U.S. humanitarian aid for 2006 limited NGO and UN agency partners’ ability to supply needed food assistance and negatively affected their ability to plan for nonfood assistance. The initial U.S. appropriation for fiscal year 2006 supplied approximately 44 percent of the total U.S. humanitarian aid funding for Darfur in fiscal year 2006. With the passage of the supplemental appropriation on June 15, 2006—9 months into the fiscal year—total U.S. food and nonfood assistance for 2006 reached the intended levels, including meeting at least half of the World Food Program’s appeal for Sudan. However, because NGOs and UN agencies in Darfur did not receive the funds until late in the fiscal year, they were forced to reduce food rations and temporarily interrupt some humanitarian aid services. Impact on food assistance. The provision of approximately 56 percent of 2006 U.S. food aid funding late in the fiscal year made it difficult for the UN World Food Program to distribute supplies throughout Darfur in a timely fashion. In particular, because of the 6-month lag between confirmation and distribution of donations, the delay made it difficult for the program to preposition food prior to the rainy season, according to a World Food Program official. Owing in part to this delay, the program announced in April 2006 that, beginning in May, it would reduce rations in Darfur to half the minimum daily requirement (from 2,100 calories to as few as 1,050 calories per day) to extend limited food stocks. In response, the Sudanese government donated sorghum, and the President of the United States directed USAID to ship emergency food stockpiles to Darfur, raising the rations to 84 percent (1,770 kilocalories) of the daily requirement for Darfurians receiving food aid. In June, the cereal component of the ration was fully restored. However, as of October 2006, the World Food Program continued to face gaps in food aid, and, according to program officials, it planned to maintain the 84 percent ration through the end of the calendar year. According to a World Food Program official in Khartoum, if the current level of funding had been available earlier in the year, the ration cuts could have been avoided entirely. A USAID official told us that, although the reduction in 2006 U.S. funding did not significantly decrease the food aid contribution for Darfur, the delay of $137 million (56 percent) of the 2006 U.S. food aid funding until late in the fiscal year negatively affected the food situation in Darfur earlier in the year. This outcome aligns with previous GAO findings that lack of sufficient, timely donations contributed to food aid shortfalls in other emergency situations. Impact on nonfood assistance. The delay of U.S. nonfood humanitarian assistance, as well as a reduction in funding from other international donors, led NGO and UN officials to anticipate a negative impact on nonfood humanitarian operations in Darfur. In February 2006, these officials told us that the initial U.S. funding for the year had been less than planned for and needed to ensure continued levels of assistance to Darfur’s affected residents and IDPs. As a result of the funding delays, the NGO officials said, their organizations would be forced to make cuts in the services and programs they provided or to reduce their humanitarian aid staff in Darfur. For example, one NGO official indicated that the reduction in funding had forced the organization to downsize its health program and to transfer responsibility for the clinics to the Sudanese government. Several NGO and UN officials also indicated that without additional funds, key indicators such as the malnutrition and mortality rates, which had improved in 2005, would likely rise again above emergency levels. USAID officials told us in October 2006 that after receiving the supplemental funding, USAID’s partners had been able to restore humanitarian programs in Darfur to their previous levels and coverage. USAID’s ability to provide oversight and measure the impact of U.S. humanitarian assistance in Darfur has been limited by reductions in its staff who could directly monitor U.S. assistance or ensure that implementing partners fulfilled reporting requirements. From April 2004 to July 2006, as NGO and UN humanitarian staff in Darfur significantly increased—from 202 to 13,500—USAID’s staff in Darfur decreased. During the first 2 years of the conflict, USAID staff ranged between 10 and 20 personnel; within the last 9 months, that number has been reduced to 6 to 8 USAID personnel. USAID officials believe that the remaining number of USAID personnel is adequate to oversee the implementation of U.S. humanitarian assistance and USAID grant agreements, among other responsibilities. USAID officials indicated that other, external factors, such as UN and U.S. Embassy security requirements and restrictions imposed by the government of Sudan, limit the number of staff in Darfur. In addition, USAID officials indicated that they visited camps and communicated with NGO and UN agency officials regularly to discuss operations and difficulties and to assist in delivering humanitarian assistance. However, USAID officials told us that owing to limited time and staff in Darfur, security restrictions throughout the region, the size of Darfur, and the scale of U.S. assistance provided, they could not monitor compliance with all of the grant agreement indicators at locations in Darfur that were targeted for assistance. Furthermore, required NGO reporting has been incomplete. As a result, USAID lacks information to evaluate NGO operations, monitor their performance, and measure the impact of the assistance provided. According to USAID’s Office of U.S. Foreign Disaster Assistance Guidelines for Proposals and Reporting, NGOs must submit proposals outlining the indicators and outcomes expected from the humanitarian activities and services provided for with U.S. funds. Each grant agreement also specifies that 90 days after the agreement’s expiration, the NGO must submit a final report that includes the cumulative achievements and a comparison of actual accomplishments against the goals, objectives, indicators, and targets established for the agreement. Examples of indicators used by NGOs in proposals include, for example, the crude mortality rate in the target population or the number of latrines constructed. However, we found that 6 of 15 final reports that NGOs were required to submit by June 1, 2006, had not been submitted to USAID. Moreover, most of the reports that NGOs submitted did not include all required information. USAID’s Darfur Program Manager stated that because officials maintain constant communication with NGOs and conduct evaluations of activities in Darfur, the agency is aware of implementing partners’ accomplishments, or lack thereof, in Darfur, despite the incompleteness of most NGO reports. However, the reports and indicators are essential in monitoring and evaluating humanitarian operations, given that USAID staff are often constrained by limited access due to insecurity and violence throughout Darfur. In response to our observations USAID acknowledged the importance of obtaining required reports and has taken efforts to ensure reporting compliance from its NGO partners. As a result, USAID reported that in July 2006 it received all quarterly reports from current NGO partners. Challenges in accurately counting the populations of IDP camps have made it difficult for NGOs and UN agencies to ensure that all U.S. humanitarian assistance was provided to the intended recipients. In addition, some IDPs used humanitarian assistance for purposes other than those for which it was intended. In part because the IDP camps’ large size makes it difficult to control who receives assistance, some assistance has been distributed to recipients other than those targeted. For example, UN humanitarian profiles show that between December 2004 and October 2005, IDPs in Kalma camp, the largest camp in Darfur, were estimated at between 103,000 and 163,000. The World Food Program distributed food aid for IDPs based on these estimates. Prior to October 2005, several efforts to count the actual number of IDPs in Kalma camp were determined to be invalid because of problems with the counts and an inability to stop non- IDPs from participating. An October 2005 count was completed by more than 400 staff from six NGOs, with help from USAID staff, and with assistance from Sudanese government troops—who surrounded the camp to stop non-IDPs from entering—and AMIS civilian police, who provided security inside the camp. On October 4, 2005, a count of 87,000 was declared accurate, approximately 70,000 IDPs less than the previous estimate. According to a USAID official, residents from the nearby state capital of Nyala had previously received improper food distributions at the camp. According to USAID, without accurate counts of camp populations, the humanitarian community struggles to distribute food aid appropriately to the populations with the greatest need. Not all resources and assistance are being used as intended, although USAID and NGO officials indicated that this is typical of any emergency situation, especially one of this size and duration. For example, in Abu Shouk camp, we observed IDPs using treated drinking water to make bricks, either for their own shelters or for sale on the market. According to a UN official, IDPs in the camp used approximately 30 percent of available water in the camp to make bricks and, as a result, 8 of the 30 water pumps in Abu Shouk dried up. Although the African Union’s peace support operation has reportedly contributed to a reduction of large-scale violence in Darfur, AMIS’s actions to fulfill its mandate in Darfur have been taken in an incomplete or inconsistent manner. To monitor compliance with the cease-fire agreement, the first component of its mandate, AMIS military observers in Darfur have actively investigated alleged cease-fire agreement violations. However, the resulting reports have not been reviewed according to established procedure or widely publicized to identify parties who have violated the agreement. To build confidence and to improve security, the second and third components of its mandate, AMIS troops have taken actions such as conducting patrols and escorting IDP women who leave camps to forage for firewood. In addition, AMIS troops have intervened to stop impending violence against civilians and provided escorts for NGO convoys in some instances, although AMIS has not intervened in other instances. Further, the AMIS civilian police are working with Sudanese police to improve law enforcement, but the civilian police have encountered difficulties with the Sudanese authorities. To support AMIS’s efforts to meet its mandate, the U.S. government provided about $280 million from June 2004 through September 2006, according to State, primarily to build and maintain the 32 camps that house AMIS forces throughout Darfur. AMIS is viewed by many as having made an important contribution in Darfur. U.S. and other officials cite AMIS as responsible for decreasing large-scale violence simply by the deterrent effect of its presence in the region. State officials have emphasized that AMIS participants have a strong desire to be effective and make the AMIS initiative work and that the presence of AMIS’s patrols has had a positive impact. Further, a senior UN official told us that AMIS “jumped into Darfur” with few resources in a genuine attempt to “put out this fire” and that AMIS’s presence has had a notable impact. Further, State and UN officials noted that AMIS forces were deployed to Darfur quickly in comparison with other international peacekeeping missions. AMIS has taken a number of positive actions in Darfur in response to its mandate to (1) monitor compliance with the cease-fire agreement, (2) assist in confidence building, and (3) contribute to improving security. However, some of these actions have been executed in an incomplete or inconsistent manner, limiting the extent to which AMIS has been able to fulfill its mandate. To address the first component of its mandate, AMIS military observers in Darfur investigated and identified a number of violations of the 2004 cease- fire agreement. However, the Joint Commission has not consistently reviewed the resulting Ceasefire Commission investigation reports. Further, the publicly available record of recent cease-fire violation investigations is incomplete, making it impossible to establish how many total cease-fire violations have been identified by the Ceasefire Commission since its creation in 2004 and which parties have been responsible for recent cease-fire agreement violations. Ceasefire Commission reports provide specific information regarding violations. The commission found that all three parties to the conflict had committed violations, many of which occurred in South Darfur. Of the 80 allegations of cease-fire agreement violations that we reviewed, the Ceasefire Commission was unable to make a determination in 30 instances, often because an outside party (such as the Janjaweed) had allegedly committed the violation. These cases involved acts such as the killing of numerous civilians at a time and attacks on villages. In several cases, the Sudanese government was accused of fighting alongside the Janjaweed. In three of the cases we reviewed, the Ceasefire Commission determined that no violation had occurred. For the remaining 47 allegations of cease-fire agreement violations, the Ceasefire Commission found 54 violations. Sudanese government. The commission found that the Sudanese government had committed 27 cease-fire agreement violations. Among these violations, 9 involved civilian deaths; 10 involved village attacks; 7 involved attacks, harassment, or intimidation of civilians; and 7 involved Sudanese troop movements into new territory without proper notification to the Ceasefire Commission. SLM/A. The commission found that the SLM/A had committed 25 cease- fire agreement violations. Among these violations, six involved attacks on Sudanese facilities (e.g., military camps, police stations, convoys); seven involved abductions of civilians, local political representatives, or Sudanese government personnel; two involved village attacks; and two involved civilian deaths. JEM. The commission found that the JEM had committed two cease-fire agreement violations, both of which involved attacks on Sudanese facilities. The Ceasefire Commission’s recommendations in the reports vary from general to specific. General recommendations include urging the parties to the conflict to adhere to the cease-fire agreement; reminding them that they are required to give the commission prior notice of any administrative troop movements; and requesting party leaders to educate their members about the provisions of the agreement. More specific recommendations include those recommending that the Sudanese government disarm, neutralize, or restrain the Janjaweed and that SLM/A stop looting, or return looted goods, and release those whom it had abducted. In reports issued after November 2004, the Ceasefire Commission frequently appealed to the Joint Commission to become more involved in various aspects of the monitoring process. However, although the reports provide detailed information regarding parties that violated the cease-fire agreement and the nature of the violations, African Union and U.S. officials told us that the Joint Commission had not met regularly, had been ineffective in reviewing reports, and had no means of forcing the violating parties to take action based on report results. Further, although the Joint Commission has condemned cease-fire violations by the parties to the conflict and asked all parties to end all attacks, a DOD official noted that officials at African Union headquarters were not pushing the Joint Commission to review or approve Ceasefire Commission reports. African Union and U.S. officials emphasized that because the reports are available on the African Union’s Web site and publicly identify violators of the cease-fire agreement, the reports pressure the parties to the conflict to improve compliance with the agreement. The officials viewed this transparency and resulting pressure as a central benefit of the reports. However, we found that the public record of investigated cease-fire violations is incomplete, making it impossible to establish the total number of alleged or confirmed violations and to identify all responsible parties. For example, we were unable to open 37 of the 116 Ceasefire Commission reports listed as available on the African Union’s Web site. Further, we were unable to locate any reports subsequent to September 2005 to validate other claims regarding violations. For example, no Ceasefire Commission reports are publicly available to substantiate or refute a January 2006 report, which was prepared by the Chairperson of the African Union Commission and submitted to the Peace and Security Council, stating that cease-fire violations had escalated since October 2005 and that some of the most serious violations had occurred since that time. To fulfill the second and third components of the mandate, AMIS forces have provided patrols and escorts for IDPs, NGOs, and U.S. contractor staff; intervened to prevent violence; and collaborated with Sudanese government police. However, in some instances, AMIS patrols and escorts have not been able to prevent attacks or to provide needed services; AMIS forces have not intervened consistently to prevent violence; and AMIS civilian police have had difficult relations with the Sudanese police. AMIS Has Provided Patrols and Escorts but Has Not Prevented All Attacks or Provided All Needed Protection To build confidence among affected residents and IDPs and create a more secure environment, AMIS troops have taken actions such as conducting patrols and providing escorts for vulnerable groups. However, AMIS escorts and the escorted groups have sometimes encountered violent attacks, and AMIS has had insufficient resources to provide all needed escort services. Patrols. AMIS officials at several AMIS camps we visited told us that AMIS military observers or civilian police try to conduct about two patrols each day, for example, to make AMIS’s presence known and to interact positively with local communities, collect information, or investigate an alleged cease-fire agreement violation. We accompanied one confidence-building patrol near the North Darfur town of Kabkabiya; AMIS military observers interviewed local residents and a community leader to identify any problems that required AMIS attention. (See fig. 15.) Escorts. To further build confidence and improve security, AMIS troops have also provided escorts for groups of women foraging for firewood outside IDP camps. According to African Union and U.S. officials, the presence of AMIS troops has prevented these groups from being attacked. We accompanied an AMIS escort of a group of women as they walked more than 9 miles outside the town of Kass in South Darfur to find firewood for the next several days. Escorted by AMIS protection force troops and civilian police, as well as Sudanese government police, the 79 women went about their activities freely and without incident (see fig. 16). AMIS officials also told us that they have escorted NGO convoys to prevent theft and banditry. However, in several instances, AMIS troops or those being escorted have been threatened or killed. For example, several people were killed in rebel attacks on convoys, including four Nigerian soldiers and two local contractor staff in October 2005. In July 2006, 32 AMIS soldiers escorting a fuel convoy in North Darfur were abducted by one SLM/A faction; although the soldiers were eventually released, two fuel tanker drivers, the fuel tankers, and four AMIS vehicles were not released at that time. According to a senior U.S. contracting official working in Darfur, the drivers and tankers were released in October 2006, and the vehicles have not been returned. According to a December 2005 African Union-led assessment of AMIS (with participation from the UN, European Union, and United States), such incidents “undermine the Mission’s credibility in the eyes of civilians and embolden those who may target AMIS.” Further, a UN official emphasized that AMIS’s ability to provide services such as firewood escorts is limited and that AMIS cannot begin to cover all instances where such escorts would be useful. AMIS Has Intervened to Prevent Violence in Some Cases but Not in Others AMIS troops have also intervened to protect civilians under imminent threat of violence, as directed by the African Union mandate. For example, according to the December 2005 assessment of AMIS, AMIS troops were deployed to Zalingei in West Darfur to prevent retaliation against IDPs when there was heightened tension following the kidnapping of civilians by the SLM/A. Another AMIS deployment to Muhajariya halted a Sudanese military advance on the town that could have resulted in the substantial displacement of IDPs. In addition, following attacks on the town of Labado in South Darfur in late 2004, a deployment of AMIS troops in January 2005 deterred further attacks and led to the return of many town residents, who began to repair their homes and rebuild their lives. However, in other instances, AMIS has not intervened to prevent violence. For example, according to UN and U.S. documentation, AMIS did not maintain a regular presence around Mershing and its surroundings in South Darfur despite concerns about security in the area and repeated requests from the international community for a continuous AMIS presence. Ultimately, armed militia attacks resulted in the death of several IDPs and subsequent displacement in early 2006. In addition, an NGO official told us that AMIS was slow in responding to requests for assistance from NGOs caught in a battle between SLM/A and Sudanese government forces in the Jebel Marra area; however, AMIS did help evacuate NGO staff from the area 24 hours after the conflict began. According to an AMIS commander, although AMIS has taken preemptive action to stop attacks or skirmishes, the territory is too large for AMIS to be able prevent such violence overall. AMIS Has Collaborated with Sudanese Police, but Relations Have Been Difficult AMIS has worked with the Sudanese police to improve security, but some of its relations with the Sudanese police have been problematic. AMIS civilian police officers reported to us that they were working to ensure that the Sudanese police are acting on cases provided by the AMIS civilian police. AMIS civilian police also noted that, where appropriate, they have encouraged the use of village councils to resolve disputes, rather than referring every case to the Sudanese authorities. However, some AMIS civilian police officers reported that relations with the Sudanese police had at times been difficult. AMIS civilian police officers told us that Sudanese police had been slow to act on cases provided by AMIS, that these cases often do not result in convictions or adequate punishment, and that it can be difficult to obtain information from the Sudanese police regarding the status of referred cases. In addition, AMIS civilian police mentioned that Sudanese police have at times perpetrated violent acts against citizens of Darfur and AMIS police. Moreover, the civilian police have had difficulty gaining access to some areas that are controlled by rebel groups and lack an official Sudanese police presence. Further, the limited and misunderstood role of AMIS’s civilian police frustrated IDPs and NGO staff, who expressed the view that these police provided limited useful services. IDPs and NGOs told us that they did not understand why civilian police did not get involved when problems arose. Their frustration was heightened by the fact that civilian police have visible stations adjacent to IDP camps. AMIS and UN officials also noted that because the civilian police are unarmed, they require AMIS protection force escorts, which are not always available. The United States has supported AMIS primarily by funding the construction and maintenance of AMIS camps in Darfur by a contractor, PAE Government Services, Inc. (PAE). Other international donors have provided funding or goods and services to support AMIS’s peacekeeping operations. To support AMIS’s efforts to carry out its mandate, the U.S. government expended about $240 million from June 2004 to August 2006 and obligated another $40 million in September of 2006, primarily to build and maintain the 32 camps that house AMIS forces throughout Darfur, according to a State official who tracks this funding. African Union and U.S. officials told us that camp sites were chosen to be near population centers and known conflict areas. State contracted with PAE to build and maintain the camps as well as to maintain AMIS vehicles and communication equipment (see fig. 17). PAE is also maintaining armored personnel carriers provided by Canada; the Canadian government has provided State with more than $20 million for fiscal year 2006 for this purpose. Finally, PAE is responsible for hiring, housing, and compensating U.S. military observers (referred to by State officials in Darfur as “U.S. representatives” owing to their range of contributions to AMIS beyond observing activities). Although 16 U.S. military observers are authorized, only 11 were on the ground in Darfur during our February 2006 visit. Construction of the 32 camps, between June 2004 and December 2005, involved a number of challenges. According to a senior PAE official in Darfur, key costs associated with building the camps included supplying generators and, particularly as construction was beginning, transporting supplies and equipment via aircraft. Construction of the camps, which together can house 9,300 people, was complicated by the difficulty of finding international staff willing to come to Darfur and local staff possessing adequate skills. In addition, the remote locations of camp sites, combined with the inadequate condition of roads throughout the region, made it difficult to transport building supplies to the sites; PAE officials told us that in some cases, supplies were transported across insecure areas via donkeys. Further, the various augmentations of AMIS over time (including the introduction of the civilian police component) had to be incorporated into preexisting building plans. Moreover, the relatively small size of some of the land parcels provided by the government of Sudan made it difficult for PAE to, for example, construct sufficient perimeter protection around camps. Other sites provided by the government are in vulnerable locations; for instance, PAE officials identified one camp that was built in a natural “bowl,” making protection problematic, although steps were recently taken to relocate portions of this camp. According to PAE and State officials, PAE’s current costs for maintaining the camps, as well as AMIS communications equipment and vehicles, are about $7.8 million per month. PAE faces additional challenges in maintaining AMIS facilities, with the provision of water a key difficulty. According to a PAE situation report dated May 5, 2006, there are significant concerns regarding the provision of an uninterrupted supply of water to several AMIS camps. In some cases, unprotected water bore holes have been sabotaged. In the past, PAE also experienced the theft of jet fuel. A PAE official noted that other environmental challenges to maintaining the camps include heat, ultraviolet rays, and sand. The European Union, also a key AMIS donor, has provided about $200 million as direct budget support for AMIS operational costs such as per diem and food, according to a State official. Many other donor contributions have been “in kind”—that is, goods and services rather than direct funding. For example, the Canadian government loaned AMIS 25 helicopters and 105 armored personnel carriers; the British government provided vehicles and ground fuel; the Dutch government provided communications equipment; and the Norwegian government is building civilian police stations near IDP camps. Further, since October 2004, the UN has provided assistance to AMIS via a technical assistance cell working in Addis Ababa and funded by the UN Mission in Sudan. According to an official in the cell, it has provided services such as technical support (including an August 2005 UN-led exercise to prepare AMIS for troop deployments and identify areas where capacity building was required) and training (such as arranging training for military observers and bringing a financial officer to African Union headquarters for 3 months to assist with financial management). NATO has also provided training for AMIS personnel and has assisted with troop rotation efforts. Numerous factors have been identified by AMIS and U.S. government officials, among others, as contributing to AMIS’s difficulties in meeting its mandate. These factors include inadequacies in management, organization, and capacity; a relatively small force; resources that have been constrained or inefficiently allocated; and a lack of information regarding, and cooperation from, parties to the conflict. As AMIS has faced operational and other challenges, the UN has approved a UN peacekeeping operation in Darfur when AMIS’s mandate expires; however, as of October 2006, the Sudanese government had rejected the proposal. In June 2006, following a NATO offer, the African Union formally requested assistance from NATO in, among other things, identifying lessons learned from AMIS operations; however, according to a State official, African Union headquarters had taken no further action to pursue this review as of August 2006. Meanwhile, instability and violence have continued in Darfur. AMIS has reportedly experienced numerous difficulties in its management, organization, and capacity that have limited its ability to carry out its mandate. Regarding AMIS management, U.S., UN, and other sources have commonly expressed the view that AMIS’s command and control has been inadequate and confused. A UN-led assessment of AMIS in August 2005 stated, “The evolution of the mission has been such that it has depended on individual components conducting their own planning rather than tackling problems from a mission perspective. This has led to considerable disparity between components, duplication of effort, and the potential for planning at cross purposes.” A State official emphasized that AMIS has had no clear lines of authority between Addis Ababa, El Fasher, and the field and that a lack of coordination has made a rapid response to crisis situations problematic. A Refugees International study reported that “AMIS has suffered from language and cultural barriers between officers from various countries, confusion in procedures, limited future planning, and ineffective communications systems. Much of this stems from lack of peacekeeping experience.” The Brookings Institution–University of Bern study also stated that AMIS command and control had been slow and cumbersome and that “he unwieldy bureaucracy at African Union headquarters hampered all aspects of deployment; there is no institutional expertise for peace operations yet in the .” Moreover, AMIS leadership has demonstrated inconsistency in interpreting the AMIS mandate, creating confusion among AMIS troops and civilians and limiting its protection of civilians within its capabilities. AMIS leadership’s willingness to take certain actions to meet the mandate—for example, to protect civilians—has varied throughout Darfur, as already noted. State officials have observed that AMIS’s willingness to actively protect Darfur residents to the extent provided for in the mandate has been “uneven.” A U.S. official we met with in Sudan noted that in some cases, the degree to which AMIS’s mandate was robustly interpreted seemed to depend on leadership personalities. According to the December 2005 African Union-led assessment of AMIS, “military and police mission components are not operating in a sufficiently joint and coordinated manner.” The Brookings Institution--University of Bern study noted a similar problem, stating that the civilian police “rely on the AMIS protection force for their movements, but they are not currently integrated into military planning structures.” Many parties, including U.S. and UN officials, have called for the creation of a joint operations center that would serve as the focal point for the coordination and integration of AMIS military and civilian police operations; however, such a unit has not yet been created. On the other hand, a joint logistics operations center has been established to improve the logistical coordination of the AMIS components. African Union, U.S., and other sources have identified problems with the capacity and experience of African Union and AMIS as a key factor negatively affecting AMIS performance. According to the Brookings Institution–University of Bern study, “For many commanders, this African Union mission is their first operational experience.” Troops are also viewed as having limited experience. For example, according to a Human Rights Watch report, “ troop–contributing countries have sometimes struggled to identify and deploy properly trained staff officers, particularly those with appropriate language skills…. Most troop- contributing countries have previously contributed to UN missions that were often western-led operations, thus leaving the troops with limited operational experience above the tactical level.” An African Union official and a U.S. official noted separately that, although AMIS has training standards, little is done to verify that AMIS troops arriving in Darfur have received appropriate training. Further, according to the Brookings Institution–University of Bern study, the quality of AMIS police is not adequate, with limited screening prior to deployment to Darfur. The AMIS force, with its 7,271 personnel, has been characterized as a relatively small contingent that cannot effectively monitor and patrol all of Darfur, an area almost the size of France with a punishing environment (however, some regions in Darfur, such as the far north, are largely unpopulated ). According to State officials, the small size of the force has limited AMIS’s ability to patrol such a large, difficult region and sufficiently interact with residents and other parties in Darfur. Further, according to a Refugees International report, “AMIS doesn’t have enough troops to sufficiently protect itself, let alone protect displaced civilians and humanitarian organizations.” In addition, an International Crisis Group document stated in July 2005 that as many as 15,000 troops were needed in Darfur to protect villages and IDPs, provide security for humanitarian operations, and neutralize militias. The December 2005 African Union-Led Joint Assessment of AMIS reported that the absence of an authorized battalion had a significant operational impact and overstretched existing personnel. African Union and other parties have stated that AMIS does not have sufficient resources, including equipment and translators, to conduct the activities necessary to fulfill its mandate. A senior African Union official told us that AMIS’s reliance on outside donors has resulted in a lack of control for the mission because basic operational elements, such as facilities, logistics, and funding rest in the hands of other parties. According to January 2006 African Union documentation, the African Union has not been able to provide critical resources, such as vehicles and communications equipment, in a timely fashion; as a result, AMIS has functioned with about half of the needed logistical capacity. U.S. officials have countered that the African Union has at times been slow to respond to offers of assistance or to prioritize resource needs. During some periods, donor support for AMIS has been less than what the African Union had expected, with African Union documentation stating that a lack of funds has been a major constraint. According to African Union officials, a lack of resources such as vehicles and long-range communications equipment has complicated AMIS operations. For example, one AMIS commander told us that AMIS has inadequate transportation equipment and communications equipment, as well as a lack of night vision equipment. AMIS officials whom we interviewed expressed their concern that the lack of adequate communications equipment limited their ability to interact with different camps in the region. Further, an AMIS civilian police official noted that the civilian police often receive less equipment than the military component of AMIS, which has resulted in situations such as the need to rely on military colleagues’ equipment to communicate with their civilian police colleagues. One AMIS commander also noted that AMIS required more printers, computers, and photocopiers. However, a DOD official noted that until AMIS makes the most efficient use of its current resources, such as vehicles and communications equipment, it is unclear whether more resources are needed. Further, the December 2005 African Union–led report on AMIS notes that, where civilian police matters are concerned, equipment is both insufficient and incorrectly distributed. A lack of translators who can facilitate discussions between AMIS and the residents of Darfur has also been repeatedly cited as a central problem hindering AMIS’s ability to monitor compliance with the cease-fire agreement or build confidence. According to an official from the African Union’s Darfur Integrated Task Force, AMIS needs about 200 interpreters; however, as of February 2006, AMIS had only about 70 interpreters. The lack of interpreters has been attributed to the difficulty in finding people who speak both Arabic and English. One U.S. military observer told us that many uneducated people in Darfur speak only their tribal language, further complicating AMIS’s ability to ensure effective communication. In addition, we were told that at times, AMIS patrols used representatives of the parties to the conflict as translators, which meant that AMIS officials could not verify that translators were conducting the interview in an objective fashion, asking the required questions, or reporting responses accurately. In one example provided by an AMIS civilian police official in El Daein in South Darfur, an SLM/A translator stated that a woman had said she was “helped” in a particular instance, when in fact she had stated that she had been violently attacked. Someone within the investigative team was able to discern that this mistake had been made and communicate it to the rest of the team. IDPs also voiced frustration over the lack of civilian police translators able to communicate with IDPs and respond to IDPs reporting violence in the camps. Several analyses of AMIS have commented on its lack of capacity to collect needed intelligence regarding the situation in Darfur. The International Crisis Group has noted that “AMIS does not have an intelligence apparatus or collection capacity and does not actively analyze or disseminate intelligence.” The Brookings Institution–University of Bern study further stressed that “ood intelligence is vital in Darfur, yet AMIS’s capacity to gather, analyze and act on information has been very weak.” According to a former U.S. military observer to AMIS, “The African Union does not understand the importance of having an ‘intelligence cell’ and of having good information on the command structure, for example, of the Janjaweed.” The December 2005 African Union-led assessment of AMIS emphasized, “If AMIS operations are to be effective, the use of intelligence is essential,” and further noted that the lack of intelligence collection, analysis, and dissemination seriously reduces the effectiveness and focus of operations. The effectiveness of AMIS is directly related to the level of cooperation it receives from the parties to the conflict. Thus far, that cooperation has been extremely inconsistent. The government continues to create bureaucratic obstacles to AMIS’s ability to operate freely. These include curfews, early airport closings, and long delays in issuing permits and visas. AMIS has not, as they should have, protested against these restrictions on movements, notably the curfew. The government’s use of white vehicles and aircraft (which resemble AMIS) in military operations is also inconsistent with its commitments to support the Mission…. The and JEM bear an equal responsibility for accepting and supporting the presence of AMIS. Ongoing obstruction of activities by the rebels has included obstruction of movement, threatening patrols, harassment, theft of equipment, and even abduction of personnel. U.S. and UN officials emphasized an instance where the government of Sudan detained the 105 Canadian armored personnel carriers at the border and released them only after intense external pressure. A U.S. embassy official in Addis Ababa, Ethiopia, noted that Dutch communications equipment had been in Khartoum customs for months, demonstrating how the Sudanese government can obstruct, rather than facilitate, AMIS operations. In addition, all parties to the conflict—the Sudanese government, the SLM/A, and the JEM—have been cited several times for violating the 2004 cease-fire agreement. Representatives of these parties to Ceasefire Commission investigations, particularly the Sudanese government, routinely file objections to final report conclusions. According to an International Crisis Group report, “AMIS was born out of the N’djamena agreement , which lacked a true enforcement mechanism and was based on the assumption of compliance and goodwill by the parties. International pressure on those parties to respect their commitments has been ineffective, thus undermining the mission.” While AMIS has faced challenges in Darfur, the UN and NATO have offered to assist the African Union in, respectively, supplying a peacekeeping force when AMIS’s mandate expires at the end of December 2006 and identifying lessons learned from AMIS operations. The U.S. government and other parties have supported the proposed transition of AMIS responsibilities to a UN peacekeeping operation. In January 2006, the African Union’s Peace and Security Council officially declared its approval, in principle, for the transition of AMIS to a UN operation. In March, the council reaffirmed this position, and in May it declared that “concrete steps should be taken to effect the transition from AMIS to a UN peacekeeping operation.” The UN Security Council subsequently adopted a resolution endorsing this African Union decision to transition AMIS to a UN peacekeeping operation and emphasizing that a UN operation would have, to the extent possible, a strong African participation and character. In August 2006, the UN Security Council adopted a resolution expanding UNMIS’s mandate and calling for an UNMIS deployment to Darfur. According to a State official, a UN operation would be expected to build on AMIS efforts. Some portion of troops already participating in AMIS would be “bluehatted”—that is, could transition to UNMIS. According to a State official, under this scenario, the UN mission would have a unified command for the entire operation, with separate commanders for UNMIS efforts in southern Sudan and Darfur. According to the Department of State fiscal year 2007 budget request and a State official, this UN effort in Sudan would cost the U.S. government about $442 million in fiscal year 2007; a State official roughly estimated that the Darfur portion of this operation would cost the United States between $160 million and $180 million for the year. As of October 2006, the Sudanese government had refused a transition to a UN force in Darfur. However, in October the Sudanese president expressed support for a September offer by the UN Secretary-General to provide assistance to AMIS. The UN assistance package consists of equipment and personnel dedicated to supporting AMIS in the following ways: logistical and material support, military staff support, advisory support to civilian police, and other staff support in the areas of assistance in implementing the Darfur Peace Agreement, public information, mine action, and humanitarian coordination. In addition, in June 2006, following an offer by NATO, the Chairperson of the African Union Commission requested that NATO provide, among other things, assistance in reviewing AMIS operations in Darfur to identify “lessons learned,” which could help the African Union better execute any future peace support efforts. However, a State official reported that, although the Chairperson of the African Union Commission formally accepted NATO’s offer of this assistance, as of August 2006, the African Union headquarters had taken no further action to pursue the review. Such reviews are typically conducted after peacekeeping operations are completed; for example, the UN Department of Peacekeeping Operation’s Best Practices Section undertakes such reviews following UN peacekeeping efforts. Meanwhile, instability and violence continued in Darfur, furthering calls for UN involvement. According to a report prepared by the Chairperson of the African Union Commission, as of May 2006, “the region has continued to witness persistent insecurity, with ceasefire violations, banditry activities, hijacking of vehicles, attacks on villages and killing of unarmed civilians by the various parties, particularly the janjaweed.” One NGO reported 200 sexual assaults around Kalma camp in South Darfur within 5 weeks during the summer of 2006 and the African Union reported that two AMIS soldiers were killed in mid-August. In August 2006, the environment in Darfur remained insecure, with attacks and displacement continuing and, during some periods, worsening over time. State has noted that the Sudanese government offensive that began in August 2006 against parties that did not sign the Darfur Peace Agreement has directly impacted the ability of AMIS to conduct operations, the African Union’s ability to implement the agreement, and the delivery of humanitarian aid. A senior State official reported that “Darfur is on the verge of a dangerous downward spiral. The parties are rearming and repositioning to renew their fighting.” The level of acceptance of the peace agreement overall in Darfur is uncertain, owing to a general lack of information throughout the population regarding the terms of the agreement as well as concern over the fact that the smaller SLM/A faction and the JEM declined to sign the deal. UN officials have warned that continued militia attacks on IDPs are affecting implementation of the peace agreement and emphasized that successful implementation of the agreement is key to peace in Darfur, in the Sudan, and in the wider region. In September 2006, an African Union Peace and Security Council communiqué noted that “the security situation remains volatile and continues to deteriorate even further in some parts of Darfur, consequently worsening the humanitarian and human rights situation, and the current build-up of forces by all the parties poses further risks and challenges to the peace efforts.” On September 19, 2006, the U.S. President named former USAID Administrator Andrew Natsios as a Presidential Special Envoy to lead U.S. efforts to resolve outstanding disputes in Darfur. As the primary donor of humanitarian assistance for Darfur, the United States has provided essential aid for the people of Darfur and improved the health and livelihood of IDPs and affected residents. Without U.S. assistance, the humanitarian organizations responding to the crisis would likely have been incapable of providing coverage to many of the affected population. The U.S. contribution to building and maintaining all AMIS facilities has also been essential, along with other donor assistance, to AMIS’s ability to pursue its mandate. As insecurity continues in Darfur, such support may be required well into the future. At the same time, delayed humanitarian assistance has hindered NGO and UN operations, jeopardizing these USAID partners’ ability to provide services to affected and IDP communities needed to maintain improved levels of health. Further, continued resistance and lack of cooperation from the government of Sudan, as well as continued insecurity and conflict within Darfur, have made it nearly impossible for humanitarian organizations to provide consistent and complete coverage to the affected residents and IDPs throughout Darfur. Although USAID has taken steps to ensure more complete reporting, the limitations in its oversight of U.S. assistance have made it difficult to accurately determine the impact of U.S. humanitarian assistance. The fact that the violence in Darfur has not abated, and has even worsened in some instances, indicates the region’s need for continued assistance. Although AMIS is seen as having contributed, through its presence in Darfur, to decreasing large-scale violence, its fulfillment of its mandate has been limited by the incompleteness or inconsistency of some of its actions—such as efforts to protect civilians—in addition to numerous operational challenges. Some of these challenges—for example, AMIS’s small size, its resources constraints, and the lack of cooperation from the parties to the conflict—have remained beyond its control. However, other challenges, such as AMIS’s inadequate management, organization, and capacity, may stem from the African Union’s lack of experience with peace support efforts. At the same time, the ongoing and increasing violence in Darfur, as well as AMIS’s added responsibilities under the May 2006 peace agreement, make it likely that the challenges AMIS has faced will intensify. The proffered NATO assistance in reviewing AMIS operations---a typical “lessons learned” activity following a peacekeeping initiative—could provide a useful critical analysis of these challenges and their root causes. The resulting insights could assist the African Union in strengthening AMIS, if its mandate is renewed, as well as in planning and executing any future peace support efforts. Absent a stronger AMIS or intervention by another international party such as the UN, the conflict in Darfur could continue indefinitely to disrupt and destroy the lives of Darfurians. We recommend that the Secretary of State encourage the Chairperson of the African Union Commission to ensure that an appropriate body, such as NATO, provide assistance for an assessment of AMIS operations to identify the key challenges AMIS has faced and the reasons for those challenges. Such a “lessons learned” assessment would provide information necessary to allow (1) the African Union to strengthen its future peace support planning and operations and (2) the donor community to support future African Union peace support efforts in a manner that could minimize difficulties such as those encountered by AMIS. We provided a draft of this report to the Departments of State and Defense as well as USAID. We received written comments from the Department of State and USAID. The Department of State supported our recommendation and noted that the report presents a balanced and accurate picture of the situation in Darfur. The department also suggested that the report provide additional details or characterizations regarding certain, primarily AMIS, issues. For example, State suggested that the report should (1) emphasize the speed with which AMIS forces were deployed to Darfur and (2) note that the Sudanese government's offensive against parties that did not sign the Darfur Peace Agreement has directly impacted the ability of AMIS to conduct operations. We incorporated such information into the report as appropriate. See appendix V for a reproduction of State's letter and our response. USAID commented that in general, it found the report to be a comprehensive assessment of USAID’s involvement in Darfur but said that we should include additional information in our discussions of areas such as the number of USAID staff working in Darfur and the variety of efforts used by the agency to monitor grants. Specifically, USAID stated that our reference to reduced staff in Darfur was incomplete and felt that our discussion of incomplete reporting did not highlight other monitoring efforts, such as site visits and meetings with NGOs. We made adjustments as appropriate. See appendix VI for a reproduction of USAID’s letter and our response. DOD provided no comments on the draft report. As arranged with your offices, unless you publicly announce the 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 of this report to the Secretary of State, the Secretary of Defense, the Director of U.S. Foreign Assistance and USAID Administrator, relevant congressional committees, and other interested parties. We will also make copies available to others upon request. In addition, the report will be available 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) 512-3149 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. Other contacts and major contributors are listed in appendix VII. This report examines (1) U.S. humanitarian assistance provided to help relieve the crisis in Darfur, (2) challenges that the U.S. Agency for International Development (USAID) and its implementing partners have encountered, (3) the African Union’s efforts to fulfill its peace support mandate in Darfur, and (4) factors affecting the implementation of this mandate. We collected data on international contributions (in dollar amounts) for Darfur provided by the UN Resource Tracking Service from September 2003 through June 2006. The amounts provided by the UN contain both amounts committed and amounts pledged for Darfur by international donors. We did not include pledges and commitments from international donors that support the refugees located in Chad, because we did not review U.S. obligations to refugees in Chad. We made this decision because (1) security restrictions and conflict in the area prevented us from observing U.S.-funded activities in Chad and (2) the support for refugees in Chad was small in comparison with assistance provided to Darfur. We determined that the data were sufficiently reliable for the purpose of broadly comparing the United States’ contributions with those of other international donors. We noted several limitations in the data, notably, that the data include verbal pledges that were self-reported to the UN Resource Tracking System by the donors. According to a UN official, the data may exceed other, similar UN data on donor contributions, because they include verbal pledges that have not been formally submitted to and verified by UN sources. Furthermore, we were unable to determine the reliability of financial records and the dollar amounts reportedly pledged by donors. To review U.S. funding of humanitarian assistance—our first objective—we collected and reviewed U.S. obligations data for assistance for Darfur from USAID’s Office of Foreign Disaster Assistance, Office of Transition Initiatives, and Office of Food for Peace, as well as The Department of State (State) Bureau of Population, Refugees, and Migration. To assess the reliability of these data, we interviewed State and USAID officials regarding their methods for managing and tracking the obligation data, and we compared these data with the amounts listed in State’s and USAID’s agreements with nongovernmental organizations (NGO) and UN agencies. According to a USAID official, expenditure data for the Office of Foreign Disaster Assistance are not tracked in the office’s reporting system, but the data are reconciled on a daily basis and include any amounts that may have been de-obligated. A USAID Food for Peace official also indicated that the office’s tracking system is also reconciled on a regular basis. Therefore, we concluded that the data we collected on obligations from each agency are sufficiently reliable for the purpose of reviewing U.S. humanitarian assistance for Darfur from October 1, 2003, through September 30, 2006. To review the activities and programs undertaken with U.S. humanitarian assistance, we reviewed USAID grant agreements. We interviewed USAID and State officials in Washington, D.C., as well as UN officials located in New York who were involved in humanitarian assistance for Darfur. In February 2006, we traveled to Khartoum and Darfur, Sudan, to examine the activities supported by U.S. humanitarian assistance. In Khartoum we met with U.S. implementing partners from NGOs and UN agencies, as well as an official from the government of Sudan’s Ministry of Foreign Affairs. In addition, we visited seven camps for internally displaced persons (IDP)— Abu Shouk, Al Salaam, El Serif, Kalma, Kass, Otash, and Zam Zam—located in North and South Darfur to observe activities and programs implemented with U.S. funds. We observed a variety of programs and activities supported by U.S. assistance, including food distribution, medical clinics, clean water and sanitation facilities, income-generation activities, provision of shelter materials, and nutritional feeding centers. We spoke with officials from the NGOs and UN agencies implementing these activities programs in Darfur. We also spoke with IDPs in the camps to obtain their perspectives on the provision of humanitarian assistance in the camps. Restrictions placed on our travel by the State Regional Security Officer in Khartoum because of security concerns limited the area in which we traveled and observed NGO and UN operations in Darfur. To examine the results of the humanitarian assistance activities, we reviewed the 15 final reports submitted by NGOs to USAID’s Office of Foreign Disaster Assistance. We reviewed the original NGO proposals to identify the indictors used to identify performance, and we also reviewed USAID guidance for reporting. We compared the indicators included in the original proposals to the reported indicators in each final report and identified the indicators that were absent from the final reports. We interviewed USAID officials to identify USAID’s efforts to monitor and evaluate NGO and UN activities in Darfur as well as efforts to motivate NGOs to submit final reports. We also reviewed the Office of Food for Peace performance review questionnaires submitted by implementing partners providing food aid for Darfur. In addition, we spoke with an official from the USAID Office of Transition Initiatives to discuss an ongoing program review. We also reviewed UN Humanitarian Profile reports that provide an overview of humanitarian assistance from April 2004 to July 2006. These reports were also used to identify the IDP and affected resident population in Darfur, by month. According to UN officials and the profiles, NGOs and UN agencies operating throughout Darfur submitted the information from the reports to the UN on a monthly basis until January 2006, and now submit it quarterly. Although the data contained in the reports are self-reported, UN officials indicated that they confirm data to the extent possible and update the data each month. Furthermore, the UN Humanitarian Profiles are the only source of information regarding the total number of IDPs and affected residents in Darfur and the number of IDPs receiving assistance in each sector. We determined that the population data and the data regarding the population receiving assistance were reliable for the purposes of presenting a general overview of assistance in Darfur. To determine the obstacles and challenges facing NGOs and UN agencies— our second objective—we reviewed UN and USAID reports and cables discussing humanitarian operations and problems in Darfur. We interviewed USAID, UN, and NGO officials in Darfur to discuss the challenges they face in implementing assistance program and activities in Darfur. We also met with officials from the Sudan government Humanitarian Assistance Committee to discuss the obstacles and concerns of NGOs and UN officials operating in Darfur and obtain the perspective and input of the Sudan government regarding these issues. In order to identify African Union Mission in Sudan (AMIS) efforts and the operational challenges AMIS has faced—our third and fourth objectives— as well as resources available to AMIS to pursue its mandate, we used numerous African Union sources. We reviewed African Union Peace and Security Council communiqués, as well as reports prepared by the Chairperson of the African Union Commission that were submitted to the council. We also reviewed African Union-led reviews of AMIS, conducted in March and December 2005, as well as a UN-led assessment of AMIS performance conducted in August of that year. In February 2006, we met with AMIS leadership (military and civilian police) at AMIS headquarters in El Fasher and the following AMIS group sites in North and South Darfur— Zam Zam, Kabkabiya, Sarif Umra, Um Kadada, Nyala, Kass and El Daein— where we discussed the AMIS mandate and AMIS activities at each location. We also discussed AMIS efforts with the U.S. representative to the African Union-led Ceasefire Commission, as well as U.S. representatives (military observers) in four locations. We were unable to travel to AMIS sites in West Darfur owing to security concerns. At African Union headquarters in Addis Ababa, Ethiopia, we met with senior African Union officials, including the Commissioner for the African Union’s Peace and Security Council and the head of the Darfur Integrated Task Force in February 2006. To assess reports prepared by the AMIS Ceasefire Commission, we analyzed the contents of all publicly available reports from the African Union’s Web site, www.africa- union.org/DARFUR/CFC.htm. We also discussed the African Union’s initiative in Darfur and external donor efforts with officials from the Departments of State (in Washington, D.C.; Khartoum and El Fasher, Sudan; and Addis Ababa, Ethiopia) and Defense (DOD). At State headquarters in Washington, we discussed the situation in Darfur and AMIS efforts with the following bureaus and offices: Administration, African Affairs; International Organization Affairs; Democracy, Human Rights, and Labor; Population, Refugees, and Migration; and War Crimes Issues. At DOD, we met with the staff from the Office of the Secretary of Defense. Further, we reviewed UN Security Council resolutions, UN reports that addressed the situation in Darfur, and a UN August 2005 report that assessed AMIS operations. We met with officials from the UN’s Department of Peacekeeping Operations in New York. We also met with European Union and UN officials at African Union headquarters in Addis Ababa. In addition, we met with officials from, and reviewed reports prepared by, expert and advocacy groups such as the International Crisis Group, Human Rights Watch, and Refugees International. Finally, we met with Sudanese government officials in Khartoum and Washington, D.C. To review the U.S. government’s support for AMIS, we discussed this support with officials from the African Union and Departments of State and Defense. To identify contractor activities, we reviewed the contract documentation defining the terms for tasks performed by PAE Government Services, Inc., (PAE) in Darfur. Further, we reviewed PAE weekly situation reports, describing events related to camp construction and maintenance and submitted to State, and met with officials from PAE in Washington, D.C., and North and South Darfur. We also discussed PAE’s efforts with an official who was working on contract in Darfur as State’s Contracting Officer’s Technical Representative. PAE and State officials accompanied us on our visit to AMIS camps, providing tours of each AMIS site, as well as to the logistics operating base in El Fasher and the forward operating base in Nyala, explaining the process for constructing and maintaining AMIS facilities. We determined that data obtained from PAE were sufficiently reliable for inclusion in our report. To identify the amount of U.S. funding that has been provided to construct and maintain AMIS camps, we spoke with State officials from the African Affairs and Administration bureaus. In particular, we had detailed discussions with a key official from the African Affairs Bureau who provided information on funding, provided by fiscal year, and the funding source. The official prepared a calculation of U.S. funding for PAE efforts independently. All figures addressing State funding to support AMIS provided in the report are attributed to this State official and were not independently verified. However, after discussions with multiple State officials knowledgeable about State support for PAE who cited the State official as a key source within State for this information, combined with a review of State’s information by PAE officials, we have determined that the funding information provided is sufficiently reliable for inclusion in our report with appropriate attribution. We discussed oversight regarding this funding with State officials in Darfur and Washington. We conducted our work from September 2005 to November 2006 in accordance with generally accepted government auditing standards. In early 2003, Darfur rebels attacked Sudanese police stations and the airport in El Fasher, the capital of North Darfur. In El Fasher, the rebels destroyed numerous military aircraft, killed numerous soldiers, and kidnapped a Sudanese general. In response, the government armed and supported local tribal and other militias (the Janjaweed). Fighting between the rebel groups and the Sudan military and other armed militia intensified during late 2003. The principal rebel groups are the Sudan Liberation Movement/Army (SLM/A) and the Justice and Equality Movement (JEM). In April 2004, there was limited humanitarian presence in Darfur, with only 202 humanitarian staff working in the region. In addition, some of the nongovernmental organizations (NGO) operating in Darfur provided only limited humanitarian assistance, since their primary focus was on development assistance. On December 21, 2004, Save the Children-UK announced that it was discontinuing humanitarian operations in Darfur following two incidents in October and December that resulted in the deaths of four staff members. Save the Children had operated in Darfur for 20 years. At the end of 2004, total pledges and commitments for Darfur from international donors in 2004 totaled more than $890 million. The United States committed or pledged more than $271 million (31 percent). The population of Darfur estimated to be affected by the violence, both internally displaced persons (IDP) and affected residents, rose to more than 3.2 million people, 1.9 million of whom are IDPs. The number of humanitarian aid workers in Darfur grew to a total of 13,715 workers from 13 UN agencies and 82 NGOs. Total pledges and commitments for Darfur in 2005, from all donors, totaled almost $675 million. The United States committed or pledged nearly $365 million (54 percent). Following an escalation of violence in the Jebel Mara area of West Darfur, on January 25, 2006, GOAL, an international NGO, evacuated all staff in the region and abandoned operations. During the evacuation of staff, a helicopter crash resulted in the death of one GOAL aid worker. On April 28, the UN WFP announced that shortages in funds would force WFP to begin reducing the daily food rations for the people of Darfur in May. WFP indicated that the reduced rations would extend limited food stocks during the “hunger season,” when needs are greatest. Owing to contributions by the U.S. and Sudanese governments, the rations were only cut to 84 percent of the daily requirement. As of June 2006, international pledges and commitments for Darfur in 2006 totaled almost $331 million. According to the UN, this amount was approximately $320 million less than the required funding for 2006. The United States committed almost $240 million (72 percent). On May 25, 2004, the African Union’s Peace and Security Council issued a communiqué stressing the need for the three parties to the conflict—the government of Sudan, the SLM/A, and the JEM—to implement the April 2004 Humanitarian Ceasefire Agreement. Further, the Peace and Security Council authorized the initial deployment of an African Union Observer Mission to support the work of the newly created Ceasefire Commission. On October 20, 2004, the African Union’s Peace and Security Council issued a communiqué that established an AMIS presence in Darfur of 3,320 personnel. These personnel were to include 2,341 military personnel, among them 450 observers, and up to 815 civilian police as well as appropriate civilian personnel. Further, AMIS was given a specific mandate to monitor and observe compliance with the ceasefire agreement, assist in the process of confidence building, and contribute to a secure environment for the delivery of humanitarian relief. This was the first time the council called for a civilian police presence. On April 28, 2005, the African Union’s Peace and Security Council issued a communiqué praising AMIS efforts and noting improvements where the mission was deployed in Darfur but concluding that the current force was overstretched. The communiqué increased AMIS’s strength to a total of 6,171 military personnel, with an appropriate civilian component, including up to 1,560 civilian police personnel, for a total force of at least 7,731. From August 2005 on, 35 AMIS personnel were abducted; 4 Nigerian protection force soldiers were killed; and vehicles, communications equipment, weapons, and ammunition were lost. According to an African Union assessment of AMIS, these attacks on AMIS undermined the mission’s credibility in the eyes of civilians and emboldened those who might target AMIS. In July 2006, 32 AMIS personnel were abducted. On March 10, 2006, the African Union’s Peace and Security Council confirmed its January 2006 expression of support for a transition of AMIS to a UN operation. The council requested that the African Union Commission vigorously pursue its efforts toward reaching, as quickly as possible, the authorized AMIS strength of 7,731. On April 30, 2006, AMIS deployment reached 7,271 (755 military observers, 5,086 protection force troops, and 1,430 civilian police). In addition, another 155 personnel were serving as air crew or interpreters or in other roles. Of total AMIS deployment, 312 were women. Protection force troops came from Rwanda, Nigeria, Senegal, Gambia, and South Africa. AMIS deployment was below the authorized level of about 7,731, primarily because an expected contingent of South African troops was never deployed. On September 20, the African Union Peace and Security Council extended the mandate of AMIS from September 30, 2006 to December 31, 2006. The initial cease-fire agreement between the parties to the conflict (the Sudanese government and SLM/A) and mediated by the government of Chad, is signed; the agreed collapsed by December of 2003. On April 8, 2004 the three parties to the conflict signed the “Agreement on Humanitarian Ceasefire on the Conflict in Darfur” in N’djamena, Chad. The parties agreed to, among other things, refrain from any act of violence or any other abuse on civilian populations. The parties further agreed to establish a cease-fire commission to, among other things, plan, verify, and ensure implementation of the cease-fire agreement provisions. On November 9, 2004, the three parties to the conflict signed two protocols in Abuja, Nigeria. (1) “Protocol Between the Government of the Sudan (GOS), the Sudan Liberation Movement/Army (SLM/A) and the Justice and Equality Movement (JEM) on the Improvement of the Humanitarian Situation in Darfur” commits the parties to, among other things, guarantee unimpeded and unrestricted access for humanitarian workers and assistance to reach all needy people throughout Darfur and take all steps required to prevent all attacks against civilians by any party or group, including the Janjaweed. The protocol also requests the UN to expand the number of human rights monitors in Darfur. (2) “Protocol Between the Government of the Sudan (GOS), the Sudan Liberation Movement/Army (SLM/A) and the Justice and Equality Movement (JEM) on the Enhancement of the Security Situation in Darfur in Accordance with the N’djamena Agreement” commits the parties to, among other things, recommit themselves to ensuring an effective cease-fire by refraining from all hostilities and military actions, submit to the cease-fire commission all information needed to carry out its mandate, and release all persons detained in relation to the hostilities in Darfur. The Sudanese government also agreed to implement its stated commitment to neutralize and disarm the Janjaweed. On July 5, 2005, the three parties to the conflict signed the “Declaration of Principles for the Resolution of the Sudanese Conflict in Darfur.” This declaration established 17 principles to guide future deliberations and constituted the basis for a settlement of the Darfur conflict. These principles address issues such as respect for the diversity of the Sudanese people, democracy, political pluralism, rule of law, independence of the judiciary, and freedom of the media; effective representation in all government institutions by the citizens of Sudan, including those from Darfur; equitable distribution of national wealth; provision of humanitarian assistance; return to places of origin for IDPs; rehabilitation/reconstruction of Darfur; and broad security arrangements. On May 5, 2006, the Sudanese government and the SLM/A faction with the largest military force signed the Darfur Peace Agreement. This agreement has provisions on power sharing (including the creation of the Senior Assistant to the President, the fourth-highest position in the Sudanese government, appointed by the President from a list of nominees provided by the rebel movements); wealth sharing (including the creation of a Darfur reconstruction and development fund that will receive $700 million in funds from the Sudanese government between 2006 and 2008); and security arrangements (including a requirement for verifiable disarmament of the Janjaweed militia by the Sudanese government). The smaller SLM/A faction and JEM did not sign the agreement. In 2003 and 2004, USAID/Office of Foreign Disaster Assistance (OFDA) deployed field staff to Sudan to assess the extent of the Darfur crisis. In April 2004, responding to the growing humanitarian emergency, USAID/OFDA mobilized a Disaster Assistance Response Team. USAID continued a phased deployment of humanitarian personnel as official access and improved security allowed for its increased presence in Darfur. Secretary Powell visited Sudan, the first U.S. Secretary of State to do so in 26 years. Powell met with Sudan’s President Omar Al-Bashir, emphasizing the need to dismantle the Janjaweed to restore security to the region and enable IDPs to return home. The government of Sudan agreed to this objective as well as to removing restrictions on humanitarian aid and participating in a political resolution of the Darfur crisis facilitated by the African Union. PAE, a U.S. company, via a contract with the U.S. Department of State and with assistance from another U.S. contractor, began building camps for AMIS troops in Darfur. PAE initially constructed five camps (in El Fasher, Nyala, El Geneina, Tine, and Kabkabiya) for AMIS troops. Significant challenges were identified in building these camps, such as transporting materials to building sites and providing water to AMIS personnel. PAE eventually built a total of 32 AMIS camps. On July 22, 2004, the U.S. House of Representatives and Senate unanimously passed separate resolutions [H.Con.Res. 467, 108th Cong. (2004); S.Con.Res. 133, 108th Cong. (2004)] declaring the crisis in Darfur to be genocide, based on articles of the Convention on the Prevention and Punishment of the Crime of Genocide of 1948. These resolutions declare that the government of Sudan has violated the Convention and call upon the member states of the United Nations to undertake measures to prevent genocide in Darfur from escalating further. The resolutions also commend the administration’s efforts in seeking a peaceful resolution to the conflict and in providing humanitarian assistance and urge it to continue to lead an international effort to stop the genocide in Darfur. On September 9, 2004, Powell testifies before Senate Foreign Relations Committee and declares atrocities in Darfur to be genocide, based on evidence collected by the Department of State. Further, he states that the government of Sudan and the Janjaweed are responsible and that the United States, as a contracting party to the Genocide Convention, will demand that the UN initiate a full investigation. President Bush made similar statements that day. On May 9, 2006, addressing the UN Security Council Ministerial on Sudan, Secretary of State Rice reaffirmed the administration's declaration that the violence in Darfur constitutes genocide. Additionally, Secretary Rice stated that the Darfur Peace Agreement is an opportunity to end the crisis in the region and allow people to return to their homes, emphasizing a role for UN troops to implement the peace agreement. Secretary Rice also stated that the United States had provided nearly all of the support that the WFP's mission in Darfur had received. On October 13, 2006, President Bush signed into law the Darfur Peace and Accountability Act of 2006 which imposes sanctions against persons responsible for genocide, war crimes, and crimes against humanity; supports measures for the protection of civilians and humanitarian operations; and supports peace efforts in Darfur. On December 5, 2003, the UN Under-Secretary-General in charge of the UN Office for the Coordination of Humanitarian Affairs stated, “The humanitarian situation in Darfur has quickly become one of the worst in the world.” On July 3, 2004, the government of Sudan and the UN signed a joint communiqué in which the Sudanese government pledged to remove obstacles to humanitarian assistance in Darfur and committed to disarming the Janjaweed and other armed outlaw groups. The UN Security Council called for the Sudanese government to fulfill its commitment to facilitate humanitarian relief in Darfur and remove restrictions that might hinder humanitarian aid to Darfur. In addition, the council called for the government to disarm the Janjaweed militias and bring perpetrators of human rights and international humanitarian law violations and other atrocities to justice. On January 25, 2005, the International Commission of Inquiry, established by the UN, issued a report stating that the government of Sudan has not pursued a policy of genocide. However, the commission reported that the Sudanese government and the Janjaweed, have committed international offences such as crimes against humanity and war crimes that may be no less serious and heinous than genocide. On March 24, 2005, the UN Security Council established the UN Mission in Sudan (UNMIS) after determining that the situation in Darfur continued to threaten international peace and security. UNMIS was mandated to support implementation of the Comprehensive Peace Agreement; to facilitate and coordinate the voluntary return of refugees and IDPs and humanitarian assistance; to contribute to international efforts to protect and promote human rights in Sudan; and to coordinate international efforts to protect civilians. The council also called on all Sudanese parties to take immediate steps to achieve a peaceful settlement to the Darfur conflict and take all necessary action to prevent further violations of human rights and international humanitarian law. On March 31, 2005, the UN Security Council referred the situation in Darfur to the Prosecutor of the International Criminal Court, taking note of the International Commission of Inquiry report on violations of international law and human rights in Darfur. On March 24, 2006, the UN Security Council called for preparatory planning for a transition of AMIS to a UN operation. The plan was to include options for reinforcing the Darfur peace effort through additional appropriate transitional assistance to AMIS, including assistance in logistics, mobility and communications. On August 31, 2006, the UN Security Council commended the efforts of the African Union for the successful deployment of AMIS but reaffirmed its concern that ongoing violence in Darfur might further negatively affect the rest of the Sudan as well as the region. The UN Security Council expanded UNMIS’s mandate and determined that UNMIS should deploy to Darfur. As of October 2006, the Sudanese government had refused a transition to a UN force in Darfur. The African Union mission in Sudan (AMIS) evolved as the African Union has authorized the incremental deployment of thousands of personnel to carry out its responsibilities in Darfur. In May 2004, after three parties signed the April 2004 humanitarian cease-fire agreement, the African Union’s Peace and Security Council authorized an observer mission to Darfur. This mission began operations in June 2004 with 60 military observers and 300 protection force soldiers as well as observers from the Sudanese parties. In July, the Peace and Security Council called for a comprehensive plan to enhance the effectiveness of the mission, including the possibility of transforming the mission into a full-fledged peacekeeping mission to ensure the effective implementation of the cease-fire agreement. In October 2004, in conjunction with the issuance of an African Union report that discussed the status of the mission and described the situation in Darfur, the council decided to enhance AMIS to a total of 3,320 personnel, including 2,341 military personnel (military observers and protection force troops), among them 450 observers; up to 815 civilian police personnel (the first time that a civilian police component was formally established); and appropriate civilian personnel. The African Union Peace and Security Council provided AMIS II with the following specific mandate for its peace support efforts: (1) to monitor and observe compliance with the 2004 humanitarian cease-fire agreement; (2) to assist in the process of confidence building; and (3) to contribute to a secure environment for the delivery of humanitarian relief and, beyond that, the return of IDPs and refugees to their homes, and to contribute to the improvement of the security situation throughout Darfur. In working to meet this mandate, the council decided that AMIS II would, among other tasks, “protect civilians whom it encounters under imminent threat and in the immediate vicinity, within resources and capability, it being understood that the protection of the civilian population is the responsibility of the government of Sudan.” In early 2005, the African Union decided to augment AMIS once again. In April 2005, the Peace and Security Council authorized increasing the size of AMIS to 6,171 military personnel, in addition to an appropriate civilian component, including up to 1,560 civilian police personnel (for a total of more than 7,700). This further expansion is referred to as AMIS II-E. These AMIS personnel operate throughout eight sectors in Darfur that have been established to help organize AMIS efforts. A Darfur Integrated Task Force was established at African Union headquarters in Addis Ababa, Ethiopia, to assist with planning, force generation, procurement and logistics, and administrative support and to interact with AMIS donors. The African Union did not call for an AMIS civilian police presence until AMIS operations were well under way. The civilian police component was added to AMIS in October 2004 to, according to a senior UN official, further the “rule of law” by working with Sudanese police. The European Union was a strong proponent of a civilian police component, and European Union officials told us that the civilian police gave European Union member states the opportunity to play a direct role in AMIS by providing police staff. Specifically, the role of the civilian police is, among other things, to establish and maintain contact with the Sudanese police, observe and report on Sudanese police service delivery, and monitor the security of IDPs. As of April 30, 2006, AMIS had 7,271 personnel in Darfur (755 military observers, 5,086 soldiers/protection force, and 1,430 civilian police). According to a UN official, AMIS deployed its troops much faster than the UN could have done (although UN efforts have higher standards regarding aspects of deployment such as required troop skills and equipment). The majority of AMIS soldiers have come from Rwanda and Nigeria, with additional troops from Senegal, Gambia, and South Africa. Military observers from more than 20 countries (numerous African countries and the United States, the European Union, and the three parties to the conflict) and civilian police are participating in AMIS. The total number of the AMIS force deployed in Darfur is far less than the authorized AMIS size of more than 7,700—according to African Union sources, primarily because expected South African troops were never fully deployed to Darfur. In January 2006, the African Union’s Peace and Security Council officially declared its approval, in principle, for the transition of AMIS to a UN operation. In March, the council reaffirmed this position, and in May it declared that “concrete steps should be taken to effect the transition from AMIS to a UN peacekeeping operation.” The UN Security Council subsequently adopted a resolution commending AMIS’s role in reducing large-scale, organized violence in Darfur; endorsing this African Union decision to transition AMIS to a UN peacekeeping operation; and stressing that a UN operation would have, to the extent possible, a strong African participation and character. In August 2006, the UN Security Council adopted a resolution expanding UNMIS’s mandate and calling for an UNMIS deployment to Darfur. The mandate of AMIS expires on December 31, 2006. Agency for Technical Cooperation and Development Community, Habitat, Finance Development Alternatives, Inc. Harvard School of Public Health International Committee of the Red Cross United Methodist Committee on Relief United Nations Development Program (UNDP) United Nations Department of Safety and Security United Nations Food and Agriculture Organization United Nations High Commissioner for Refugees United Nations Children's Fund United Nations Office for the Coordination of Humanitarian Affairs (Continued From Previous Page) Following are GAO’s comments on the Department of State’s letter dated October 2, 2006. 1. We have added the U.S. contribution of training and equipping Rwandan and Nigerian battalions through the African Contingency Operations Training and Assistance (ACOTA) program to footnote 65. 2. We have added State’s perspective regarding the quick deployment of AMIS troops, as well as a similar view expressed by a senior UN official working in Addis Ababa, Ethiopia. 3. The report’s discussion of rebel group control over humanitarian access reflects the views of UN and NGO officials. Further, the report cites banditry and looting, as well as more violent acts, such as attacks and the killing of humanitarian workers. 4. Owing to scope and time limitations, our review of specific AMIS operations did not cover the period subsequent to the signing of the Darfur Peace Agreement in May 2006. However, we have added State’s point regarding Sudanese government actions against parties that did not sign the agreement. 5. As noted above, our review did not assess AMIS operations subsequent to the signing of the Darfur Peace Agreement in May 2006, although we have identified instances of violence against the AMIS civilian police since that time, such as (1) the burning of a civilian police station and three vehicles by IDPs in Hassahisa IDP camp at Zalengei and (2) the killing of a civilian police language assistant and the attack of eight civilian police officers by IDPs in Kalma IDP camp at Nyala. Such incidents appear contrary to the portrayal of the relationship between the civilian police and IDPs provided here by State. 6. The report states that the improvements in mortality in Darfur have been attributed, in part, to the humanitarian assistance provide by the United States. 7. We have added this point to footnote 5. Following are GAO’s comments on USAID’s letter dated October 17, 2006. 1. The current number of USAID staff in Darfur has been reduced from as many as 20 people to the current number of 6 staff in Darfur, although the crisis in Darfur has resulted in increased number of IDPs and affected residents that require assistance and a greater number of NGOs and UN agencies operating in Darfur. We understand that USAID does not always have control over staffing decisions and is sometimes limited by staff ceilings set by State. However, we believe that in the absence of complete reporting by NGOs, a reduction in USAID staff, complicated by the current inability of these staff to work in Darfur, affects USAID’s ability to provide comprehensive oversight of U.S.- funded humanitarian assistance in Darfur. 2. We determined that 6 of the 15 required final reports were not submitted by USAID partners and that most of the reports did not provide all required information. The lack of required reporting prevented USAID from fully monitoring NGO performance and measuring the impact of U.S. humanitarian assistance to Darfur. However, we report additional USAID monitoring and evaluation efforts, such as regular communication with NGOs, performed by USAID in Darfur. In addition, we note that such efforts can be limited by issues identified in our report such as travel restrictions imposed by the Sudanese government and continuing insecurity throughout the region. We also have added information to the report noting recent USAID efforts to collect reports from its implementing partners that reportedly resulted in 100 percent compliance with quarterly reporting requirements in July 2006. USAID’s recent emphasis on collecting required reports may improve its ability to conduct oversight of U.S.- funded humanitarian operations in Darfur. 3. In late October, we identified a UN humanitarian profile for July 1, 2006, that had become available to the public. This document stated that the number of IDPs stood at 1.85 million as of July 1, 2006. In addition to the person named above, Emil Friberg, (Assistant Director), Martin De Alteriis, Etana Finkler, Leslie Holen, Theresa Lo, Reid Lowe, Grace Lui, John F. Miller, and Chhandasi Pandya made key contributions to this report. -Led Joint Assessment Mission 10 – 20 December 2005. African Union Mission in Sudan (AMIS), MAPEX Exercise AMIS Renaissance After Action Review, August 2005. The Assessment Mission to Darfur, Sudan 10-22 March 2005: Report of the Joint Assessment Team. Human Rights Watch, “Sudan: Imperatives for Immediate Change, The African Union Mission in Sudan,” January 2006 (available at http://hrw.org/reports/2006/sudan0106). International Crisis Group, “The ’s Mission in Darfur: Bridging the Gaps,” Africa Briefing No. 28, July 2005 (available at http://www.crisisgroup.org/home/index.cfm?l=1&id=3547). International Crisis Group, “The / Partnership in Darfur: Not Yet a Winning Combination,” Africa Report No. 99, October 2005 (available at http://www.crisisgroup.org/home/index.cfm?id=3766). Sally Chin and Jonathan Morgenstein, “No Power to Protect: The African Union Mission in Sudan,” Refugees International, November 2005 (available at http://www.refugeesinternational.org/content/publication/detail/7222). William G. O’Neill and Violette Cassis, “Protecting Two Million Internally Displaced: The Successes and Shortcomings of the African Union in Darfur,” Occasional Paper, The Brookings Institution–University of Bern Project on Internal Displacement, November 2005 (available at http://www.brookings.edu/comm/news/200511_au_darfur.htm).

In 2003, violent conflict in Darfur, Sudan broke out between rebel groups, government troops, and government-supported Arab militias, known as the Janjaweed. The conflict has displaced about 2 million Darfurians and has so affected over 1.9 million others that they require assistance. Since October 2003, the U.S. government has provided humanitarian assistance in Darfur and supported African Union Mission in Sudan's (AMIS) efforts to fulfill a peace support mandate. This report reviews (1) U.S. humanitarian assistance provided to Darfur and the challenges that have been encountered and (2) African Union efforts to fulfill its mandate and challenges that have affected these efforts. The United States has been the largest donor of humanitarian aid to Darfur, obligating nearly $1 billion from October 2003 through September 2006. Although more than 68 percent of this assistance consisted of food aid, U.S. assistance has also supported other needs, such as water and sanitation, shelter, and health care. Since 2003, humanitarian organizations have made significant progress in increasing the number of people in Darfur receiving aid. In addition, malnutrition and mortality rates in Darfur dropped, a trend that U.S. and other officials attribute in part to humanitarian assistance efforts. However, the U.S. Agency for International Development (USAID) and the entities providing U.S. humanitarian assistance have encountered several challenges that have hampered delivery of, or accountability for, humanitarian services in Darfur. These challenges include continued insecurity in Darfur; Sudanese government restrictions on access to communities in need; the timing of funding; and an incapacity to ensure monitoring of, and reporting on, U.S.-funded programs. AMIS has taken several positive actions in Darfur to pursue its mandate, although some actions have been incomplete or inconsistent. For example, to monitor compliance with a 2004 cease-fire agreement--one mandate component--AMIS investigated alleged cease-fire violations and identified numerous violations; however, the resulting reports were not consistently reviewed at higher levels or made fully publicly available to identify those violating the agreement. The U.S. government, via private contractors, provided about $280 million from June 2004 through September 2006 tobuild and maintain 32 camps for AMIS forces in Darfur, according to the Department of State. Numerous challenges have been identified by African Union or U.S. officials, among others, as negatively affecting AMIS's efforts in Darfur. These challenges include inadequacies in AMIS's organization, management, and capacity, such as inconsistent interpretation of the AMIS mandate; its relatively small forces; limited or poorly allocated resources; and a lack of intelligence regarding, and cooperation from, the parties to the conflict. A transition from AMIS to a UN peacekeeping operation is being considered, although the Sudanese government has rejected such a transition. A possible NATO-assisted review of AMIS operations has not been conducted. Meanwhile, insecurity and violence continue in Darfur.

You are an expert at summarizing long articles. Proceed to summarize the following text: Over the past decade, VA’s system has undergone a dramatic transformation, shifting from predominantly hospital-based care to primary reliance on outpatient care. As VA increased its emphasis on outpatient care rather than inpatient care, VA was left with an increasingly obsolete infrastructure, including many hospitals built or acquired more than 50 years ago in locations that are sometimes far from where veterans live. To address its obsolete infrastructure, VA initiated its CARES process—the first comprehensive, long-range assessment of its health care system’s capital asset requirements since 1981. CARES is intended to enhance outpatient and inpatient care, as well as special programs such as spinal cord injury, blind rehabilitation, seriously mentally ill, and long-term care through the appropriate sizing, upgrading, and location of VA facilities. Since its inception in 1999, the CARES process has reached several major milestones (see table 2). The challenge of misaligned infrastructure is not unique to VA. We identified federal real property management as a high-risk area in January 2003 because of the nationwide importance of this issue for all federal agencies. We did this to highlight the need for broad-based transformation in this area, which, if well implemented, will better position federal agencies to achieve mission effectiveness and reduce operating costs. But VA and other agencies face common challenges, such as competing stakeholder interests in real property decisions. In VA’s case, this involves achieving consensus among such stakeholders as veterans service organizations, affiliated medical schools, employee unions, and communities. As noted in our high-risk work, having an effective capital planning process can help to ensure that the needs of veterans are being met. Effective planning for capital investments is a very important task because large sums of taxpayer funds are spent on capital assets and because their performance affects how well agencies are able to achieve their missions, goals, and objectives. We—as well as Congress and the Office of Management and Budget (OMB)—have all identified the need for effective capital planning. (App. III outlines a set of effective capital planning principles that we, as well as OMB, have identified.) One of these principles is for agencies to evaluate a wide range of alternatives before choosing to purchase or construct a capital asset. OMB guidance also emphasizes the importance of evaluating alternatives. Specifically, OMB guidelines state that when evaluating capital assets, a comparison of alternatives is critical for ensuring that the best alternative is selected. In its guidance, OMB challenges decision makers to consider the different ways in which various functions, most notably health care service delivery in VA’s case, can be performed. In this regard, OMB labeled the development of alternatives the single most important element in that process. In developing the model for analyzing VA’s health care demand and making recommendations for ways to meet that demand, the CARES process provided VA with a blueprint that drives VHA’s capital planning process. Specifically, as part of the CARES process, VA adapted an actuarial model that it used to project VA budgetary needs. Modifications made for the CARES process enabled the model to produce 20-year forecasts of the demand for services. Additional modifications allowed for more accurate assessments of veterans’ reliance on VA services, market penetration rates, and adjustments for capacity. Using information from the model, VA could determine current supply and identify current and future gaps in infrastructure capacity. VA continues to use this model to update its workload projections, which are used to develop the annual budget request. In addition, the CARES process serves as the foundation for VHA’s capital budget process. For example, the first step in VHA’s capital budget process is for networks to submit proposals that identify capital projects that will address service or infrastructure gaps identified in the CARES process to the department. Additionally, in its fiscal year 2008 budget submission, VA requested $560 million for VHA major construction projects and $180 million for minor construction projects— all of which will be devoted to the continuation of CARES. The CARES process is the latest in a series of initiatives to improve VA’s capital planning process. In 1997, VA started efforts to develop a systemwide, integrated capital planning process. According to VA, the fundamental goal of the new process was to ensure that all major capital investment proposals, including high-risk and mission-critical projects, were based upon sound business and economic principles; aligned with the overall strategic goals and objectives of VA; addressed the Secretary’s priorities; and supported the President’s Management Agenda, among other things. In 2001, VA took steps to further enhance its capital planning process by creating the Office of Asset Enterprise Management (OAEM), which is responsible for developing capital asset policy, providing guidance and oversight, and ensuring a consistent and cohesive agency approach to capital asset acquisition, management, and disposal. One of the objectives of creating this departmental-level office was to strengthen VA’s capital planning process and ensure the coordination of planning and investment decisions throughout the department. To streamline the process for developing capital investment proposals, OAEM developed a new process that requires officials to submit and review investment proposal data in increasing levels of detail. The goal of this streamlined approach was to reduce the laborious data collection associated with developing proposals that are not funded and allow proposal developers more time to provide senior management with the most accurate cost and schedule data. Through the CARES process, VA gained the tools and information needed to plan capital investments. Despite VA’s past efforts and progress, VA continued to lack current information on the condition of all VA’s facilities and information on what services veterans would need—and where—in the future. As part of the CARES process, VA modified an actuarial model that it used to project VA budgetary needs. According to VA, the modifications enabled the model to produce 20-year forecasts of the demand for services and provided for more accurate assessments of veterans’ reliance on VA services and capacity gaps, and market penetration rates. The information provided by the model allowed VA to identify service needs and infrastructure gaps, in part, by comparing the expected location of veterans and demand for services in years 2012 through 2022 with the current location and capacity of VA health care services within each network. In addition to modifying the model, facility condition assessments were conducted on all of VA’s real property holdings as part of the CARES process. This provided VA information about the condition of its facilities, including infrastructure needs. VA continues to use the tools developed through CARES as part of its capital planning process. For example, VA conducts facility condition assessments for each real property holding every 3 years on a rotating basis. In addition, VA uses the modified actuarial model to update its workload projections each year, which are used to inform the annual capital budget process. The CARES process serves as the foundation for VHA’s capital planning efforts. As shown in figure 1, the first step in VHA’s capital budget process is for networks to submit conceptual papers that identify capital projects that will address service or infrastructure gaps identified in the CARES process and as updated through the incorporation of the CARES forecasting model into the strategic and capital planning process. The Capital Asset Review Board reviews, scores, and ranks these papers. Over 50 CARES conceptual papers and business case applications were evaluated based on criteria approved by the Secretary for the fiscal year 2008 budget process. The Capital Asset Review Board identifies the proposals that will be sent forward for additional analyses and review, and may ultimately be included as part of VA’s budget request. According to VA officials, all capital projects must be based upon the CARES planning model to advance through VHA’s capital planning process. On the basis of CARES-identified infrastructure needs and service gaps, VA identified more than 100 major capital projects in 37 states, the District of Columbia, and Puerto Rico. In addition to these projects, the CARES planning model identified service needs and infrastructure gaps at other locations throughout the VA system. These service needs and gaps could translate into other proposed major or minor capital projects in the future. VHA’s capital plan and budget only contain projects identified through the CARES planning model. According to VA, the capital plan identifies priority projects that will improve the environment of care at VA medical facilities and ensure more effective operations by redirecting resources from maintenance of vacant and underused buildings and reinvesting them in veterans’ health care. The capital plan identifies 27 priority CARES projects for major construction funding for fiscal year 2008. In the accompanying fiscal year 2008 budget submission, VA requested $560 million for VHA major construction projects and $180 million for minor construction projects—all of which will be devoted to the continuation of VA’s efforts to address infrastructure needs and service gaps identified through the CARES process. According to VA’s fiscal year 2008 budget submission, the major construction funding provides for the construction of 3 new medical facilities, consolidation of services in Pittsburgh, and a new spinal cord injury center in Syracuse, New York, as well as various other projects, such as security upgrades, hazardous waste abatement, and design work. The minor construction funding provides for constructing, altering, extending, and improving VHA facilities where the estimated cost is $10 million or less. According to VA’s capital budget, this funding will enable VA to implement the CARES proposals that can be accomplished through the minor construction program. The DNCP, the CARES Commission, and the Secretary considered a range of capital asset alignment alternatives throughout the CARES process. The most frequently considered alternatives included renovating or expanding existing sites, conducting additional analysis, and changing services. The least frequently considered alignment alternatives included closing facilities, collaborating with medical universities, expanding or using existing CBOCs, and utilizing telemedicine and telehealth. Although a range of alternatives were considered, there was relatively consistent agreement among the DNCP, the CARES Commission, and the Secretary as to which were the best alternatives to pursue. For example, the CARES Commission agreed with about 78 percent of the DNCP proposals, while the Secretary agreed with about 81 percent of the commission’s recommendations. Although the Secretary tended to agree with the CARES Commission’s recommendations, the extent to which he agreed varied by alignment alternative. In particular, the Secretary always agreed with the commission’s recommendations to build new facilities, enter into enhanced use leases, and collaborate with DOD and universities, but was less likely to agree to the CARES Commission’s recommendations to contract out or close facilities. For example, the Secretary only agreed with about half of the commission’s recommendations to contract out. The resulting capital alignment alternatives recommended by the CARES Commission and agreed to by the Secretary will result in an overall expansion of VA facilities. According to VA, the expansion reflects expected workload demands, service gaps, and associated infrastructure needs. Our analysis indicates that a range of alternatives for aligning capital assets was considered throughout the CARES process. Using the published reports, we categorized all instances when an alignment alternative was considered by the DNCP, CARES Commission, or the Secretary for VA facilities. We identified 14 different alignment alternatives that were consistently considered during the different phases of the CARES process. The alternatives ranged from closing a facility to constructing a new facility (see table 3). For most of the facilities that were assessed in VA’s published reports, the DNCP, CARES Commission, or the Secretary considered multiple alignment alternatives. The consideration of a range of alignment alternatives by the DNCP, CARES Commission, and the Secretary is consistent with capital planning best practices and is an important step in ensuring appropriate alignment decisions are made. We also found that a range of alignment alternatives were considered at the six VA facilities we visited. We visited VA facilities in Big Spring and El Paso, Texas; Orlando, Florida; Pittsburgh, Pennsylvania; Los Angeles, California; and Walla Walla, Washington. We found that multiple alignment alternatives were considered for the VA facility in each location. For instance, in Pittsburgh, alternatives that were considered included maintaining the status quo, consolidation of its three separate campuses, renovation/expansion, contracting out, enhanced use leasing, and new construction. Similarly, for the VA facility in Los Angeles, alternatives considered included consolidation, collaboration, new construction, and renovation/expansion. Appendix IV provides information on the alignment alternatives considered at each facility we visited. Although a range of capital asset alignment alternatives were considered throughout the CARES process, some alternatives were more frequently considered than others. (See fig. 2.) Our analysis indicates that the most frequently considered alternatives included renovating or expanding existing sites, conducting additional analysis, and changing services. For example, the DNCP, the CARES Commission, and the Secretary considered renovating and expanding the medical facilities in Pittsburgh to enhance veteran care. The least frequently considered alignment alternatives included closing facilities, collaborating with medical universities, expanding or using existing CBOCs, and utilizing telemedicine and telehealth. For instance, only 3.9 percent of alternatives considered involved closing facilities. According to VA officials, closure was considered for more facilities during the initial CARES planning efforts. However, the CARES projections indicated that most facilities were needed. Therefore, closures were not considered as often as had been expected when CARES was initiated. Although a range of capital asset alignment alternatives were considered for VA facilities throughout the CARES process, there was relatively consistent agreement among the DNCP, the CARES Commission, and the Secretary as to which were the best alternatives to pursue. According to our analysis, the CARES Commission agreed with about 78 percent of the DNCP proposals, while the Secretary agreed with about 81 percent of the commission’s recommendations. Thus, almost three-fourths (73.8 percent) of the DNCP proposals made it all the way through the process—that is, the CARES Commission recommended the DNCP proposal and the Secretary agreed to implement it. While the Secretary tended to agree with the CARES Commission’s recommendations, the extent to which he agreed varied by alignment alternative. In particular, the Secretary always agreed with the commission’s recommendations to build new facilities, enter into enhanced use leases, and collaborate with DOD and universities. For example, the Secretary agreed with the commission’s recommendation to build a new VA medical facility in the Orlando area and explore enhanced use leasing options at VA’s West Los Angeles facility. In contrast, the Secretary was less likely to agree to the CARES Commission’s recommendations to contract out or close facilities. For example, the Secretary agreed with the commission’s recommendations to contract out in 8 of 14 instances. Table 4 indicates how often the Secretary agreed to the commission’s recommendations, by selected alternative. Our analysis of the capital alignment alternatives recommended by the CARES Commission and agreed to by the Secretary indicates that an overall expansion of VA facilities will result. As table 4 indicates, the Secretary agreed to all of the commission’s recommendations for building new facilities and nearly all of the commission’s recommendations for opening new CBOCs. As a result, VA intends to open 156 new CBOCs by 2012 and, as of February 2006, had submitted proposals to Congress to build 3 new medical centers. In contrast, Gulfport is the only VA facility that has been completely closed or planned for closure since CARES was initiated. The DNCP originally proposed closing 10 facilities. However, the CARES Commission only recommended the Secretary close or consider the feasibility of closing 3 facilities—Gulfport, Walla Walla, and Big Spring. When announcing his decisions in May 2004, the Secretary stated that further study was needed to make a decision regarding the future of these three facilities. In 2006, the Secretary decided to (1) completely close the Gulfport facility, which was damaged by Hurricane Katrina; (2) maintain inpatient services and expand mental health services in Big Spring; and (3) build a new outpatient clinic, but close and contract out inpatient services in Walla Walla. In addition to the 3 facilities that the CARES Commission recommended for closure, the Secretary identified 15 other facilities that required further study in his announcement in 2004. According to the Secretary, the additional studies would help him decide whether closure, service changes, or property disposal was warranted for these facilities. The Secretary has issued decisions for 14 of these 15 facilities. None of the Secretary’s decisions for these 14 facilities will result in facility closure. Table 5 describes the Secretary’s decisions for all 18 facilities identified for further study. Although facility closure was infrequently chosen as an alignment alternative in the CARES process, the CARES Commission frequently recommended consolidating services and the use of enhanced use leasing—and the Secretary tended to agree with these recommendations. Consolidating services could position VA to close additional facilities in the future. For example, when services are consolidated from 3 to 2 campuses in Pittsburgh, VA’s Highland Drive facility will become vacant and could be closed in the future. However, a VA official said that no decision has been made whether the Highland Drive facility will be demolished, leased, or sold, among other possibilities. In addition, entering into enhanced use leases could help VA reduce excess or vacant space. The CARES Commission noted that the proposals contained in the DNCP rely heavily on enhanced use leases to reduce VA’s vacant space. According to VA officials, rather than show that VA should downsize its capital asset portfolio, the CARES process revealed a greater demand for services and need for infrastructure improvements than originally expected. Although the CARES projections indicate that the overall number of veterans enrolled in VA health care will decline from fiscal year 2002 to fiscal year 2022, there are locations that are projected to experience some growth in the demand of services in the near term. For example, the number of enrollees in the Sunshine Health Care Network is expected to increase by about 7 percent from fiscal year 2001 through fiscal year 2012. In addition, VA’s aging infrastructure—including many hospitals built or acquired more than 50 years ago—is not well suited for modern health care delivery and does not reflect VA’s increased emphasis on outpatient care. Consequently, the CARES process indicated that there was sufficient demand for services at most VA facilities, thereby validating the need to maintain or renovate these facilities as well as construct new facilities, primarily outpatient clinics, according to VA officials. Our analysis of the alternatives considered and recommended for the six facilities we visited indicate that a number of factors shape, and in some cases, limit capital asset alignment decision making. These factors include competing stakeholder interests, facility condition and location, access issues, established relationships with other health care providers, and legal restrictions. Some of these factors are similar to the challenges we have identified in our review of real property management efforts across the government. The factors we identified in our site visits are summarized below. Competing stakeholder interests. Experiences from Walla Walla and Big Spring illustrate the challenges that VA can face when considering closing a facility or reducing services. In both locations, CARES workload projections indicate that the demand for services is decreasing. However, community and veteran groups as well as elected officials strongly opposed reducing services or closing facilities. Rather, they argued for preserving the status quo or increasing services. For instance, Big Spring and Walla Walla stakeholders formed community task forces to explore options for continuing VA services. According to a former Big Spring VA official, approximately 2,000 members of the community attended town hall meetings to discuss the future of the Big Spring facility. According to VA officials and stakeholders, these efforts were intended to influence the Secretary’s decision to maintain or increase services. Although the CARES Commission recommended closing or studying the feasibility of closing the facilities in Walla Walla and Big Spring, the Secretary ultimately decided to (1) build a new outpatient facility in Walla Walla and (2) maintain inpatient services and expand mental health services in Big Spring. According to VA, the Secretary’s decisions in these two locations were based on a variety of factors, including access issues, the condition of the facilities, and potential reuse options. Facility condition and location. Experiences in Pittsburgh and Orlando illustrate how the condition of the facility and its location can influence decision making. According to a VA official, the Highland Drive facility in Pittsburgh was in poor condition and not designed for modern health care—a fact that influenced the alignment alternatives considered. The DNCP and the CARES Commission recommended consolidating services in Pittsburgh—specifically, by shifting services provided at the Highland Drive facility to the two other VA medical facilities in Pittsburgh. In Orlando, expanding the existing facility to meet growing demand was ruled out as an option because there was inadequate land available at the existing site to accommodate a larger facility. Access issues. Experiences in Walla Walla, Big Spring, and Orlando illustrate how access issues influenced the alternatives considered and recommended. VA facilities in Walla Walla and Big Spring are located in rural areas, and are at least 4 hours drive time from other VA facilities, including facilities with mental health services. In addition, although the inpatient workloads at both facilities are projected to decline, demand for outpatient services is expected to remain stable or increase at these locations, according to VA. Based on our interviews with VA officials and stakeholders, maintaining access to health care services was an important factor in deciding not to completely close the Big Spring and Walla Walla facilities. Similarly, a VA official stated that a new facility was needed in Orlando to meet the CARES access proximity standard (i.e., within a 1- hour drive of acute patient care). In particular, only 45 percent of the veteran population in VA’s Sunshine Health Care Network live in an area that meets this standard. Building a new facility in the Orlando area would increase the percentage of veterans living within 1 hour of acute patient care to 78 percent. Established relationships with other health care providers. Experiences in El Paso and Big Spring demonstrate how established relationships influenced whether collaborative opportunities were considered and recommended as an alternative. For example, according to VA officials, collaborative opportunities between the VA facility in Big Spring, Texas, and Dyess Air Force Base in Abilene, Texas, were not pursued, in part, because the two entities had no history of sharing services. Conversely, VA and DOD have a history of sharing services in El Paso, and as a result, considering further collaborative opportunities at this location was a natural outgrowth of their current relationship. Legal restrictions. Legal restrictions on the disposal of property and the use of enhanced use leasing in Los Angeles illustrate how legal restrictions can influence the capital asset alignments considered and recommended. A VA official at the West Los Angeles facility said that the value of underutilized property at the site is considerable given real estate prices in the surrounding area. As noted in the Secretary’s 2004 Decision document, VA is interested in finding uses for underutilized property. However, legal restrictions have limited alternatives for the reuse or disposal of parcels of the valuable but underutilized property. In particular, a 1988 law prohibits VA from declaring as excess or taking any other action to dispose of approximately 109 acres at the 387-acre VA campus in Los Angeles. While only a portion of the restricted 109 acres is underutilized, the land could provide opportunities for development. Additional legislation prohibits VA from entering into any enhanced use lease relating to the 109 acres unless the lease is specifically authorized by law. These laws only apply to VA’s West Los Angeles campus. VA has started implementing some CARES decisions and integrating CARES concepts into its strategic planning process. However, VA does not use, or in some cases does not have, performance measures for CARES. These measures, if used, could help determine the extent to which the implementation of CARES is achieving the intended results and, more broadly, how it is helping the agency carry out its mission of providing health care to the nation’s veterans. For example, VA does not centrally track or monitor the implementation of CARES decisions. This type of information—which could be used as a performance measure—could help VA officials and stakeholders assess VA’s progress in the implementation of CARES. It would also help stakeholders hold VA accountable for results—which is especially important since VA estimates it will need at least $5 billion to implement CARES decisions. VA has begun implementing some CARES decisions. Specifically, as of February 2007, VA was in the process of implementing 32 of more than 100 major capital projects that were identified in the CARES process. As table 6 shows, most of these projects are in the construction phase, although some are in the design phase. For instance, VA is in phase I of designing a new hospital in Orlando, while it is in the construction phase of consolidating three VA facilities into two in Pittsburgh. VA completed construction for one CARES-related major capital project. In addition to these major capital projects, VA has started efforts to develop new CBOCs. In May 2004, the Secretary decided to implement 156 new CBOCs by 2012. According to the Secretary, these CBOCs would improve access to health care for veterans. As of January 2007, 32 CBOCs have opened or been approved for opening, according to VA officials. Although VA is moving forward with the implementation of some CARES decisions, a number of VA officials and stakeholders, including representatives from veteran service organizations and local community groups, view the implementation process as too lengthy, not transparent, and hampered by competing stakeholder interests. For instance, stakeholders in Big Spring, Texas, noted that it took almost 2 years for the Secretary to decide whether to close the facility. During this period, there was a great deal of uncertainty about the future of the facility—as a result, there were problems in attracting and retaining staff at the facility, according to network and local VA officials. A VA official acknowledged that implementation of some CARES decisions, notably the further studies of the 18 facilities, have taken longer than expected and time frames have not been established for implementing decisions on those facilities. A number of stakeholders we spoke to also indicated that the implementation of CARES decisions has been influenced by competing stakeholders’ interests—thereby undermining the process. For example, several stakeholders questioned why certain projects appear to be on the fast track, while projects in other locations, such as Orlando, have not moved as quickly—even though CARES data indicate a significant need in these locations. We have previously reported that competing interests from local, state, and political stakeholders have often impeded federal agencies’, including VA’s, ability to make transparent capital alignment decisions. As a result of competing stakeholder interests, decisions about real property often do not reflect the most cost-effective or efficient alternative that is in the interest of the agency or the government as a whole but instead reflect other priorities. In particular, this situation often arises when the federal government attempts to consolidate facilities or otherwise dispose of unneeded assets. In its report, the CARES Commission also noted that stakeholder and community pressure can act as a barrier to change, and can serve to pressure VA to maintain the status quo, such as maintaining specific services or facilities. VA has also taken steps to integrate CARES decisions into its strategic planning process. Officials from VHA’s Office of Policy and Planning—the office responsible for VHA’s strategic plan—told us that they used the CARES workload projections in developing the 2006-2011 Strategic Plan and incorporated CARES principles into the strategic planning process. For example, VHA incorporated the principle of enhancing access to health care services for veterans as a strategic initiative in its strategic planning process and documents. To help advise the Secretary on integrating CARES into VA’s strategic planning process, the CARES Commission recommended establishing an independent advisory body. In response, the Secretary established a permanent, senior-level CARES Implementation Board. According to the Secretary’s May 2004 CARES Decision, the board was to consist of senior leadership from across the department, would work with the VA networks to implement CARES decisions, and would report directly to the Secretary. The board was charged with ensuring that CARES was integrated into strategic planning and that all CARES decisions were effectively planned, implemented, and managed. In addition, the board was responsible for overseeing the additional studies that the Secretary deemed necessary for 18 facilities. However, the board was disbanded in February 2005, less than 10 months after the Secretary announced its creation. According to VA officials, the board was disbanded because VA leadership decided to focus on the key CARES decisions that remained— namely, the 18 facilities the Secretary identified for further study. As we have noted in past reports on managing for results, agencies should have performance measures for significant agency activities, such as CARES. The CARES process was and continues to be a significant undertaking for VA. For example: CARES was a lengthy process—over 3 years elapsed between the time VA initiated CARES to when the Secretary issued his decisions. During this time, VA put a number of decisions on hold in anticipation of the CARES decisions. For example, according to VA officials at the West Los Angeles facility, they were planning to develop a master plan for developing and reusing its property prior to the CARES process. However, the development of the master plan was suspended until CARES decisions were made. Similarly, VA did not pursue a collaborative opportunity with the University of Colorado in Denver, Colorado, in part, because VA was waiting for the CARES decisions. In particular, after studying a possible joint facility between VA and the university for several years, in 2002, the President of the university asked VA to make a decision within 1 year. The Secretary responded that VA could not commit to a joint facility within that time frame because the proposal needed to be evaluated in the context of the CARES Commission’s report, which was not yet released. The Secretary’s response effectively ended discussions about constructing and operating a joint facility in Denver. The CARES process was also a costly undertaking. VA did not track many of the costs associated with implementation of the CARES process, such as the staff resources spent on the process, and therefore could not estimate how much was spent on implementing the process. However, VA was able to provide us the contracts let in support of the process. The total cost of these contracts was about $18.1 million. The implementation of CARES—and the associated investment—is expected to yield a number of benefits for VA and our nation’s veterans. According to the CARES Commission and the Secretary’s Decision reports, implementing CARES decisions will improve access to health care, modernize VA capital assets, decrease operating costs, and decrease vacant space, among other things. For instance, the Secretary estimated that the implementation of the CARES decisions will reduce VHA’s vacant space by 42.5 percent by fiscal year 2022. VA, however, does not use, or in some cases does not have, performance measures to assess the agency’s progress in implementing CARES or whether CARES is achieving the intended results. Performance measures allow an agency to track its progress in achieving intended results. Performance measures can also help inform management decision making, such as the need to redirect resources or shift priorities. In addition, performance measures can be used by stakeholders, such as veterans service organizations or local communities, to hold agencies accountable for results. Performance measures for CARES should be output-based, measuring the level of activity over a period of time that was generated by CARES. An example of an output measure would be the progress VA has made in implementing CARES decisions within desired time frames. The performance measures should also be outcome-based, measuring the impact that CARES has on VA’s ability to carry out its mission or on the lives of veterans. An example of an outcome measure would be the impact the implementation of CARES had on access to health care for veterans—that is, has access improved? In addition, VA’s performance should be assessed using nonfinancial and financial performance measures, such as program costs or savings. VA, however, lacks critical data, including the cost and timelines of implementing CARES projects and the potential savings that can be generated through alignment of resources. The CARES Commission noted these missing data in the DNCP and when developing its recommendations. VA has over 100 performance measures that it uses to centrally monitor agency programs and activities. Examples of these measures include the percentage of used space compared to owned and leased overall space, the ratio of operating costs per gross square foot, and the percentage of patients waiting within 20 minutes to be seen. Many of these existing measures are related to the goals of CARES. However, VA does not use these existing measures to monitor the implementation and impact of CARES decisions. Thus, VA cannot readily determine whether the implementation of certain CARES decisions are achieving the intended results. In addition, VA does not have some performance measures that could be used to monitor the implementation and impact of CARES decisions. For example, VA does not centrally monitor or track the implementation of CARES decisions, a process that could be used as a performance measure for CARES. The lack of such a measure hinders VA leadership and stakeholders from assessing the status of implementation and making necessary adjustments. Originally, VA planned to centrally track CARES decisions—and a senior VA official started to collect and assemble this information. However, this effort was abandoned because there were concerns it would duplicate efforts of officials at the network level and in individual program offices within the department. According to senior VA officials, individual networks and program offices are responsible for tracking the implementation of the CARES decisions within their area of responsibility. However, in our interviews with senior VA officials within individual program offices and at the network level, there was confusion and disagreement as to who was tracking what. For example, a senior VA official stated that VHA’s Office of Policy and Planning was tracking all major CARES projects. However, officials from this office stated that this was not their responsibility; they stated it was the responsibility of the Office of Asset Enterprise Management. Officials from the Office of Asset Enterprise Management told us that they had information on the status of CARES projects that were included in the 5-year capital plan, but that they did not track the status of all CARES decisions. VA officials from the networks responsible for the six facilities we visited told us that they were tracking the CARES decisions that affect their networks. For example, VA officials from the Sunshine Health Care Network and the Desert Pacific Health Care Network stated that they maintain a spreadsheet tracking the status of all their major construction projects, including the status of CARES decisions. According to officials in some of the networks we visited, the department does not require them to track the implementation of CARES decisions. Rather, these officials stated that they track this information for their own purposes. In addition, several network officials stated that they suspect that the department will eventually ask for this information. With the CARES process VA has made significant strides in making plans for providing medical care to meet the changes occurring in the veteran population. Under CARES, VA for the first time adopted a systematic approach to its capital asset planning based on the projected demand for future health care services. As part of the CARES process, a broad range of capital asset alternatives were considered to meet this demand, in accordance with best practices. However, factors such as competing stakeholder interests and legal restrictions constrained VA’s ability to make difficult capital alignment decisions. Consequently, VA plans to close or downsize only a few of its aging and outmoded facilities, making it difficult for VA to redeploy and reduce the funds needed to maintain and operate such facilities—which was a major impetus of CARES. VA’s challenge now is to ensure that CARES becomes an ongoing and effective part of its capital asset management efforts and that CARES decisions are carried out. Although VA has taken some steps to integrate CARES into its strategic planning efforts, more action is needed. Currently, VA does not use, or in some cases does not have, performance measures to assess its progress in implementing CARES decisions and attaining the goals of CARES. Given that VA will seek billions of dollars in additional investments to implement CARES decisions, the use of performance measures is essential to ensure that these decisions are achieving their intended results. Using performance measures to monitor CARES-related decisions would also help hold VA accountable for results and increase the transparency of CARES implementation. To provide the information necessary to monitor the implementation and impact of CARES decisions, we recommend that the Secretary use existing performance measures as well as develop new performance measures for CARES. These measures should include both output measures, such as the implementation status of all CARES decisions, and outcome measures, such as the degree to which CARES has improved access to medical services for veterans, and should be explicitly linked to the goals of CARES. We provided a draft copy of this report to VA and DOD for review and comment. VA provided written comments, which are reprinted in appendix V. VA agreed with the report’s findings and recommendation. VA also provided technical clarifications, which we incorporated, as appropriate. DOD did not have any comments. We are sending copies of this report to the Secretary of Veterans Affairs and other interested parties. We will also make copies 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 any questions about this report, please contact me on (202) 512-2834 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. Key contributors to this report are listed in appendix VI. Our overall objective was to determine the extent to which the Department of Veterans Affairs’ (VA) Capital Asset Realignment for Enhanced Services (CARES) process has been implemented and how it has contributed to its overall mission of providing health care services to veterans. Specifically, our research examined (1) how CARES contributes to Veterans Health Administration’s (VHA) capital planning process, (2) the extent to which the CARES process considered alignment alternatives, and (3) the extent to which VA has implemented CARES decisions and how this implementation has helped VA carry out its mission. To address how the CARES process contributed to VA’s capital asset management efforts, we reviewed CARES documents, including the Draft National CARES Plan (DNCP), February 2004 CARES Commission Report, and the May 2004 Secretary’s CARES Decision document. We also reviewed and analyzed VA’s Asset Management Plan, Five-Year Capital Plan (Fiscal Year 2007-2011), and Strategic Plan to determine the extent to which CARES is integrated into VA’s capital planning efforts. We also reviewed GAO’s past work on VA’s management of its capital assets and leading practices for realigning federal agency infrastructure and capital decisions. We interviewed VA officials to discuss how the CARES process was incorporated into VA’s capital planning efforts. We also reviewed and analyzed information from VA’s budget documents to determine how CARES decisions are integrated. To determine what CARES capital asset alignment alternatives were considered in the CARES process, we developed a spreadsheet to record all the capital asset alternatives that were considered in the DNCP, the February 2004 CARES Commission Report, and the May 2004 Secretary’s CARES Decision document for each VA facility. We identified the capital asset alternatives considered by reviewing DNCP proposals, CARES Commission analysis and findings, CARES Commission recommendations, and the Secretary’s CARES decisions. In addition to tracking the number of times different capital asset alternatives were considered, we developed a coding system that allowed us to determine the extent of the Secretary’s concurrence with alternatives proposed in the DNCP and recommended by the CARES Commission. We also coded any additional alternatives proposed by the Secretary. We also developed a spreadsheet to track the extent of agreements or disagreements on the CARES proposals during the different levels of the CARES process. We summarized and inputted all CARES proposals that were outlined in the CARES Commission report by network. The level of details in the proposals was broken down by VA facilities and service levels. We identified and coded each proposal to indicate whether the commission concurred or disagreed with the CARES proposals in the DNCP, as well as any additional or alternative recommendations made by the commission. Similarly, we also coded each proposal to indicate whether the Secretary concurred or disagreed with the recommendations from the commission. We also recorded any alternative or additional CARES decisions that the Secretary decided to implement. Crosscutting recommendations were also recorded in the spreadsheet. Both spreadsheets were pilot-tested and appropriate revisions were made to improve the instrument based on pilot results. To ensure accuracy and consistency of data entry, a second team member independently verified the information that another team member had initially entered or coded. This information was verified by comparing what was entered or coded with the information in the February 2004 CARES Commission Report and May 2004 Secretary’s CARES Decision document. If the documents did not explicitly reflect what was entered in the spreadsheet, data entry corrections were made. Furthermore, to gain in-depth information on specific alternatives that were considered in the CARES process, we conducted six site visits to a nonprobability sample of VA health care facilities in Big Spring, Texas; El Paso, Texas; Los Angeles, California; Orlando, Florida; Pittsburgh, Pennsylvania; and Walla Walla, Washington. We selected these six sites based on several criteria, including collaborative agreements with the Department of Defense (DOD) and medical universities, consolidation of facilities and services, expansion of services with new facilities, sites identified for additional study by VA, and geographic dispersion. At each site, we met with VA officials from the facility and respective network to discuss the CARES process, including the alternatives that were considered and dismissed for the facility as well as the status of implementing the CARES decisions. We also obtained the perspectives of local stakeholders, including officials from veterans service organizations, VA employee unions, medical universities, DOD, and local advisory panels. We also toured the facilities at each site. In addition, we researched and analyzed relevant legislation and legal documents relating to legal issues and restrictions placed on some of the VA facilities we visited. To determine the extent VA has implemented CARES decisions and how implementation of the decisions has helped VA carry out its mission, we reviewed and analyzed the May 2004 CARES Decisions document, Asset Management Plan, VA’s Five-Year Capital Plan and Strategic Plan, VA’s budget submission documents, and VA’s legal authorities and appropriations acts. We interviewed VA officials and VA stakeholders, such as veteran service organizations, VA employees, and collaborating organizations (i.e., DOD and medical universities) to obtain their views and perspectives on the CARES process and the implementation of CARES decisions. We synthesized information obtained from VA documents, VA officials, and VA stakeholders to determine the extent VA has implemented CARES decisions and helped the agency carry out its mission of providing high quality health care to veterans. We conducted our work from March 2006 through March 2007 in accordance with generally accepted government auditing standards. The Department of Defense’s (DOD) Base Realignment and Closure (BRAC) process and VA’s CARES process have a number of similarities. These similarities include the basic frameworks within which the BRAC and CARES Commissions operate, such as their independence and willingness to gather public and stakeholder views and concerns. For example, for both BRAC and CARES, independent commissions provided an objective, external analysis of alignment alternatives. In addition, both the BRAC and CARES Commissions received comments and concerns from multiple external stakeholders throughout their respective processes. For example, the BRAC Commission held numerous regional hearings throughout the nation and accepted comments and concerns in writing. Likewise, the CARES Commission also received written comments and held numerous public hearings where external stakeholders, such as individual veterans, veteran service organizations, Congress, medical school affiliates, VA employees, local government entities, and affected community groups were able to offer their perspective. Although there are similarities between the BRAC and CARES processes, there are fundamental differences—specifically, their objectives and implementation of recommendations. The objective of the BRAC process is to reorganize DOD’s base structure to more efficiently and effectively support our armed forces, increase operational readiness, and facilitate new ways of doing business through the alignment or closure of excess bases. The objective of the CARES process is to enhance outpatient and inpatient care, as well as special programs, such as spinal cord injury, through the appropriate sizing, upgrading, and locating of VA facilities. The method in which recommendations are implemented is also different in the BRAC and CARES processes. In the BRAC process, the Secretary of Defense makes recommendations to a commission that is nominated by the President. The commission reviews the recommendations and makes its recommendations to the President. The President can either reject them or accept them in their entirety. If the President accepts the recommendations, they are sent to Congress for review. If the recommendations are accepted by Congress, then implementation of the recommendations is mandatory. With the CARES process, the CARES Commission made recommendations to the Secretary of Veterans Affairs. Those recommendations were not binding and can be implemented at the Secretary’s discretion. Table 7 highlights the similarities and differences of the BRAC and CARES processes. Appendix III: Capital Planning Principles Capital planning is an integral part of an agency’s strategic planning process. It provides a long-range plan for the capital asset portfolio in order to meet the goals and objectives in the agency’s strategic and annual performance plans. Agency strategic and annual performance plans should identify capital assets and define how they will help the agency achieve its goals and objectives. Leading organizations also view strategic planning as the vehicle that guides decision making for all spending. A comprehensive needs assessment identifies the resources needed to fulfill both immediate requirements and anticipated future needs based on the results-oriented goals and objectives that flow from the organization’s mission. A comprehensive assessment of needs considers the capability of existing resources and makes use of an accurate and up-to-date inventory of capital assets and facilities as well as current information on asset condition. Using this information, an organization can properly determine any performance gap between current and needed capabilities. Agencies should determine how best to bridge performance gaps by identifying and evaluating alternative approaches, including nonphysical capital options such as human capital. Before choosing to purchase or construct a capital asset or facility, leading organizations carefully consider a wide range of alternatives, such as contracting out, privatizing the activity, leasing, and whether existing assets can be used. Agencies should establish a formal process for senior management to review and approve proposed capital assets. The cost of a proposed asset, the level of risk involved in acquiring the asset, and its importance to achieving the agency mission should be considered when defining criteria for executive review. Leading organizations have processes that determine the level of review and analysis based on the size, complexity, and cost of a proposed investment or its organizationwide impact. As a part of this framework, proposed capital investments should be compared to one another to create a portfolio of major assets ranked in priority order. The long-term capital plan should be the final and principal product resulting from the agency’s capital planning process. The capital plan, covering 5 years or more, should be the result of an executive review process that has determined the proper mix of existing assets and new investments needed to fulfill the agency’s mission, goals, and objectives, and should reflect decision makers’ priorities for the future. Leading organizations update long-term capital plans either annually or biennially. Agencies are encouraged to include certain elements in their capital plans, including a statement of the agency mission, strategic goals and objectives; a description of the agency’s planning process; baseline assessments and identification of performance gaps; and a risk management plan. Each of the six VA facilities we visited had unique features and issues concerning capital asset alignment. Several different capital asset alignment alternatives were considered at each location. While the Secretary decided on the future development of five of the six VA facilities we visited, decisions have not been made for the facility in Los Angeles, California. The following pages provide a brief summary of each VA facility we visited. The Big Spring facility is part of the VA Southwest Health Care Network, which includes the states of Arizona and New Mexico and the western part of Texas. Its campus covers 31 acres and contains 13 buildings, which were constructed over a period of several years beginning in 1948. The main hospital opened in 1950. According to VA, the facility is considered to be in good condition, rating 4.4 out of 5 for critical values such as accessibility, code, functional space, and facility conditions. The Big Spring facility is a secondary care level facility offering primary care and subspecialties in medicine, surgery, and mental health, and provides nursing home care. Tertiary services, inpatient surgery, acute psychiatry, and domiciliary care are contracted from the local community or referred to other VA facilities. By 2023, inpatient medicine bed needs are projected to decline from 16 to 11, surgery beds to decline from 4 to 2, and inpatient psychiatry beds to increase from 2 to 18. Projected veteran enrollment for the New Mexico/West Texas market is projected to decrease 21 percent from 130,960 in 2003 to 103,892 in 2023. The Big Spring facility had three significant capital asset alignment issues that were reviewed by the CARES Commission and the Secretary. The three issues are as follows: (1) Location of facility in rural West Texas: As part of the CARES process, the VA assessed how alignment would affect veterans’ access to health care. Although there are five non-VA medical centers within 60 minutes from the Big Spring facility, some veterans would have to travel 5 hours for primary care at a VA facility if the Big Spring facility were to close, according to a VA official. In addition, a VA official states that enrollment data suggest that the location of the Big Spring facility is central to West Texas veterans in the Midland/Odessa area and Abilene. (2) Stakeholder input: There was strong support from the community and local congressional delegates for keeping the Big Spring facility open. The Big Spring facility is a major employer in the community that offers above- average salaries. The community formed a task force that developed its own proposal for Big Spring, which was similar to the Secretary’s final decision. (3) Workload projections: Workload projections show a decrease in workload for Big Spring by 2022, demonstrating a need for fewer than 40 beds. However, the West Texas market has capacity issues in specialty care as well as mental health gaps, which support the VA’s plan to construct a domiciliary in Big Spring. Another proposal to construct a new facility in the Midland/Odessa area is not supported by projections for veteran enrollment in the area. A number of capital asset alignment alternatives were considered for the Big Spring facility during the CARES process. The following were some alternatives considered: expand inpatient and outpatient mental health services; close acute hospital beds and implement contracting, sharing, joint venturing, or referral to another facility; build a critical access hospital in the Midland/Odessa area; contract out inpatient care and renovate existing multispecialty clinic in close Big Spring facility and lease space for a community-based outpatient clinic (CBOC). Lease space for inpatient care at the VA in Midland, Texas. In April 2006, the Secretary decided to maintain all services offered at Big Spring and look to expand inpatient care and residential mental health services. The Jonathan M. Wainwright Memorial VA Medical Center is located on an 88-acre campus in the VA Northwest Network, on the site of Fort Walla Walla, which was established in 1858. The US Veterans Bureau took over the property in 1921, and the main hospital opened in 1929. Fifteen of the fort’s buildings are still in use and are on the National Historic Register. Of 29 buildings, there are 7 wholly or partially vacant on the campus. According to VA, many of the buildings on campus are considered to be in poor condition and seismically unsafe. The medical center is a primary and secondary care facility, serving veterans residing in a 42,000-square- mile primary service area within the network. The facility offers outpatient services and limited inpatient medical care, including nursing home services, psychiatry, and substance abuse residential rehabilitation programs. Most emergency cases are handled by non-VA contractors in the community. Walla Walla’s workload is projected to decrease 31 percent by 2022. The Walla Walla facility had four significant capital asset alignment issues that were reviewed by the CARES Commission and the Secretary. The four issues are as follows: (1) Location in rural Eastern Washington: The facility is located in a rural, sparsely populated area. Veterans would have to travel long distances—5 hours to Seattle and 4 hours to Portland—to receive VA care if the facility closed. Although options exist for contracting inpatient medicine and nursing home care in the community, no private facilities in the area provide acute psychiatric care. (2) Facility is in poor and dilapidated condition: Many of the buildings on the campus date back to the early 1900s. The buildings are in poor condition and have lead-based paint and seismic issues. The former Network Director has estimated the cost of correcting these deficiencies at approximately $6 million per building. While there is excess space on the campus, there is low reuse or enhanced use lease (EUL) potential, with the exception of the city of Walla Walla’s interest in tapping two aquifers on the campus.(3) Underserved patient population relies on the Walla Walla VA: The facility serves a large Native-American veteran population as well as veterans who rely on mental health services. Nonetheless, veteran enrollment rates in the Walla Walla VA primary service area are projected to decrease 31 percent by 2022. The facility also has a low inpatient average daily census. In addition, low patient volume for mental health services makes it difficult for practitioners to maintain their competencies. (4) Stakeholder input: The community and local congressional delegation have expressed a high level of interest in keeping the facility open. Congress appropriated $250,000 for the study of surplus property at the Walla Walla facility. The community organized a task force and conducted this study, which concluded that a new hospital with inpatient and outpatient services should be built. Status quo. Construct new space for a 10-bed inpatient psychiatric unit. Space would be leased for an outpatient residential rehabilitation and substance abuse program. Contract all services. Vacate campus and make available for reuse. Replace facility with new inpatient care and outpatient care facilities on campus or in Tri-City area. Renovate the current outpatient medical and mental health facilities for ambulatory care and outpatient mental health care. Build new state-of-the-art full-service facility. Replace current nursing home with new facility on site. Build a new outpatient clinic and close inpatient services. In July 2006, the Secretary decided to build a new outpatient facility for primary care, specialty care, and mental health care. Inpatient services will be provided by the community, although not necessarily on the Walla Walla VA campus. The El Paso VA Health Care Center opened in October 1995, replacing a smaller VA outpatient clinic. El Paso is part of the New Mexico/West Texas market in the VA Southwest Health Care Network, and the El Paso facility has the fastest-growing workload in the market. The facility is located in a four-story, 254,000-square-foot building connected to the William Beaumont Army Medical Center. The El Paso VA facility is solely an outpatient facility that provides primary and specialized care. Inpatient care for acute medical and surgical care and emergencies is provided to VA patients through a sharing agreement with the William Beaumont Army Medical Center. In 2003, the network proposed the expansion of the El Paso facility as a minor construction project. The $5.5 million dollar expansion began in December 2005 and will add space for physical therapy, behavioral health, and podiatry. The El Paso facility had two significant capital asset alignment issues that were reviewed by the CARES Commission and the Secretary. The two issues are as follows: (1) Joint VA/DOD venture at the William Beaumont Army Medical Center: The El Paso facility is connected to the William Beaumont Army Medical Center, which facilitates an expansion of the joint venture. Collaboration also presents learning opportunities for VA medical personnel. (2) Growing workload and demand for services: The El Paso area has a growing workload for veteran care and the El Paso Health Care Center is the only VA health care center in the area. No full-service VA Medical Center exists within 250 miles of El Paso. The closest VA hospital is in Albuquerque. The increased workload supports the expansion of the El Paso Health Care Center and the addition of new parking at the facility. The following capital asset alignment alternatives were considered for the El Paso facility during the CARES process: pursue existing joint venture with William Beaumont Army Medical build new CBOC in East El Paso; and shift tertiary care from the El Paso facility to the VA facility in Albuquerque, New Mexico. The Secretary decided to expand the existing joint venture with the William Beaumont Army Medical Center and develop a new CBOC in El Paso, which is targeted for priority implementation by 2012. The West Los Angeles campus is one of the VA facilities in the Greater Los Angeles Healthcare System and part of the VA Desert Pacific Health Care Network, which includes the southern parts of California and Nevada. The campus is approximately 14 miles west of downtown Los Angeles and occupies 387 acres of land, with 91 structures on the campus totaling 2,807,039 building gross square feet. It is a teaching hospital, providing a full range of patient care service through primary care, tertiary care, and a nursing home in areas of medicine, surgery, psychiatry, physical medicine and rehabilitation, neurology, oncology, dentistry, geriatrics, and extended care. Additionally, the West Los Angeles campus is affiliated with the medical schools of the University of California Los Angeles and the University of Southern California. The West Los Angeles’ workload is projected to decrease 23 percent by 2023. VA’s West Los Angeles campus had three significant capital asset alignment issues that were reviewed by the CARES Commission and the Secretary. The three issues are as follows: (1) Alignment/consolidation of services due to proximity: As part of the CARES process, VA medical centers within 60 miles of each other were required to evaluate whether the services could be consolidated. The West Los Angeles facility is about 27 miles apart from VA’s Long Beach facility, and both offer comprehensive health care services and are affiliated with teaching hospitals. However, certain complex services are done at the West Los Angeles campus, such as neurosurgery, interventional cardiology, and cardiac surgery. Despite the short distance between Long Beach and West Los Angeles facilities, their location in highly urban, congested settings may create extended travel times for veterans. Consolidations have already occurred, mainly in the clinical support, and administrative functions, and more are under way in geriatrics and mental health. (2) Infrastructure and life safety issues: The West Los Angeles campus needs to correct seismic structural deficiencies for some of its old buildings. Most of the buildings on campus require major repairs and deferred maintenance, including seismic and structural upgrades. The main hospital building is considered exceptionally high risk for earthquake damage and has the potential to endanger patient and employees housed in the building. Ensuring patient safety is a high priority for VA CARES funding. (3) Excess land use: Interest in the future use of VA’s West Los Angeles campus is a major issue. Given the size of the campus (387 acres with 91 buildings), the West Los Angeles facility has excess land and vacant space. However, VA is legally restricted from taking any action in declaring 109 of the 387 acres on the West Los Angeles campus as excess or taking any other action to dispose of the property. Additionally, when VA was provided EUL authority in 1991, VA was only authorized to enter into an EUL for the 109 acres on the West LA campus if the lease is specifically authorized by law. Leases relating to child care services for the 109 acres have been specifically authorized by law. The West Los Angeles campus currently has nine land use agreements, including a 10-year enhanced sharing agreement (to expire in April 2015) with the Salvation Army and a 50-year revocable license with the American Red Cross, which expires in April 2039. The network’s CARES market plan proposed a majority of the vacant space be reduced through the demolition of vacant buildings. The plan called for co-locating with a Veterans Benefits Administration field office, developing a new clinical addition to accommodate outpatient mental health programs and support staff, building a state nursing home, and expanding the Los Angeles National Cemetery or other veteran-focused projects. Stakeholders, including veteran service organizations and community members, expressed strong interest in the future use of the West Los Angeles campus, particularly reserving the parklike quality of the space. A number of capital asset alignment alternatives were considered for the development of the West Los Angeles campus. The following were some alternatives that were considered for excess land use: use enhanced use lease authority to lease excess land; build a new Veterans Benefit Administration facility and columbarium for the National Cemetery Administration; build a replacement hospital; renovate and expand the existing hospital; develop a medical research institute; build affordable veteran housing; build a veteran memorial park; and build new medical office building for VA-affiliated physicians and specialists. In May 2004, the Secretary decided to maintain the West Los Angeles and Long Beach campuses as separate facilities, but consolidate administrative and clinical services between both facilities. The Secretary also decided to correct seismic deficiencies of the West Los Angeles buildings and conduct further studies on the options for reusing the excess land. The VA Orlando Outpatient Healthcare Clinic is part of the VA Sunshine Health Care Network, which includes Florida (except 7 Panhandle counties), 19 rural counties in southern part of Georgia, the U.S. Virgin Islands, and Puerto Rico. The clinic is located on approximately 44 acres of land, is 360,000 square feet, and includes a nursing home and domiciliary. The facility provides care to veterans who reside in the counties surrounding Orlando. The facility currently treats over 40,000 patients per year. The Orlando facility offers numerous services, including outpatient surgery, radiology, mobile MRI, nuclear medicine, laboratory, eye clinic, prosthetics, and women health care services. VA’s Orlando Outpatient Health Care Clinic had three significant capital asset alignment issues that were reviewed by the CARES Commission and the Secretary. The three issues are as follows: (1) Large growth of veteran population: According to CARES data, the Central Market, which includes Orlando, has the largest workload gap and greatest infrastructure need of any market in the country. (2) Lack of access to VA acute patient care: Only 45 percent of the veteran population in VA’s Sunshine Network in Florida live within a 1-hour drive of acute patient care services, a condition that does not meet the CARES travel access requirement of 65 percent. Building a new facility in the Orlando area would increase the percentage of veterans living within 1- hour of acute patient care to 78 percent. (3) Location of new facility: The existing site of the Orlando Outpatient Clinic does not have adequate land available to accommodate a larger facility. Several capital asset alignment alternatives were considered for the Orlando market during the CARES process. The following were some alternatives that were considered: Expand current facility at existing location. Build new VA hospital in Orlando area, which may also include: collaboration with the University of Florida or the University of Central Florida, which is contingent on the construction of a new hospital, or collaboration with Patrick Air Force Base, which is contingent on the construction of a new hospital. In May 2004, the Secretary decided to build a new VA owned and operated medical facility in Orlando. The new medical center will have 134 inpatient beds, outpatient services, a nursing home, and a domiciliary. VA Pittsburgh Healthcare System (VAPHS) is an integrated health care system, serving veterans throughout the tristate area of Western Pennsylvania, Ohio, and West Virginia. VAPHS is part of the VA Stars and Stripes Health Care Network and consists of three facilities, which operate under one management in the metropolitan Pittsburgh area. The three facilities are Heinz Progressive Care Center, Highland Drive, and University Drive. Consolidation of the Highland Drive and University Drive facilities has been occurring for several years, and since 1996 the two facilities have had one administration and fully integrated service lines and support activities. The Heinz Drive facility (formerly called Aspinwall) was originally constructed in 1925, and an additional replacement structure was constructed in 1994 on 51 acres in a residential area. It has 336 nursing home beds, primary care, and hospice care. According to VA, all patient care buildings are in excellent condition, while other buildings at the facility are older and in moderate to poor condition. The Highland Drive facility is a 50-year-old, campus-style setting on approximately 168 acres. It has 210 psychiatry beds, including 101 patients in a homeless veteran domiciliary unit. Over the last few years, services at Highland Drive have been consolidated with University Drive, resulting in Highland Drive having the most vacant space of the three facilities of VAPHS. According to VA, the main patient care buildings are in overall good condition, while some areas are functionally and aesthetically antiquated. University Drive is a 50-year-old facility, on almost 14 acres, located adjacent to the University of Pittsburgh, with which it has an academic affiliation. The facility has 146 medicine, surgery, neurology, and critical care beds as well as primary and specialty care outpatient clinics and ambulatory surgery. According to VA, the main building where all patient care services are delivered is in good to moderate condition. The remaining space, which is used primarily for research activities, is in poor condition, and is not usable for patient care. Additionally, according to VA, the parking available at the facility is not adequate for the current volume of patient care activity. Pittsburgh VA had two significant capital asset realignment issues that were reviewed by the CARES Commission and the Secretary. The two issues are as follows: (1) Facility condition: Some buildings at the Highland Drive facility are in poor condition and not designed for modern health care. (2) Vacant space: The Highland Drive facility has a considerable amount of vacant space. Status quo. Consolidate the three Pittsburgh facilities into two facilities, which may closure of the Highland Drive facility, use EUL authority to lease space at Highland Drive facility. Contract out, which may also include: closure of the Highland Drive facility, or use EUL authority to lease space at Highland Drive facility. The Secretary decided to develop a master plan to guide the transition of closure of the Highland Drive facility and integration of the three facilities to two facilities. The plan will also consider disposal or reuse of the campus to enhance the department’s mission. In addition to the individual named above, Nikki Clowers and Ed Laughlin, Assistant Directors; Teresa Abruzzo; Mireya Almazan; Colin Fallon; Cindy Gilbert; Emily Hampton-Manley; Daniel Hoy; Jennifer Kim; Susan Michal- Smith; and James Musselwhite Jr. made key contributions to this report.

Through its Veterans Health Administration (VHA), the Department of Veterans Affairs (VA) operates one of the largest health care systems in the country. In 1999, GAO reported that better management of VA's large inventory of aged capital assets could result in savings that could be used to enhance health care services for veterans. In response, VA initiated a process known as Capital Asset Realignment for Enhanced Services (CARES). Through CARES, VA sought to enhance veteran care by the appropriate sizing, upgrading, and locating of VA facilities. GAO was asked to examine the CARES process. Specifically, GAO examined (1) how CARES contributes to VHA's capital planning process, (2) the extent to which the CARES process considered capital asset alignment alternatives, and (3) the extent to which VA has implemented CARES decisions and how this implementation has helped VA carry out its mission. To address these issues, we analyzed CARES documents, interviewed VA officials, and conducted six site visits, among other things. The CARES process provided VA with a blueprint that drives VHA's capital planning efforts. As part of the CARES process, VA adapted a model to estimate demand for health care services and to determine the capacity of its current infrastructure to meet this demand. VA continues to use this model in its capital planning process. The CARES process resulted in capital alignment decisions intended to address gaps in services or infrastructure. These decisions serve as the foundation for VA's capital planning process. According to VA officials, all capital projects must be based upon demand projections that use the planning model developed through CARES. A range of capital asset alignment alternatives were considered throughout the CARES process, which adheres to capital planning best practices. There was relatively consistent agreement among the Draft National CARES Plan prepared by VA, the CARES Commission appointed by the VA Secretary to make alignment recommendations, and the Secretary as to which were the best alternatives to pursue. Although the Secretary tended to agree with the CARES Commission's recommendations, the extent to which he agreed varied by alignment alternative. In particular, the Secretary always agreed with the commission's recommendations to build new facilities, enter into enhanced use leases, and collaborate with the Department of Defense and universities, but was less likely to agree to the CARES Commission's recommendations to contract out or close facilities. The decisions that emerged from the CARES process will result in an overall expansion of VA's capital assets. For example, the capital alignment alternatives the Secretary chose to meet future health care demand includes building 3 new medical centers and opening 156 outpatient clinics. In contrast, VA will completely close one facility. A number of factors, including competing stakeholders interests and legal restrictions, shaped and in some cases limited VA's range of alternatives considered during the CARES process. VA has started implementing some CARES decisions, but does not centrally track the implementation of all the CARES decisions or monitor the impact such implementation has had on its mission. VA has begun implementing 32 of the more than 100 capital projects and 32 of the 156 outpatient care centers approved by the Secretary during the CARES process. Although VA has over 100 performance measures to monitor other agency programs and activities, these measures either do not directly link to the CARES goals or VA does not use them to centrally monitor the implementation and impact of CARES decisions. Without this information, VA cannot readily assess the implementation status of CARES decisions, determine the impact such decisions are having on veterans' care, or be held accountable for achieving the intended results of CARES.

You are an expert at summarizing long articles. Proceed to summarize the following text: Our 2012 annual report identified 51 areas where unnecessary duplication, overlap, or fragmentation exists as well as additional opportunities for potential cost savings or enhanced revenues. We identified about 130 specific actions that Congress or the executive branch could take to address these areas. We identified 32 areas where government missions are fragmented across multiple agencies or programs; agencies, offices, or initiatives may have similar or overlapping objectives or may provide similar services to similar populations or target similar users; and when two or more agencies or programs are engaged in the same activities or provide the same services to the same beneficiaries (see table 1). We found instances where multiple government programs or activities have led to inefficiencies, and we determined that greater efficiencies or effectiveness might be achievable. Overlap and fragmentation among government programs or activities can be harbingers of unnecessary duplication. In many cases, the existence of unnecessary duplication, overlap, or fragmentation can be difficult to determine with precision due to a lack of data on programs and activities. Where information has not been available that would provide conclusive evidence of duplication, overlap, or fragmentation, we often refer to “potential duplication” and, where appropriate, we suggest actions that agencies or Congress could take to either reduce that potential or to make programmatic data more reliable or transparent. In some instances of duplication, overlap, or fragmentation, 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. Among the 32 areas highlighted in our 2012 annual report are the following examples of opportunities for agencies or Congress to consider taking action to reduce unnecessary duplication, overlap, or fragmentation. Unmanned Aircraft Systems: The Department of Defense (DOD) estimates that the cost of current Unmanned Aircraft Systems (UAS) acquisition programs and related systems will exceed $37.5 billion in fiscal years 2012 through 2016. The elements of DOD’s planned UAS portfolio include unmanned aircraft, payloads (subsystems and equipment on a UAS configured to accomplish specific missions), and ground control stations (equipment used to handle multiple mission aspects such as system command and control). We have found that ineffective acquisition practices and collaboration efforts in DOD’s UAS portfolio creates overlap and the potential for duplication among a number of current programs and systems. We have also highlighted the need for DOD to consider commonality in UAS—using the same or interchangeable subsystems and components in more than one subsystem to improve interoperability of systems—to reduce the likelihood of redundancies in UAS capabilities. Military service-driven requirements—rather than an effective departmentwide strategy—have led to overlap in DOD’s UAS capabilities, resulting in many programs and systems being pursued that have similar flight characteristics and mission requirements. Illustrative of the overlap, the Department of the Navy (Navy) plans to spend more than $3 billion to develop the Broad Area Maritime Surveillance UAS, rather than the already fielded Air Force Global Hawk system on which it was based. According to the Navy, its unique requirements necessitate modifications to the Global Hawk airframe, payload interfaces, and ground control station. However, the Navy program office was not able to provide quantitative analysis to justify the variant. According to program officials, no analysis was conducted to determine the cost effectiveness of developing the Broad Area Maritime Surveillance UAS to meet the Navy’s requirements versus buying more Global Hawks. The potential for overlap also exists among UAS subsystems and components, such as sensor payloads and ground control stations. DOD expects to spend about $9 billion to buy 42 UAS sensor payloads through fiscal year 2016. While the fact that some multiservice payloads are being developed shows the potential for collaboration, the service-centric requirements process still creates the potential for overlap, including 29 sensors in our review. Further, we identified overlap and potential duplication among 10 of 13 ground control stations that DOD plans to acquire at a cost of about $3 billion through fiscal year 2016. According to a cognizant DOD official, the associated software is about 90 percent duplicative because similar software is developed for each ground control station. DOD has created a UAS control segment working group, which is chartered to increase interoperability and enable software re-use and open systems. This could allow for greater efficiency, less redundancy, and lower costs, while potentially reducing levels of contractor proprietary data that cannot be shared across UAS programs. However, existing ground control stations already have their own architecture and migration to a new service-oriented architecture will not happen until at least 2015, almost 6 years after it began. DOD plans to significantly expand the UAS portfolio through 2040, including five new systems in the planning stages that are expected to become formal programs in the near future. While DOD has acknowledged that many UAS systems were acquired inefficiently and has begun to take steps to improve outcomes as it expands these capabilities over the next several years, the department faces challenges in its ability to improve efficiency and reduce the potential for overlap and duplication as it buys UAS capabilities. For example, the Army and Navy are planning to spend approximately $1.6 billion to acquire separate systems that are likely to have similar capabilities to meet upcoming cargo and surveillance requirements. DOD officials state that current requirements do not preclude a joint program to meet these needs, but the Army and Navy have not yet determined whether such an approach will be used. To reduce the likelihood of overlap and potential duplication in its UAS portfolio, we have made several prior recommendations to DOD which have not been fully implemented. While DOD generally agreed with our recommendations, the overlap in current UAS programs, as well as the continued potential in future programs, shows that DOD must still do more to implement them. In particular, we have recommended that DOD (1) re-evaluate whether a single entity would be better positioned to integrate all crosscutting efforts to improve the management and operation of UAS; (2) consider an objective, independent examination of current UAS portfolio requirements and the methods for acquiring future unmanned aircraft; and (3) direct the military services to identify specific areas where commonality can be achieved. We believe the potential for savings is significant and with DOD’s renewed commitment to UAS for meeting new strategic requirements, all the more imperative. Housing assistance: In fiscal year 2010, the federal government incurred about $170 billion in obligations for housing-related programs and estimated revenue forgone for tax expenditures of which tax expenditures represent $132 billion (about 78 percent). Support for homeownership in the current economic climate has expanded dramatically with nearly all mortgage originations having direct or indirect federal assistance. The Department of the Treasury (Treasury) and the Board of Governors of the Federal Reserve System together invested more than $1.67 trillion in Fannie Mae and Freddie Mac, the government-sponsored enterprises, which issue and guarantee mortgage-backed securities. Examining the benefits and costs of housing programs and tax expenditures that address the same or similar populations or areas, and potentially consolidating them, could help mitigate overlap and fragmentation and decrease costs. We identified 20 different entities that administer 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 provide assistance for buying, selling, or financing a home and eight 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 (RHS) and the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA), among others. In September 2000 and again as part of our ongoing work, we questioned the need for maintaining separate programs for rural areas. In September 2000, we recommended that Congress consider requiring USDA and HUD to examine the benefits and costs of merging programs, such as USDA’s and HUD’s single-family guaranteed loan and multifamily portfolio management programs. While USDA and HUD have raised concerns about merging programs, our recent work has shown increased evidence of overlap and that some RHS and FHA programs can be consolidated. For example, the two agencies overlap in products offered (mortgage credit and rental assistance), functions performed (portfolio management and preservation), and geographic areas served. Specifically, RHS and HUD guarantee single-family and multifamily loans, as well as offer rental subsidies using similar income eligibility criteria. And, both agencies have been working to maintain and preserve existing multifamily portfolios. Although RHS may offer its products only in rural areas, it is not always the insurer of choice in those areas. For example, in fiscal year 2009 FHA insured over eight times as many single-family loans in economically distressed rural counties as RHS guaranteed. And, many RHS loan guarantees financed properties near urban areas—56 percent of single- family guarantees made in fiscal year 2009 were in metropolitan counties. Regarding consolidation, we found that RHS relies on more in-house staff to oversee its single-family and multifamily loan portfolio of about $93 billion than HUD relies on to manage its single-family and multifamily loan portfolio of more than $1 trillion, largely because of differences in how the programs are administered. RHS has a decentralized structure of about 500 field offices that was set up to interact directly with borrowers. RHS relies on over 1,600 full-time equivalent staff to process and service its direct single-family loans and grants. While RHS limits its direct loans to low income households and its guaranteed loans to moderate income households, FHA has no income limits and does not offer a comparable direct loan program. HUD operates about 80 field offices and primarily interacts through lenders, nonprofits, and other intermediaries. RHS and FHA programs both utilize FHA-approved lenders and underwriting processes based on FHA’s scorecard—an automated tool that evaluates new mortgage loans. RHS has about 530 full-time equivalent staff to process its single-family guaranteed loans. FHA relies on lenders to process its loans. Although FHA insures far more mortgages than RHS guarantees, FHA has just over 1,000 full-time equivalent staff to oversee lenders and appraisers and contractors that manage foreclosed properties. While the number of RHS field offices decreased by about 40 percent since 2000, its decentralized field structure continues to reflect the era in which it was established—the 1930s, when geography and technology greatly limited communication and transportation. These limitations have diminished and HUD programs can be used in all areas of the country. We first recommended in September 2000 —and have followed up since then—that Congress consider requiring USDA and HUD to examine the benefits and costs of merging those programs that serve similar markets and provide similar products, and require these same agencies to explore merging their single family insured lending and multifamily portfolio management programs. At that time, USDA stated that some of the suggestions made in our report to improve the effectiveness of current programs may better serve rural areas. However, USDA also stated that the gap in housing affordability between rural and urban areas, as well as the importance of rural housing programs to the Department’s broader Rural Development mission area, would make merging RHS’s programs with HUD’s programs unfeasible and detrimental to rural America. HUD also stated that it believes any opportunity to improve the delivery of rural housing services should be explored, but stated that the differences between RHS’s and FHA’s single-family programs are sizable and that without legislative changes to product terms, efforts to merge the programs would likely result in a more cumbersome rather than a more efficient delivery system. HUD added that it had been working with USDA in a mutual exchange of information on best practices and would explore possible avenues of coordination. The agencies have been working to align certain requirements of the various multifamily housing programs. In addition, in February 2011, the Administration reported to Congress that it would establish a task force to evaluate the potential for coordinating or consolidating the housing loan programs of HUD, USDA, and the Department of Veterans Affairs (VA). According to HUD, a benchmarking effort associated with the task force was recently begun. Our ongoing work considers options for consolidating these programs and we expect to make additional related recommendations. Furthermore, Treasury and the Internal Revenue Service (IRS) provide numerous types of housing assistance through tax expenditures. Although often necessary to meet federal priorities, some tax expenditures can contribute to mission fragmentation and program overlap that, in turn, can create service gaps, additional costs, and the potential for duplication. For example, to qualify for a historic preservation tax credit, rehabilitation must preserve historic character, which may conflict with states’ efforts to produce energy-efficient, low-income properties with tax credits, and could increase project costs. We recommended in September 2005 and reiterated in March 2011 that coordinated reviews of tax expenditures with related spending programs could help policymakers reduce overlap and inconsistencies and direct scarce resources to the most-effective or least-costly methods to deliver federal support. Specifically, we recommended that the Director of OMB, in consultation with the Secretary of the Treasury, develop and implement a framework for conducting performance reviews of tax expenditures. OMB, citing methodological and conceptual issues, disagreed with our 2005 recommendations. To date, OMB had not used its budget and performance review processes to systematically review tax expenditures and promote integrated reviews of related tax and spending programs. However, in its fiscal year 2012 budget guidance, OMB instructed agencies, where appropriate, to analyze how to better integrate tax and spending policies with similar objectives and goals. The GPRA Modernization Act of 2010 also envisions such an approach for selected cross-cutting areas. Such an analysis could help identify redundancies. Military and veterans health care: We found that DOD and VA need to improve integration across care coordination and case management programs to reduce duplication and better assist servicemembers, veterans, and their families. DOD and VA have care coordination and case management programs that are intended to provide continuity of care for wounded, ill, and injured servicemembers and veterans. DOD and VA established the Wounded, Ill, and Injured Senior Oversight Committee (Senior Oversight Committee) to address identified problems in providing care to wounded, ill, and injured servicemembers as well as veterans. Under the purview of this committee, the departments developed the Federal Recovery Coordination Program (FRCP), a joint program administered by VA that was designed to coordinate clinical and nonclinical services for “severely” wounded, ill, and injured servicemembers—who are most likely to be medically separated from the military—across DOD, VA, other federal agencies, states, and the private sector. Separately, the Recovery Coordination Program (RCP) was established in response to the National Defense Authorization Act for Fiscal Year 2008 to improve the care, management, and transition of recovering servicemembers. It is a DOD-specific program that was designed to provide nonclinical care coordination to “seriously” wounded, ill, and injured servicemembers, who may return to active duty unlike those categorized as “severely” wounded, ill, or injured. The RCP is implemented separately by each of the military services, most of which have implemented the RCP within their existing wounded warrior programs. As a result of these multiple efforts, many recovering servicemembers and veterans are enrolled in more than one care coordination or case management program, and they may have multiple care coordinators and case managers, potentially duplicating agencies’ efforts and reducing the effectiveness and efficiency of the assistance they provide. For example, recovering servicemembers and veterans who have a care coordinator also may be enrolled in one or more of the multiple DOD or VA programs that provide case management services to “seriously” and “severely” wounded, ill, and injured servicemembers, veterans, and their families. These programs include the military services’ wounded warrior programs and VA’s Operation Enduring Freedom/Operation Iraqi Freedom Care Management Program, among others. We found that inadequate information exchange and poor coordination between these programs have resulted in not only duplication of effort, but confusion and frustration for enrollees, particularly when case managers and care coordinators duplicate or contradict one another’s efforts. For example, an FRCP coordinator told us that in one instance there were five case managers working on the same life insurance issue for an individual. In another example, an FRCP coordinator and an RCP coordinator were not aware the other was involved in coordinating care for the same servicemember and had unknowingly established conflicting recovery goals for this individual. In this case, a servicemember with multiple amputations was advised by his FRCP coordinator to separate from the military in order to receive needed services from VA, whereas his RCP coordinator set a goal of remaining on active duty. These conflicting goals caused considerable confusion for this servicemember and his family. DOD and VA have been unsuccessful in jointly developing options for improved collaboration and potential integration of the FRCP and RCP care coordination programs, although they have made a number of attempts to do so. Despite the identification of various options, no final decisions to revamp, merge, or eliminate programs have been agreed upon. The need for better collaboration and integration extends beyond the FRCP and RCP to also encompass other DOD and VA case management programs, such as DOD’s wounded warrior programs that also serve seriously and severely wounded, ill, and injured servicemembers and veterans. In October 2011, we recommended that the Secretaries of Defense and Veterans Affairs direct the co-chairs of the Senior Oversight Committee to expeditiously develop and implement a plan to strengthen functional integration across all DOD and VA care coordination and case management programs that serve recovering servicemembers, veterans, and their families, including—but not limited to—the FRCP and RCP. DOD and VA provided technical comments on the report, but neither specifically commented on our recommendation. We plan to track the extent to which progress has been made to address our recommendation. Information technology investment management: OMB reported that in fiscal year 2011, there were approximately 7,200 information technology (IT) investments totaling at least $79 billion. OMB provides guidance to agencies on how to report on their IT investments and requires agencies to identify each investment by a single functional category and sub- category. These categorizations are intended to enable OMB and others to analyze investments with similar functions, as well as identify and analyze potentially duplicative investments across agencies. We found that DOD and the Department of Energy (DOE) need to address potentially duplicative IT investments to avoid investing in unnecessary systems. In February 2012, we completed a review that examined the 3 largest categories of IT investments within DOD, DOE, and the Department of Homeland Security (DHS) and found that although the departments use various investment review processes to identify duplicative investments, 37 of our sample of 810 investments were potentially duplicative at DOD and DOE. These investments account for about $1.2 billion in IT spending for fiscal years 2007 through 2012 for these two agencies. We found that DOD and DOE had recently initiated specific plans to address potential duplication in many of the investments we identified—such as plans to consolidate or eliminate systems—but these initiatives had not yet led to the consolidation or elimination of duplicative investments or functionality. In addition, while we did not identify any potentially duplicative investments at DHS within our sample, DHS officials have independently identified several duplicative investments and systems. DHS has plans to further consolidate systems within these investments by 2014, which it expects to produce approximately $41 million in cost savings. DHS officials have also identified 38 additional systems that they have determined to be duplicative. Further complicating agencies’ ability to identify and eliminate duplicative investments is that investments are, in certain cases, misclassified by function. For example, one of DHS’s Federal Emergency Management Agency (FEMA) investments was initially categorized within the Employee Performance Management sub-function, but DHS agreed that this investment should be assigned to the Human Resources Development sub-function. Proper categorization is necessary in order to analyze and identify duplicative IT investments, both within and across agencies. In February 2012, we recommended that the Secretaries of DOD and DOE direct their Chief Information Officers to utilize existing transparency mechanisms to report on the results of their efforts to identify and eliminate, where appropriate, each potentially duplicative investment that we identified, as well as any other duplicative investments. The agencies agreed with our recommendation. We also recommended that DOD, DOE, and DHS correct the miscategorizations of the investments we identified and ensure that investments are correctly categorized in agency submissions, which would enhance the agencies’ ability to identify opportunities to consolidate or eliminate duplicative investments. DOD and DHS agreed with our recommendation, but DOE disagreed that two of the four investments we identified were miscategorized, explaining that its categorizations reflect funding considerations. However, OMB guidance indicates that investments should be classified according to their intended purpose. Consequently, we believe the recommendation is warranted. Department of Homeland Security grants: From fiscal years 2002 through 2011, FEMA, under DHS, allocated about $20.3 billion to grant recipients through four specific programs (the State Homeland Security Program, Urban Areas Security Initiative, Port Security Grant Program, and Transit Security Grant Program) to enhance the capacity of states, localities, and other entities, such as ports or transit agencies, to prevent, respond to, and recover from a terrorism incident. We found that DHS needs better project information and coordination to identify and mitigate potential unnecessary duplication among four overlapping grant programs. In February 2012, we identified multiple factors that contributed to the risk of FEMA potentially funding unnecessarily duplicative projects across these four grant programs. These factors include overlap among grant recipients, goals, and geographic locations, combined with differing levels of information that FEMA had available regarding grant projects and recipients. We also reported that FEMA lacked a process to coordinate application reviews across the four grant programs and grant applications were reviewed separately by program and were not compared across each other to determine where possible unnecessary duplication may occur. Specifically, FEMA’s Homeland Security Grant Program branch administered the Urban Areas Security Initiative and State Homeland Security Program while the Transportation Infrastructure Security branch administered the Port Security Grant Program and Transit Security Grant Program. We and the DHS Inspector General have concluded that coordinating the review of grant projects internally would give FEMA more complete information about applications across the four grant programs, which could help FEMA identify and mitigate the risk of unnecessary duplication across grant applications. We also identified actions FEMA could take to identify and mitigate any unnecessary duplication in these programs, such as collecting more complete project information as well as exploring opportunities to enhance FEMA’s internal coordination and administration of the programs. We suggested that Congress may wish to consider requiring DHS to report on the results of its efforts to identify and prevent duplication within and across the four grant programs, and consider these results when making future funding decisions for these programs. Science, Technology, Engineering, and Math education programs: Federal agencies obligated $3.1 billion in fiscal year 2010 on Science, Technology, Engineering, and Mathematics (STEM) education programs. These programs can serve an important role both by helping to prepare students and teachers for careers in STEM fields and by enhancing the nation’s global competitiveness. In addition to the federal effort, state and local governments, universities and colleges, and the private sector have also developed programs that provide opportunities for students to pursue STEM education and occupations. Recently, both Congress and the administration have called for a more strategic and effective approach to the federal government’s investment in STEM education. For example, Congress directed the Office of Science and Technology Policy, within the Executive Office of the President, to establish a committee under its component National Science and Technology Council to, among other things, develop a 5-year governmentwide STEM education strategic plan and identify areas of duplication among federal programs.that strategic planning is needed to better manage overlapping programs across multiple agencies. In January 2012, we reported that 173 of the 209 (83 percent) STEM education programs administered by 13 federal agencies overlapped to some degree with at least 1 other program in that they offered similar services to target groups—such as K-12 students, postsecondary students, K-12 teachers, and college faculty and staff—to achieve similar objectives. efforts to both create and expand programs across many agencies in an effort to improve STEM education and increase the number of students going into related fields. Overlapping programs can lead to individuals and institutions being eligible for similar services in similar STEM fields offered through multiple programs. For example, 177 of the 209 programs (85 percent) were primarily intended to serve two or more target groups. Overlap can frustrate federal officials’ efforts to administer programs in a comprehensive manner, limit the ability of decision makers to determine which programs are most cost-effective, and ultimately increase program administrative costs. GAO, Science, Technology, Engineering, and Mathematics Education: Strategic Planning Needed to Better Manage Overlapping Programs across Multiple Agencies, GAO-12-108 (Washington, D.C.: Jan. 20, 2012). Even when programs overlap, the services they provide and the populations they serve may differ in meaningful ways and would therefore not necessarily be duplicative. There may be important differences between the specific STEM field of focus and the program’s stated goals. For example, we identified 31 programs that provided scholarships or fellowships to doctoral students in the field of physics. However, one program’s goal was to increase environmental literacy related to estuaries and coastal watersheds while another program focused on supporting education in nuclear science, engineering, and related trades. In addition, programs may be primarily intended to serve different specific populations within a given target group. Of the 34 programs providing services to K-12 students in the field of technology, 10 are primarily intended to serve specific underrepresented, minority, or disadvantaged groups and 2 are limited geographically to individual cities or universities. However, little is known about the effectiveness of federal STEM education programs. Since 2005, when we first reported on this issue, we have found that the majority of programs have not conducted comprehensive evaluations of how well their programs are working. Agency and program officials would benefit from guidance and information sharing within and across agencies about what is working and how to best evaluate programs. This would not only help to improve individual program performance, but could also inform agency- and governmentwide decisions about which programs should continue to be funded. Furthermore, although the National Science and Technology Council is in the process of developing a governmentwide strategic plan for STEM education, we found that agencies have not used outcome measures for STEM programs in a way that is clearly reflected in their own performance plans and performance reports—key strategic planning documents. The absence of clear links between the programs and agencies’ planning documents may hinder decision makers’ ability to assess how agencies’ STEM efforts contribute to agencywide performance goals and the overall federal STEM effort. We reported in January 2012 that numerous opportunities exist to improve the planning for STEM programs. For example, we recommended that the National Science and Technology Council develop guidance for how agencies can better incorporate governmentwide STEM education strategic plan goals and their STEM education efforts into their respective performance plans and reports, as well as determining the types of evaluations that may be feasible and appropriate for different types of STEM education programs. We also recommended that the National Science and Technology Council work with agencies, through the strategic planning process, to identify STEM education programs that might be candidates for consolidation or elimination. OMB stated that our recommendations are critical to improving the provision of STEM education across the federal government. In separate comments, the Office of Science and Technology Policy said its own analysis of STEM education programs identified no duplicative programs and where it identified overlapping programs it found that some program characteristics differed. As an illustration, the Office of Science and Technology Policy explained that there could be two STEM education programs, one that worked with inner city children in New York City and another with rural children in North Dakota. We agree that it may be important to serve both of these populations, but it is not clear that two separate administrative structures are necessary to ensure both populations are served. The Office of Science and Technology Policy said it would address our recommendations in the 5-year Federal STEM Education Strategic Plan, which will be released in spring 2012. Furthermore, the President’s Fiscal Year 2013 budget established STEM education programs as one of fourteen cross-agency priority goals. These goals are intended to enhance progress in areas needing more cross- government collaboration. Coordination of space system organizations: U.S. government space systems—such as the Global Positioning System (GPS) and space- based weather systems—provide a wide range of capabilities to a large number of users, including the federal government, U.S. businesses and citizens, and other countries. Space systems are usually very expensive, often costing billions of dollars to acquire. More than $25 billion a year is appropriated to agencies for developing space systems. These systems typically take a long time to develop, and often consist of multiple components, including satellites, ground control stations, terminals, and user equipment. Moreover, the nation’s satellites are put into orbit by rockets that can cost more than $100 million per launch. We have found that costs of space programs tend to increase significantly from initial cost estimates. A variety of agencies, such as the Federal Aviation Administration, the National Oceanic and Atmospheric Administration, and DHS rely on government space systems to execute their missions, but responsibilities for acquiring space systems are diffused across various DOD organizations as well as the intelligence community and the National Aeronautics and Space Administration. Fragmented leadership has led to program challenges and potential duplication in developing multi-billion dollar space systems. In some cases, problems with these systems have been so severe that acquisitions were either canceled or the needed capabilities were severely delayed. Fragmented leadership and lack of a single authority in overseeing the acquisition of space programs have created challenges for optimally acquiring, developing, and deploying new space systems. This fragmentation is problematic not only because of a lack of coordination that has led to delays in fielding systems, but also because no one person or organization is held accountable for balancing governmentwide needs against wants, resolving conflicts and ensuring coordination among the many organizations involved with space acquisitions, and ensuring that resources are directed where they are most needed. For example, we reported in April 2009 that the coordination of GPS satellites and user equipment segments is not adequately synchronized due to funding shifts and diffuse leadership in the program, likely leading to numerous years of missed opportunities to utilize new capabilities. DOD has taken some steps to better coordinate the GPS segments by creating the Space and Intelligence Office within the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics and conducting enterprise level reviews of the GPS program. However, DOD has not yet established a single authority responsible for ensuring that all GPS segments, including user equipment, are synchronized to the maximum extent practicable. DOD has also undertaken a number of initiatives to improve leadership over defense space acquisitions, but these actions have not been in place long enough to determine whether acquisition outcomes will improve. Moreover, the initiatives do not extend to the space activities across the government. We and others, including the Commission to Assess United States National Security Space Management and Organization, have previously recommended a number of changes to the leadership of the space community and have consistently reported that a lack of strong, centralized leadership has led to inefficiencies and other problems. But the question as to what office or leadership structure above the department level would be effective and appropriate for coordinating all U.S. government space programs and setting priorities has not been addressed. We have suggested that OMB work with the National Security Council to assess whether a governmentwide oversight body for space acquisitions is needed. OMB agreed that coordinating space activities across the U.S. government has been and continues to be a major challenge, but is concerned that our recommendation would add an extra layer of space bureaucracy on top of ongoing coordination efforts as well as additional costs and possible confusion regarding roles and authorities among the existing mechanisms. We believe that the recommendation is sufficiently flexible to allow for an implementation approach that would address these concerns. Defense Language and Culture Training: DOD has emphasized the importance of developing language skills and knowledge of foreign cultures within its forces to meet the needs of current and future military operations and it has invested millions of dollars to provide language and culture training to thousands of servicemembers, including those deploying to ongoing operations. For example, we estimated that DOD invested about $266 million for fiscal years 2005 through 2011 to provide general purpose forces with training support, such as classroom instruction, computer-based training, and training aids. We found that DOD has not developed an integrated approach to reduce fragmentation in the military services’ language and culture training approaches and overlap in the content of training products acquired by the military services and other organizations. In May 2011, we reported that language and culture training within DOD is not provided through a single department- or servicewide program, but rather multiple DOD organizations oversee the development and acquisition of language and culture training and related products and deliver training.Secretary of Defense for Personnel and Readiness establish internal mechanisms to assist the department in reaching consensus with the military services and other DOD entities on training priorities, synchronize the development of service- and departmentwide plans with the budget process, and guide efforts to monitor progress. DOD agreed with our recommendation. We recommended that the Office of the Under We also found that the military services have not fully coordinated efforts to develop and acquire language and culture training products. As a result, the services have acquired overlapping and potentially duplicative products, such as reference materials containing country- or region- specific cultural information and computer software or web-based training programs that can be used within a distributed learning training environment. To illustrate, we analyzed 18 DOD language and culture training products and found that the content overlapped to some extent with at least one other training product. For Afghan languages, DOD invested in at least five products that were intended to build basic foreign language skills or specific language skills needed to perform military tasks. We suggested that the Office of the Under Secretary of Defense for Personnel and Readiness and the military services designate organizational responsibility and a supporting process to inventory and evaluate existing language and culture products and plans for additional investments, eliminate any unnecessary overlap and duplication, and adjust resources accordingly, as well as take steps to develop and contract for new products that can be used by more than one military service. DOD agreed that departmentwide coordination efforts could be improved and noted that our analysis would be useful in targeting specific areas for improvement. Federal facility risk assessments: Federal facilities continue to be vulnerable to terrorist attacks and other acts of violence, as evidenced by the 2010 attacks on the IRS building in Austin, Texas, and the federal courthouse in Las Vegas, Nevada, which resulted in loss of life. DHS’s Federal Protective Service (FPS) is the primary federal agency responsible for providing physical security and law enforcement services—including conducting risk assessments—for the approximately 9,000 federal facilities under the control and custody of the General Services Administration. We found that agencies are making duplicate payments for facility risk assessments by completing their own assessments, while also paying DHS for assessments that the department is not performing. We reported in June 2008 and also have recently found that multiple federal agencies are expending additional resources to assess their own facilities; although, according to an FPS official, the agency received $236 million from federal agencies for risk assessments and other security services in fiscal year 2011.completed risk assessments based on concerns about risks unique to its mission for approximately 65 facilities that it also paid FPS to assess. Additionally, Environmental Protection Agency officials said that the agency has conducted its own assessments based on concerns with the quality and thoroughness of FPS’s assessments. These assessments are conducted by teams of contractors and agency employees, cost an estimated $6,000, and can take a few days to a week to complete. For example, an IRS official stated that IRS FPS’s planned risk assessment tool is intended to provide FPS with the capability to assess risks at federal facilities based on threat, vulnerability, and consequence; and track countermeasures to mitigate those risks, but it is unclear if the tool will help minimize duplication. According to an official, FPS planned to use its Risk Assessment and Management Program to complete assessments of about 700 federal facilities in fiscal year 2010 and 2,500 facilities in fiscal year 2011. However, as we reported in July 2011, FPS experienced cost overruns, schedule delays, and operational issues with developing this program and as a result the agency could not use it to complete risk assessments. since November 2009, the agency has only completed four risk assessments using its Risk Assessment and Management Program. We identified several steps that DHS could take to address duplication in FPS’s risk assessments. For example, in July 2011 we recommended that DHS develop interim solutions for completing risk assessments while addressing challenges with the Risk Assessment and Management Program. In addition, in February 2012, we suggested DHS work with federal agencies to determine their reasons for duplicating the activities included in FPS’s risk assessments and identify measures to reduce this duplication. DHS agreed with our July 2011 recommendation and has begun taking action to address it, but did not comment on the action we identified in February 2012. GAO, Federal Protective Service: Actions Needed to Resolve Delays and Inadequate Oversight Issues with FPS’s Risk Assessment and Management Program, GAO-11-705R (Washington, D.C.: July 15, 2011). Our 2012 annual report also summarized 19 areas—beyond those directly related to duplication, overlap, or fragmentation—describing other opportunities for agencies or Congress to consider taking action that could either reduce the cost of government operations or enhance revenue collection for the Treasury. These cost saving and revenue- enhancing opportunities also span a wide range of federal government agencies and mission areas (see table 2). Examples of opportunities for agencies or Congress to consider taking action that could either reduce the cost of government operations or enhance revenue collections include: Air Force food service: According to Air Force officials, most Air Force installations have their own individual contracts for food service, with a total cost of approximately $150 million per year for all Air Force installations. We found that the Air Force has opportunities to reduce its overall food service costs by millions of dollars annually by reviewing food service contracts and adjusting them, when appropriate, to better meet the needs of its installations, including aligning labor needs with the actual number of meals served by the dining facilities. The Air Force recently undertook an initiative to improve food service at six pilot installations, with intentions to eventually expand this initiative to more Air Force installations. Among other intended outcomes, Air Force officials stated that the first group of pilot installations achieved cost savings when compared to their previous contracts while also increasing hours of operation in the dining facilities and serving an additional 500,000 meals per year. We compared the estimated amount of food service labor at the six pilot installations under prior contracts to the projected work schedules under the initiative and found that by adjusting staffing levels for contractor staff at dining facilities, the contractor reduced the total number of labor hours at five of the six pilot installations by 53 percent. For example, at one installation, the number of estimated labor hours decreased from approximately 2,042 hours per week to 920. For the sixth installation where the labor hours did not decrease, the Air Force Audit Agency had recently conducted a review that found that the number of food service personnel did not align with workload estimates. As a result, the Air Force renegotiated its workload estimates and pay rates, resulting in savings of approximately $77,000 annually. During our review, we discussed the potential opportunity for achieving additional savings by reviewing staffing levels at other installations outside of the initiative with Air Force officials. As a result, the Air Force issued a memorandum directing a review of existing food service contracts to determine if the contracts meet current mission needs. The memorandum indicated that special attention must be given to whether the food service contract workload estimates were properly aligned with the actual number of meals served. In July 2011, we recommended that the Secretary of the Air Force monitor the actions taken in response to the direction to review food service contracts, and take actions, as appropriate, to ensure that cost-savings measures are implemented. According to Air Force officials, eight installations have recently reviewed and renegotiated their food service contracts for a total savings of over $2.5 million per year. The potential exists for other installations that rely on contracts to meet their food service needs to achieve similar financial benefits. For example, the Air Force has requested that each of its installations conduct a 100 percent review of existing food service contracts to determine if their current contract workload estimates meet current mission needs or if the contracts require modification. In addition, the Office of the Secretary of Defense planned to share the results of the Air Force’s review of its food service labor costs to achieve cost savings with the other military services. Navy information technology network: In 2007, the Navy established the Next Generation Enterprise Network program (NGEN) to replace and improve the Navy Marine Corps Intranet. According to the President’s fiscal year 2012 budget request, the NGEN program has spent about $434 million on work associated with the transition from the Navy Marine Corps Intranet. The Navy estimated that NGEN would cost approximately $50 billion to develop, operate, and maintain through fiscal year 2025. We found that better informed decisions were needed to ensure a more cost- effective acquisition approach for the Navy’s NGEN program. We reported in March 2011 that the Navy selected an approach that was not considered as part of its analysis of alternatives and that it estimated would cost at least $4.7 billion more than any of the four assessed alternatives.also did not provide a reliable basis for program execution because it did not adequately satisfy key schedule estimating best practices, such as establishing the critical path (the sequence of activities that, if delayed, impacts the planned completion date of the project) and assigning resources to all work activities. We also found that the Navy’s acquisition decisions were not always performance- or risk-based. In particular, senior executives approved the NGEN program’s continuing progress in the face of known performance shortfalls and risks. In addition, we reported that the Navy’s schedule for NGEN To address these weaknesses, we recommended in March 2011 that the Navy limit further investment in NGEN until it conducts an immediate interim review to reconsider the selected acquisition approach. We also identified an additional action that the Navy could take to facilitate implementation of the approach resulting from this review by ensuring that the NGEN schedule reflects key schedule estimating practices and future program reviews and decisions fully reflect the program’s performance and exposure to risk. DOD agreed with our recommendation to ensure that future NGEN acquisition reviews and decisions fully reflect the state of the program’s performance and its exposure to risks. The department did not agree with our recommendation to reconsider its acquisition approach; however, the Navy is currently in the process of reviewing and making changes to the NGEN acquisition strategy. We are undertaking work that will assess the extent to which the Navy has conducted its interim review to reconsider its acquisition approach and evaluate the revised strategy. DOD health care costs: DOD spends billions of dollars annually on its worldwide healthcare system. Currently, health care costs constitute nearly 10 percent of DOD’s baseline budget request. For its fiscal year 2012 budget, according to DOD documentation, DOD received $52.7 billion to provide health care to approximately 9.6 million active duty servicemembers, reservists, retirees, and their dependents. DOD recognizes that it must address the rate at which health care costs are rising and has stated that it intends to continue to develop health care initiatives that will improve the quality and standard of care, while reducing growth in overall costs. Our ongoing work has found that DOD has identified 11 initiatives intended to slow the rise in its health care costs, but it has not fully applied results-oriented management practices to its efforts or an overall monitoring process, which limits its effectiveness in implementing these initiatives and achieving related cost savings goals. DOD’s initiatives consist primarily of changes to clinical and business practices in areas ranging from primary care to psychological health to purchased care reimbursement practices. Partly in response to our ongoing work assessing DOD’s management of its initiatives, the department has taken some initial steps toward managing their implementation by developing a number of high-level, non-monetary metrics and corresponding goals for each strategic initiative, and other management tools, such as implementation plans that will include key elements such as investment costs and savings estimates. However, DOD currently has completed only one implementation plan, which contains the one available cost savings estimate among all the initiatives. Without completing its plans and incorporating elements such as problem definitions, resources needed, goals, performance measures, and cost estimates into them, DOD will not be fully aware if these initiatives are achieving projected cost savings and other performance goals. In addition, DOD has not completed the implementation of an overall monitoring process across its portfolio of initiatives for overseeing the initiatives’ progress or identified accountable officials and their roles and responsibilities for all of its initiatives. DOD’s 2007 Task Force on the Future of Military Health Care noted that the current Military Health System does not function as a fully integrated health care system.example, while the Assistant Secretary of Defense for Health Affairs controls the Defense Health Program budget, the services directly supervise their medical personnel and manage their military treatment facilities. Therefore, as Military Health System leaders develop and implement their plans to control rising health care costs, they will need to work across multiple authorities and areas of responsibility. Until DOD fully implements a military-wide mechanism to monitor progress and identify accountable officials, including their roles and responsibilities across its portfolio of initiatives, DOD may be hindered in its ability to achieve a more cost-efficient military health system. In order to enhance its efforts to manage rising health care costs and demonstrate sustained leadership commitment for achieving the performance goals of the Military Health System’s strategic initiatives, we plan to recommend as part of our ongoing work that DOD complete and fully implement detailed implementation plans for each of the approved health care initiatives in a manner consistent with results-oriented management practices, such as the inclusion of upfront investment costs and cost savings estimates; and complete the implementation of an overall monitoring process across its portfolio of initiatives for overseeing the initiatives’ progress and identifying accountable officials and their roles and responsibilities for all of its initiatives. We believe that DOD may realize projected cost savings and other performance goals by taking these actions to help ensure the successful implementation of its cost savings initiatives. Given that DOD identified these initiatives as steps to slow the rapidly growing costs of its medical program, if implemented these initiatives could potentially save DOD millions of dollars. DOD generally agreed with our planned recommendations. Excess uranium inventories: DOE maintains large inventories of depleted and natural uranium that it no longer requires for nuclear weapons or fuel for naval nuclear propulsion reactors. We reported in March and April 2008 and again in June 2011 that under certain conditions, the federal government could generate billions of dollars by marketing inventories of excess uranium to commercial power plants to use in their reactors. Specifically, we identified options that DOE could take to market the excess uranium inventories for commercial use. For example, DOE could contract to re-enrich inventories of depleted uranium hexafluoride (a by- product of the uranium enrichment process), consisting of hundreds of thousands of metric tons of material that are stored at DOE’s uranium enrichment plants. Although DOE would have to pay for processing, the resulting re-enriched uranium could be potentially sold if the sales price of the uranium exceeded processing costs. DOE could also pursue an option of selling the depleted uranium inventory “as-is”. This approach would require DOE to obtain the appropriate statutory authority to sell depleted uranium in its current unprocessed form. Firms such as nuclear power utilities and enrichment companies might find it cost effective to purchase the uranium and re-enrich it as a source of nuclear fuel. If executed in accordance with federal law, DOE sales of natural uranium could generate additional revenue for the government. Natural uranium on its own cannot fuel nuclear reactors and weapons. Rather, it is shipped to a conversion facility, where it is converted for the enrichment process. We reported in September 2011 that in 7 transactions executed since 2009 DOE has, in effect, sold nearly 1,900 metric tons of natural uranium into the market, using a contractor as a sales agent, to fund environmental cleanup services. DOE characterized these sales as barter transactions—exchanges of services (environmental cleanup work) for materials (uranium). While DOE received no cash directly from the transactions, it allowed its contractor to keep cash from the sales, which DOE would otherwise have owed to the United States Treasury. Because federal law requires an official or agent of the government receiving money for the government from any source to deposit the money in the Treasury, we found that these transactions violated the miscellaneous receipts statute. We have reported that congressional action may be needed to overcome legal obstacles to the pursuit of certain options for the sale of depleted and natural uranium. Specifically, our March 2008 report suggested that Congress may wish to explicitly provide direction about whether and how DOE may sell or transfer depleted uranium in its current form. Our September 2011 report suggested that if Congress sees merit in using the proceeds from the barter, transfer, or sale of federal uranium assets to pay for environmental cleanup work, it could consider providing DOE with explicit authority to barter excess uranium and to retain the proceeds from these transactions. We also suggested that Congress could direct DOE to sell uranium for cash and make those proceeds available by appropriation for environmental cleanup work. Congress has taken some actions in response to our work. For example, the Consolidated Appropriations Act, 2012, among other things, requires the Secretary of Energy to provide congressional appropriations committees with information on the transfer, sale, barter, distribution, or other provision of uranium in any form and an estimate of the uranium value along with the expected recipient of the material. The Consolidated Appropriations Act, 2012 also requires the Secretary to submit a report evaluating the economic feasibility of re-enriching depleted uranium. Medicare and Medicaid fraud detection systems: We have designated Medicare and Medicaid as high-risk programs, in part due to their susceptibility to improper payments—estimated to be about $65 billion in fiscal year 2011. To integrate data about all types of Medicare and Medicaid claims and improve its ability to detect fraud, waste, and abuse in these programs, the Centers for Medicare and Medicaid Services (CMS) initiated two information technology programs—the Integrated Data Repository, which is intended to provide a centralized repository of claims data for all Medicare and Medicaid programs, and One Program Integrity, a set of tools that enables CMS contractors and staff to access and analyze data retrieved from the repository. According to CMS officials, the systems are expected to provide financial benefits of more than $21 billion by the end of fiscal year 2015. We found that CMS needs to ensure widespread use of technology to help detect and recover billions of dollars of improper payments of claims and better position itself to determine and measure financial and other benefits of its systems. We reported in June 2011 that CMS had developed and begun using both systems, but was not yet positioned to identify, measure, or track benefits realized from these programs. For example, although in use since 2006, the Integrated Data Repository did not have Medicaid claims data or information from other CMS systems that store and process data related to the entry, correction, and adjustment of claims due to funding and other technical issues. These data are needed to help analysts prevent improper payments. Program officials told us that they had begun incorporating these data in September 2011 and planned to make them available to program integrity analysts in spring 2012. Regarding Medicaid data, agency officials stated that they did not account for difficulties associated with integrating data from the various types and formats of data stored in disparate state systems or develop reliable schedules for its efforts to incorporate these data. In particular, program officials did not consider certain risks and obstacles, such as technical challenges, as they developed schedules for implementing the Integrated Data Repository. Lacking reliable schedules, CMS may face additional delays in making available all the data that are needed to support enhanced program integrity efforts. In addition, CMS had not trained its broad community of analysts to use the One Program Integrity system because of delays introduced by a redesign of initial training plans that were found to be insufficient. Specifically, program officials planned for 639 analysts to be using the system by the end of fiscal year 2010; however only 41—less than 7 percent—were actively using it as of October 2010. Because of these delays, the initial use of the system was limited to a small number of CMS staff and contractors. In updating the status of the training efforts in November 2011, although we did not validate these data, CMS officials reported that a total of 215 program integrity analysts had been trained and were using the system. However, program officials had not finalized plans and schedules for training all intended users. In June 2011, we recommended that CMS take a number of actions to help ensure the program’s success toward achieving the billions of dollars in financial benefits that program integrity officials projected, such as finalizing plans and reliable schedules for incorporating additional data into the Integrated Data Repository and conducting training for all analysts who are intended to use the One Program Integrity system. CMS agreed with our recommendations and identified steps the agency is taking to implement them. We plan to conduct additional work to determine whether CMS has addressed our recommendations and identified financial benefits and progress toward meeting agency goals resulting from the implementation of its fraud detection systems. Medicare Advantage: In fiscal year 2010, the federal government spent about $113 billion on the Medicare Advantage program, a private plan alternative to the original Medicare program that covers about a quarter of Medicare beneficiaries. CMS, the agency that administers Medicare, adjusts payments to Medicare Advantage plans based on the health status of each plan’s enrollees. The agency could achieve billions of dollars in additional savings by better adjusting for differences between Medicare Advantage plans and traditional Medicare providers in the reporting of beneficiary diagnoses. CMS calculates a risk score for every beneficiary—a relative measure of health status—which is based on a beneficiary’s demographic characteristics, such as age and gender, and major medical conditions. To obtain information on the medical conditions of beneficiaries in traditional Medicare, CMS generally analyzes diagnoses—numerically coded by providers into Medicare defined categories—on the claims that providers submit for payment. For beneficiaries enrolled in Medicare Advantage plans, which do not submit claims, CMS requires plans to submit diagnostic codes for each beneficiary. Analysis has shown that risk scores are higher for Medicare Advantage beneficiaries than for beneficiaries in traditional Medicare with the same characteristics. Medicare Advantage plans have a financial incentive to ensure that all relevant diagnoses are coded, as this can increase beneficiaries’ risk scores and, ultimately, payments to the plans. Many traditional Medicare providers are paid for services rendered, and providers have less incentive to code all relevant diagnoses. Policymakers have expressed concern that risk scores for Medicare Advantage beneficiaries have grown at a faster rate than those for traditional Medicare, in part because of differences in coding diagnoses. In 2005, Congress directed CMS to analyze and adjust risk scores for differences in coding practices, and in 2010, CMS estimated that 3.41 percent of Medicare Advantage risk scores were due to differences in diagnostic coding practices. It reduced the scores by an equal percentage, thereby saving $2.7 billion. We identified shortcomings in CMS’s method for adjusting Medicare Advantage payments to reflect differences in diagnostic coding practices between Medicare Advantage and traditional Medicare. CMS did not use the most recent risk score data for its estimates; account for the increasing annual impact of coding differences over time; or account for beneficiary characteristics beyond differences in age and mortality between the Medicare Advantage and traditional Medicare populations, such as sex, Medicaid enrollment status, and beneficiary residential location. We estimated that a revised methodology that addressed these shortcomings could have saved Medicare between $1.2 billion and $3.1 billion in 2010 in addition to the $2.7 billion in savings that CMS’s 3.41 percent adjustment produced. We expect that savings in future years will be greater. In January 2012, we recommended that CMS take action to help ensure appropriate payments to Medicare Advantage plans and improve the accuracy of the adjustment made for differences in coding practices over time. The Department of Health and Human Services characterized our results as similar to those obtained by CMS. User fees: User fees assign part or all of the costs of federal programs and activities—the cost of providing a benefit that is above and beyond what is normally available to the general public—to readily identifiable users of those programs and activities. Regularly reviewing federal user fees and charges can help the Congress and federal agencies identify opportunities to address inconsistent federal funding approaches and enhance user financing, thereby reducing reliance on general fund appropriations. The Chief Financial Officers Act of 1990 (CFO Act) requires agencies to biennially review their fees and to recommend fee adjustments, as appropriate; additionally, OMB Circulars No. A-11 and No. A-25 direct agencies to discuss the results of these reviews and any resulting proposals, such as adjustments to fee rates, in the CFO annual report required by the CFO Act. In 2011, we surveyed the 24 agencies covered by the CFO Act on their review of user fees. 21 of the 23 agencies that responded reported charging more than 3,600 fees and collecting nearly $64 billion in fiscal year 2010, but agency responses indicated varying levels of adherence to the biennial review and reporting requirements. The survey responses indicated that for most fees, agencies (1) had not discussed fee review results in annual reports, and (2) had not reviewed the fees and were inconsistent in their ability to provide fee review documentation. We found specific examples where a comprehensive review of user fees could lead to cost savings or enhanced revenues for the government. For example, reviewing and adjusting as needed the air passenger immigration inspection user fee to fully recover the cost of the air passenger immigration inspection activities could reduce general fund appropriations for those activities. International air passengers arriving in the United States are subject to an immigration inspection to ensure that they have legal entry and immigration documents. International air passengers pay the immigration inspection fee when they purchase their airline tickets, but the rate has not been adjusted since fiscal year 2002. In recent years, U.S. Immigration and Customs Enforcement and U.S. Customs and Border Protection, the agencies responsible for conducting inspection activities, have relied on general fund appropriations to help fund activities for which these agencies have statutory authority to fund with user fees. In fiscal year 2010, this amounted to over $120 million for the U.S. Customs and Border Protection alone. In September 2007, we recommended that the Secretary of Homeland Security report immigration inspection activity costs to ensure fees are divided between U.S. Immigration and Customs Enforcement and U.S. Customs and Border Protection according to their respective immigration inspection activity costs and to develop a legislative proposal to adjust the air passenger immigration inspection fee if it was found to not recover the costs of inspection activities. DHS agreed with our recommendations, but some of the recommendations remain unimplemented. In February 2012, we suggested that Congress may wish to require the Secretary of Homeland Security to fully implement these recommendations which would serve to help to better align air passenger immigration inspection fee revenue with the costs of providing these services and achieve cost savings by reducing the reliance on general fund appropriations. Similarly, we identified options for adjusting the passenger aviation security fee, a uniform fee on passengers of U.S. and foreign air carriers originating at airports in the United States. Passenger aviation security fees collected offset amounts appropriated to the Transportation Security Administration for aviation security. In recent years, several options have been considered for increasing the passenger aviation security fee. However, the fee has not been increased since it was imposed in February 2002. We suggested that Congress may wish to consider increasing the passenger security fee. Such an increase could further offset the need for appropriated funds to support civil aviation security costs from about $2 billion to $10 billion over 5 years. Tax gap: The financing of the federal government depends largely on the IRS’s ability to collect federal taxes every year, which totaled $2.34 trillion in 2010. For the most part, taxpayers voluntarily report and pay their taxes on time. However the size and persistence of the tax gap— estimated in 2012 for the 2006 tax year to be a $385 billion difference between the taxes owed and taxes IRS ultimately collected for that year— highlight the need to make progress in improving compliance by those taxpayers who do not voluntarily pay what they owe. Given that tax noncompliance ranges from simple math errors to willful tax evasion, no single approach is likely to fully and cost-effectively address the tax gap. A multifaceted approach to improving compliance that includes enhancing IRS’s enforcement and service capabilities can help reduce the tax gap. One approach we have identified is the expansion of third-party information reporting, which improves taxpayer compliance and enhances IRS’s enforcement capabilities. The tax gap is due predominantly to taxpayer underreporting and underpayment of taxes owed. At the same time, taxpayers are much more likely to report their income accurately when the income is also reported to IRS by a third party. By matching information received from third-party payers with what payees report on their tax returns, IRS can detect income underreporting, including the failure to file a tax return. Expanding information reporting to cover payments for services by all owners of rental real estate and to cover payments to corporations for services would improve payee compliance. The Joint Committee on Taxation estimated revenue increases of $5.9 billion over a 10-year period for just these two expansions. In our 2011 annual report, we suggested a wide range of actions for the Congress and the executive branch to consider such as developing strategies to better coordinate fragmented efforts, implementing executive initiatives to improve oversight and evaluation of overlapping programs, considering enactment of legislation to facilitate revenue collection and examining opportunities to eliminate potential duplication through streamlining, collocating, or consolidating efforts or administrative services. Our assessment of progress made as of February 10, 2012, found that 4 (or 5 percent) of the 81 areas GAO identified were addressed; 60 (or 74 percent) were partially addressed; and 17 (or 21 percent) were not addressed. Appendix I presents GAO’s assessment of the overall progress made in each area. We applied the following criteria in making these overall assessments for the 81 areas. We determined that an area was: “addressed” if all actions needed in that area were addressed; “partially addressed” if at least one action needed in that area showed some progress toward implementation, but not all actions were addressed; and “not addressed” if none of the actions in that area were addressed. As of February 10, 2012, the majority of 176 actions needed within the 81 areas identified by GAO have been partially addressed. Specifically, 23 (or 13 percent) were addressed; 99 (or 56 percent) were partially addressed; 54 (or 31 percent) were not addressed. We applied the following criteria in making these assessments. For legislative branch actions: “addressed,” means relevant legislation is enacted and addresses all aspects of the action needed; “partially addressed,” means a relevant bill has passed a committee, the House or Senate, or relevant legislation has been enacted, but only addressed part of the action needed; and “not addressed,” means a bill may have been introduced, but did not pass out of a committee, or no relevant legislation has been introduced. For executive branch actions: “addressed,” means implementation of the action needed has been completed. “partially addressed,” means the action needed is in development; started but not yet completed; and “not addressed,” means the administration and/or agencies have made minimal or no progress toward implementing the action needed. In addition to the actions reported above, Congress has held a number of hearings and OMB has provided guidance to executive branch agencies on areas that we identified that could benefit from increased attention and ongoing oversight. Since the issuance of our March 2011 report, we have testified numerous times on our first annual report and on specific issues highlighted in the report. Many federal efforts, including those related to protecting food and agriculture, providing homeland security, and ensuring a well trained and educated workforce, transcend more than one agency, yet agencies face a range of challenges and barriers when they attempt to work collaboratively. Both Congress and the executive branch have recognized this, and in January 2011, the GPRA Modernization Act of 2010 (the Act) was enacted, updating the almost two-decades-old Government Performance and Results Act. The Act establishes a new framework aimed at taking a more crosscutting and integrated approach to focusing on results and improving government performance. Effective implementation of the Act could play an important role in clarifying desired outcomes, addressing program performance spanning multiple organizations, and facilitating future actions to reduce unnecessary duplication, overlap, and fragmentation. The Act requires OMB to coordinate with agencies to establish outcome- oriented goals covering a limited number of crosscutting policy areas as well as goals to improve management across the federal government, and to develop a governmentwide performance plan for making progress toward achieving those goals. The performance plan is to, among other things, identify the agencies and federal activities—including spending programs, tax expenditures, and regulations—that contribute to each goal, and establish performance indicators to measure overall progress toward these goals as well as the individual contribution of the underlying agencies and federal activities. The President’s budget for fiscal year 2013 includes 14 such crosscutting goals. Aspects of several of these goals—including Science, Technology, Engineering, and Math Education, Entrepreneurship and Small Businesses, Job Training, Cybersecurity, Information Technology Management, Procurement and Acquisition Management, and Real Property Management—are discussed in our 2011 or 2012 annual report. The Act also requires similar information at the agency level. Each agency is to identify the various federal organizations and activities—both within and external to the agency—that contribute to its goals, and describe how the agency is working with other agencies to achieve its goals as well as any relevant crosscutting goals. OMB officials stated that their approach to responding to this requirement will address fragmentation among federal programs. The areas identified in our annual reports are not intended to represent the full universe of duplication, overlap, or fragmentation within the federal government, but we have conducted a systematic examination across the federal government to ensure that we have identified major instances of potential duplication, overlap, and fragmentation governmentwide by the time we issue our third annual report in 2013. Our examination involved a multiphased approach. First, to identify potential areas of overlap, we examined the major budget functions and sub-functions of the federal government as identified by OMB. This was particularly helpful in identifying issue areas involving multiple government agencies. Second, our subject matter experts examined key missions and functions of federal agencies—or organizations within large agencies—using key agency documents, such as strategic plans, agency organizational charts, and mission and function documents. This further enabled us to identify areas where multiple agencies have similar goals, or where multiple organizations within federal agencies are involved in similar activities. Next, we canvassed a wide range of published sources—such as congressional hearings and reports by the Congressional Budget Office, OMB, various government audit agencies, and private think tanks—that addressed potential issues of duplication, overlap, and fragmentation. We have work under way or planned in the coming year to evaluate major instances of duplication, overlap, or fragmentation that we have not yet covered in our first two annual reports. Identifying, preventing, and addressing unnecessary duplication, overlap, and fragmentation within the federal government is clearly challenging. 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. Implementing the Act—such as its emphasis on establishing priority outcome-oriented goals, including those covering crosscutting policy areas—could play an important role in clarifying desired outcomes, addressing program performance spanning multiple organizations, and facilitating future actions to reduce unnecessary duplication, overlap, and fragmentation. Continued oversight by Congress and OMB will also be critical. In conclusion Mr. Chairman, Ranking Member Cummings, and Members of the Committee, opportunities exist for the Congress and federal agencies to continue to address the identified actions needed in our 2011 and 2012 annual reports. Collectively, these reports show that, if the actions are implemented, the government could potentially save tens of billions of dollars annually. A number of the issues are difficult to address and implementing many of the actions identified will take time and sustained leadership. This concludes my prepared statement. I would be pleased to answer any questions you may have. Thank you. For further information on this testimony or our February 28, 2012, reports, please contact Janet St. Laurent, Managing Director, Defense Capabilities and Management, who may be reached at (202) 512-4300, or [email protected]; and Zina Merritt, Director, Defense Capabilities and Management, who may be reached at (202) 512-4300, or [email protected]. Specific questions about individual issues may be directed to the area contact listed at the end of each area summary in the reports. Contact points for our Congressional Relations and Public Affairs offices may be found on the last page of this statement. This appendix presents a summary of GAO’s assessment of the overall progress made in each of the 81 areas that we identified in our March 2011 report in which the Congress and the executive branch could take actions to reduce or eliminate potential duplication, overlap, and fragmentation or achieve other potential financial benefits. For each of the 34 areas related to duplication, overlap, or fragmentation that GAO identified, table 3 presents GAO’s assessment of the overall progress made in implementing the actions needed in that area. For each of the 47 areas where GAO identified cost saving or revenue enhancement opportunities, table 4 presents GAO’s assessment of the overall progress made in implementing the actions GAO identified. As noted above, table 4 presents GAO’s assessment of the overall progress made in addressing the 47 cost-saving and revenue-enhancing areas.

This testimony discusses our 2012 annual report, which presents 51 areas where programs may be able to achieve greater efficiencies or become more effective in providing government services by reducing potential duplication, overlap, or fragmentation in federal programs and activities. We have also continued to monitor developments in the 81 areas that we identified a year ago in the first report we issued in this series. Our 2011 follow-up report released today describes the extent to which progress has been made to address these areas. This testimony is based on our 2012 annual and 2011 follow-up reports. Specifically, it addresses: (1) federal programs or functional areas where unnecessary duplication, overlap, or fragmentation exists, as well as other opportunities for potential cost savings or enhanced revenues; (2) status of actions taken by Congress and the executive branch to address the areas we identified in our 2011 report; (3) aspects of the GPRA Modernization Act of 2010 that may contribute to addressing and preventing duplication, overlap and fragmentation among federal programs; and (4) our approach to identifying duplication or cost savings in federal programs and activities. We conducted our work in accordance with generally accepted government auditing standards or with our quality assurance framework, as appropriate. For issues where information is being reported on for the first time in this report, we sought comments from the agencies involved, and incorporated those comments as appropriate. In updating the actions we identified in the 2011 annual report, we asked the agencies involved and the Office of Management and Budget (OMB) for their review and incorporated comments as appropriate. We identified 51 areas in our 2012 annual report, including 32 areas of potential duplication, overlap, or fragmentation as well as 19 opportunities for agencies or Congress to consider taking action that could either reduce the cost of government operations or enhance revenue collections for the Treasury. These areas involve a wide range of government missions including agriculture, defense, economic development, education, energy, general government, health, homeland security, international affairs, science and the environment, and social services. Within and across these missions, the 2012 annual report touches on virtually all major federal departments and agencies. We expanded the scope of our work for this year’s report to focus on areas where a mix of federal approaches is used, such as tax expenditures, direct spending, and federal grant or loan programs. In our 2011 follow-up report, we assessed the extent to which Congress and the executive branch addressed the 81 areas—including a total of 176 actions—to reduce or eliminate unnecessary duplication, overlap, or fragmentation or achieve other potential financial benefits. As of February 10, 2012, Congress and the executive branch have made some progress in addressing the majority of the 81 areas we identified; however, additional steps are needed to fully implement the remaining actions. Specifically, our assessment found that all actions had been addressed in 4 areas, partially addressed in 60 areas, and not addressed in 17 areas. In addition, OMB has instructed agencies to consider areas of duplication or overlap identified in our 2011 report and by others in their fiscal year 2013 budget submissions and management plans. The OMB guidance also advised agencies to take a number of other steps to enhance efficiency, such as identifying and including in their budget submissions cost-saving efforts that will improve operational efficiency and taxpayers’ rate of return, including program integration, reorganizations within and between agency components, and resource realignment to improve public services. Under requirements established by the GPRA Modernization Act of 2010 (the Act). OMB is also required to coordinate with agencies to establish outcome-oriented goals covering a limited number of crosscutting policy areas as well as goals to improve management across the federal government, and develop a governmentwide performance plan for making progress toward achieving those goals. The President’s budget for 2013 includes 14 such crosscutting policy goals. Aspects of several of these goals—including Science, Technology, Engineering, and Math Education, Entrepreneurship and Small Businesses, Job Training, Cybersecurity, Information Technology Management, Procurement and Acquisition Management, and Real Property Management—are discussed in our March 2011 and February 2012 reports. The Act’s requirements provide a much needed basis for more fully integrating a wide array of potentially duplicative, overlapping, or fragmented federal activities as well as a cohesive perspective on the long-term goals of the federal government focused on priority policy areas. Opportunities exist for the Congress and federal agencies to continue to address the needed actions identified in our March 2011 and February 2012 reports. Collectively, these reports show that, if the actions are implemented, the government could potentially save tens of billions of dollars annually. Cost savings related to reducing or eliminating duplication, overlap, and fragmentation can be difficult to estimate because the portion of agency budgets devoted to certain programs or activities is often unclear, or needed information on program performance or costs is not readily available. In some cases, there is sufficient information to estimate potential savings or other benefits if actions are taken to address individual issues. In other cases, estimates of cost savings or other benefits would depend upon what congressional and executive branch decisions were made, including how certain of our recommendations are implemented. Nevertheless, considering the amount of program dollars involved in the issues we have identified, even limited adjustments could result in significant savings. Additionally, we have found that agencies can often realize other kinds of benefits, such as improved customer service and decreased administrative burdens.

You are an expert at summarizing long articles. Proceed to summarize the following text: DOE is the largest civilian contracting agency in the federal government; about 90 percent of its annual budget is spent on contracts for carrying out its activities and operating its facilities. In fulfilling their missions, DOE’s program offices are responsible for contracting for and overseeing the execution of the department’s major projects, many of which are first-of-a- kind efforts and thus involve substantial risk and may also be separate line items in DOE’s budget. For example: Environmental Management’s mission is to accelerate risk reduction and cleanup of the environmental legacy of the nation’s nuclear weapons program and government-sponsored nuclear energy research. Environmental Management has used a single sitewide contract that involves several major projects costing billions of dollars for cleaning up some of its former facilities. In addition, Environmental Management has undertaken many large-scale individual projects. For example, the Hanford Tank Waste Treatment and Immobilization Plant project is an important part of the cleanup effort at Hanford, Washington. The project, which was initiated in December 2000, is intended to treat and prepare for disposal 55 million gallons of high-level radioactive waste by July 2011 at an estimated cost of $5.7 billion. NNSA’s mission is to meet national security requirements by, among other things, maintaining and enhancing the safety, reliability, and performance of the U.S. nuclear weapons stockpile, which includes maintaining the capability to design, produce, and test nuclear weapons. To fulfill this mission, NNSA undertakes such projects as refurbishing W-80 nuclear warheads to extend their operational lives. The W-80 refurbishment project was initiated in September 1998 and is expected to be completed in fiscal year 2017 at an estimated cost of about $2.45 billion. The Office of Science’s mission is to deliver the remarkable discoveries and scientific tools that transform our understanding of energy and matter and advance the national, economic, and energy security of the United States. To fulfill this mission, the Office of Science has constructed specialized scientific research facilities, such as the Spallation Neutron Source at the Oak Ridge National Laboratory. This project consists of an accelerator system that delivers short (microsecond) pulses to a target/moderator system where neutrons are produced by a nuclear reactor process called spallation. This project is designed to provide the next-generation spallation neutron source for neutron scattering and related research in broad areas of the physical, chemical, materials, biological, and medical sciences. The Spallation Neutron Source project began in October 1998 and is expected to be completed in June 2006 at an estimated cost of about $1.4 billion. DOE’s principal official responsible for the execution of a major project is the federal project director, who is located at the project site and is supported by project managers. The project director is responsible for overseeing a project’s design, execution, budgeting, and performance. For contracts with award fee provisions, senior DOE program office managers consult with contracting and project officers to assess a contractor’s performance and determine the appropriate award fees. In addition to the contract management problems our prior reports have identified, a recent series of reports by the National Research Council of the National Academies identified weaknesses in DOE’s project management. The council’s 2004 report cited several factors that have contributed to the slow pace of project management improvements and resulted in inconsistent project performance. These factors include the desire of DOE site office personnel and contractors to be independent of oversight from DOE headquarters, insufficient support for training, inadequate numbers of DOE project managers to oversee contractors’ performance, and the absence of a champion for project managers and process improvement who has the authority to ensure both adherence to policies and procedures and the availability of necessary funding and personnel resources. During the past year, DOE has continued to implement contracting and project management reforms. In particular, in December 2003, the Secretary of Energy appointed an Associate Deputy Secretary with responsibility, among other things, for both contract and project management, addressing a key National Research Council concern. DOE also entered into an agreement with the Defense Contract Management Agency, within the Department of Defense, to support the certification of contractors’ project management systems. More recently, DOE is developing an action plan in response to the Civil Engineering Research Foundation’s assessment of departmental project management that recommended that DOE, among other things, develop a core group of highly qualified project directors, require peer reviews for first-of-a-kind and technically complex projects when the projects’ preliminary baselines are approved, and enhance PARS by making the data more timely. Furthermore, to improve its contract award process, DOE revised its Acquisition Guide by adding chapter 16, which lists the various contract types available and discusses their respective advantages and constraints. To address future skill gaps in its procurement organization, DOE established an acquisition career development program and has certified 90 percent of its procurement professionals as attaining mandatory training and experience standards under this program. Within the Office of Environmental Management, a series of contract and project management improvements have occurred consisting of, but not limited to, providing additional training and managing more of the cleanup work as projects. Within the Office of Contract Management, a series of contract award and administration initiatives have been completed. These initiatives include, among other things, strengthening contract competition policies and practices, improving acquisition workforce effectiveness, increasing small business utilization throughout DOE, and strengthening DOE management and fiscal effectiveness. For fiscal year 2005, the Office of Contract Management has multiple initiatives planned, including identifying and implementing follow-on actions related to the DOE management challenge pertaining to contract competition. Because many of DOE’s major projects are first-of-a-kind and thus involve substantial risk, DOE’s contracting decisions can be critical to the successful completion of its major projects. However, DOE could use performance incentives more effectively for controlling costs and schedules for its major projects if the department developed criteria for using different performance incentives and assigned responsibility for reviewing a contract’s project management provisions prior to award. For example, DOE has used contracts that have a technical, schedule, or other performance incentive without an associated cost incentive or cost constraint (other than the annual funding level for the contract). DOE also has used cost-plus-incentive-fee contracts without certifying that contractors’ project management systems generate reliable cost and schedule data for measuring performance and awarding fees. In addition, we found that the contract incentives for most of the 25 major environmental restoration projects substantially differ from the “Gold Chart” performance metrics that Environmental Management uses to assess its performance and report its progress to the Congress. Furthermore, for 11 major projects that are components of the environmental cleanup of a DOE facility, Environmental Management has not directly linked incentive fees to the successful completion of the project, generally because the project is part of the contractor’s larger cleanup responsibility. Finally, while Environmental Management has decided that incentive fee determinations would consider only contractor activities directly related to cleanup work, NNSA has, for at least 1 of its major projects, considered a contractor’s indirect work-related activities in awarding incentive fees. Despite efforts in recent years to improve contract and project management, DOE has not fully developed performance incentive guidance to effectively control costs and maintain schedules. DOE has issued the following guidance, order, and manual that are applicable to the contract award process for major projects and that supplement the FAR and the DOE Acquisition Regulation: In the late 1990s, DOE issued its Acquisition Guide to, among other things, supplement the FAR and the DOE Acquisition Regulation and be a repository of best practices found throughout the department. Chapter 16 of the guide discusses contract types; however, the chapter notes that it was not intended to provide a template for matching a contract type to given contracting situations. While the guide’s index shows that chapter 34 is reserved for guidance to contracting officials related to major projects, DOE has never drafted the chapter, according to the DOE official responsible for maintaining revisions to the Acquisition Guide. In October 2000, DOE issued Order 413.3, “Program and Project Management for the Acquisition of Capital Assets,” to ensure that capital assets, including major projects, would be delivered on schedule, within budget, and fully capable of meeting mission needs. To accomplish these goals, the order states, in part, that DOE officials are to develop an acquisition plan during the acquisition process that includes such elements as contracting options and a contractor incentive process. The order, however, does not elaborate on the possible contracting and performance incentive options whatsoever. In March 2003, DOE issued manual 413.3-1, “Project Management for the Acquisition of Capital Assets,” to improve the implementation of DOE Order 413.3. The manual addresses various activities, including a chapter on contracting that contains no direct reference to major projects. The chapter states that the type of contract and incentives proposed should be based on an overall view of the principal risks to the project and provides a limited discussion of the types of contracts available. For example, it states that fixed-price contracts are not appropriate for research and development efforts or other complex projects where there is a high degree of uncertainty in the execution or DOE requirements. While the chapter mentions that DOE generally uses a cost-plus-award-fee contract for contractors managing and operating DOE sites, it does not address the other available types of contract. Furthermore, DOE has not used its Acquisition Guide to identify best practices, or lessons learned, based on its major project contracting experiences. In our view, given DOE’s long history with major projects, considerable information could be added to this guide detailing those major project contracting approaches that worked and those that did not. Improved guidance could help DOE better control costs and maintain schedules for its major projects. Neither the Office of Contract Management nor the Office of Engineering and Construction Management always reviews the project management provisions of major project contracts prior to award to ensure that the performance incentives are appropriately used. At the heart of this problem is confusion over responsibility. The Director of the Office of Contract Management and the Director of the Office of Engineering and Construction Management each believe that the other office has headquarters responsibility for reviewing the project management provisions of contracts prior to approval. The confusion exists because the chapter in DOE’s Acquisition Guide on the headquarters review of contract and financial assistance actions is silent on the role of the Office of Engineering and Construction Management in the review process. This chapter indicates that packages pertaining to contract actions will be sent to nine different DOE offices for review, none of which is the Office of Engineering and Construction Management. As a consequence, if this office has a role in the contract review process, it has not been clearly defined. According to the Director, Office of Contract Management, the Office of Engineering and Construction Management should be responsible for reviewing the project management provisions in major project contracts because of its responsibility for project management matters. The director told us that his office typically reviews from 60 to 70 pending contract actions each year, and these reviews follow a general approach looking at any matters that might affect timing, delivery, and cost—but no specific, formalized list is followed. According to the Director of the Office of Engineering and Construction Management, his office reviews certain documentation that could affect which company is selected for a contract, but his office has no role in reviewing the actual provisions of the contract. While the Office of Contract Management sends contract proposals to the Office of Engineering and Construction Management for review, the director noted that his office has only one staff person with contracting experience. The director believes the solution to improving the review of major project contracts is for contracting officials within the Office of Contract Management to become more familiar with earned value management, a DOE contracting requirement for integrating and measuring a contractor’s performance. For many of the 33 major projects we reviewed, DOE has used performance incentives that limit its ability to effectively control cost and schedule performance. For example, almost all of DOE’s cost-plus-award- fee contracts for major projects have included a performance incentive without also using an associated cost incentive or cost constraint (other than the annual funding level for the contract). Also, DOE has used cost- plus-incentive-fee contracts without certifying that contractors’ project management systems generate reliable cost and schedule data for measuring performance and awarding fees. We also found that (1) Environmental Management’s contracts included environmental cleanup performance incentives that differed substantially from its new Gold Chart performance metrics; (2) DOE did not always link its fee awards to contractors’ performance on major projects; and (3) DOE’s program offices have treated indirect work-related activities, such as providing timely and accurate reports to DOE, differently in determining the contractors’ incentive award fees. For 15 of the 17 major projects that use a cost-plus-award-fee contract, the contract contained a technical, schedule, or other performance incentive without including an associated cost incentive or cost constraint (other than the annual funding level for the contract). Under such circumstances, the potential exists that a contractor could meet all incentives and overrun baseline costs but still receive full fees. The other 2 major projects used a cost-plus-award-fee contract that included an associated cost incentive or cost constraint for each technical, schedule, or other performance incentive. The FAR, the DOE Acquisition Regulation, and DOE guidance preclude the inclusion of a schedule or other performance incentive without also including a cost incentive or cost constraint. FAR § 16.402-1 states that no incentive contract may provide for other incentives without also providing for a cost incentive or cost constraint. Similarly, DOE Acquisition Regulation § 970.5215-3 provides that requirements incentivized by other than cost incentives must be performed within their specified cost constraint. DOE’s Performance-Based Contracting Guide, dated October 2003, states that (1) cost incentives should be included if other incentives are included because a schedule or other performance incentive may result in the contractor paying little attention to the cost of achieving those incentives unless cost is also a consideration and (2) DOE contracts, in developing incentives and incentive programs, must comply with the incentive contract provisions of the FAR and the DOE Acquisition Regulation. The Director of the Office of Contract Management told us that to implement the FAR requirement to include a cost incentive or cost constraint whenever a noncost incentive is in the contract, each noncost incentive does not necessarily need an associated cost constraint dedicated to that noncost incentive. According to the director, a single cost constraint, which could be equivalent to the project’s annual funding level, would fulfill the FAR requirement. However, DOE contracting officials at Oak Ridge, West Valley, and Savannah River believe that to implement the FAR and DOE Acquisition Regulation requirements in a way that effectively controls costs, a contract with a technical, schedule, or other noncost incentive should also have an associated cost incentive to function as a constraint on the expenditure of funds. One of these officials added that as the noncost incentives become more objective and measurable, the cost constraint should be more clearly defined in relation to each noncost incentive. Similarly, another one of these officials told us that using the annual funding level or the project’s cost baseline as the constraint is too vague and unworkable, and that some funding levels and cost baselines do not track down to the performance incentive level. As a result, neither the funding level nor the cost baseline would indicate whether the performance incentive was accomplished within the cost constraint. These views are consistent with the findings from DOE’s 1997 assessment of performance-based incentives, which found that DOE’s and contractors’ financial systems generally are budget-based and do not segregate and track costs at the performance incentive level. The assessment added that this limits DOE’s ability to establish meaningful cost baselines and to monitor the cost of performance under specific incentivized work efforts in relation to the total cost of the contract. For 13 of the 33 major projects we reviewed, DOE used a cost-plus- incentive-fee contract that provides the contractor with an initially negotiated fee that is subsequently adjusted by a formula based on the relationship of total allowable costs to total target costs. The formula provides, within limits, for fee increases when total allowable costs are less than target costs. In recent years, DOE has made a major effort to move toward the use of cost-plus-incentive-fee contracts. Because a cost-plus-incentive-fee contract provides higher fee awards to the extent that actual costs are lower than anticipated, it depends upon reliable cost estimating at the outset in the form of a target cost and reliable cost reporting later. In July 1997, the Office of Management and Budget (OMB) issued requirements regarding the acceptability of contractors’ project management systems. However, DOE has not certified the reliability of contractors’ project management systems that generate the target cost data for the 13 major projects. As a result, a contractor might receive a high fee payment because its project management system generated an unreliable high initial cost estimate and subsequently reported lower actual costs. A U.S. Army Corps of Engineers’ report, issued in May 2004, concluded that it was not appropriate to use a cost-plus- incentive-fee contract for the Hanford Tank Waste Treatment and Immobilization Plant project, in part because reliable cost data could not be generated in advance. Furthermore, DOE site personnel may not provide adequate surveillance of the contractors’ cost records for these 13 projects. According to DOE’s Performance-Based Contracting Guide, it is inappropriate to use a cost- plus-incentive-fee contract if there is an overreliance on contractor accounting systems and contractor-collected data without significant validation of those data. In such situations, the guide states, any potential cost savings reported might be the result of a poor estimate of the amount of labor or material required, the approach planned, or the associated costs. The Office of Contract Management’s self-assessment of contract administration in 2002 found that most of the DOE field locations visited relied almost exclusively on the contractors’ data because they did not have the staff resources capable of validating cost or technical baselines. The report, however, did not identify the DOE field locations visited, and, according to an Office of Contract Management official, no individual field location reports were prepared. For 16 of the 25 major environmental restoration projects that we reviewed, the contracts’ performance incentives differed substantially from the Gold Chart performance metrics that Environmental Management uses to assess its performance and report its progress to the Congress. Environmental Management developed the Gold Chart performance metrics in October 2002 as a basis for clearly and objectively showing the progress being made in the environmental cleanup program. We found, however, that these Gold Chart metrics were not being used to measure contractors’ performance or award fees. Instead, DOE measures performance and awards fees on the basis of information from the contractors’ project management systems, which DOE has not yet certified as capable of producing reliable information. For 4 projects at the Fernald Closure Site in Ohio, a lower performance fee might have been appropriate if the Gold Chart metric had been used. For fiscal year 2003, DOE awarded the contractor about $7.7 million of the $8 million in available fee, or 97 percent, on the basis of acceptable cost and schedule performance toward closure of the entire site during fiscal year 2003. However, according to the fiscal year 2003 Gold Chart metrics, the goal for the Fernald Closure Project was to accomplish four radioactive facility completions and dispose of 2,568 cubic meters of radioactive waste. According to Environmental Management information, the contractor did not fully complete one of these tasks. Because the contractor accomplished only three of the four radioactive facility completions, Environmental Management might have given a different fee amount if the two Gold Chart metrics had been used to determine award fee. Conversely, a different fee amount might have been warranted for the Solid Waste Stabilization and Disposition project at Hanford, Washington. For fiscal year 2003, DOE awarded the contractor about $2.2 million of about $3 million in available fee, or 73 percent, on the basis of the contractor’s disposal of radioactive waste in accordance with an approved schedule that DOE determined the contractor had met. In contrast, Environmental Management data for fiscal year 2003, using Gold Chart metrics, show that the contractor actually disposed of 3,634 cubic meters of waste as compared with a goal of disposing 2,320 cubic meters of waste, or about 157 percent of the work intended. If the Gold Chart metrics had been used to determine the award fee, the contractor might have received a different fee amount. For the Spent Nuclear Fuels project, at Hanford, Washington, the Gold Chart metric and the contract’s performance incentive were so dissimilar that it was difficult to determine how to gauge the contractor’s performance. For fiscal year 2003, DOE awarded the contractor about $2.8 million of about $3.3 million in available fee, or 85 percent, on the basis of the contractor’s removing 777 metric tons, or 87 percent, of the 890 metric tons that had been planned. However, Environmental Management data for fiscal year 2003, using the Gold Chart metrics, show the contractor removed 805 units, or 94 percent, of the goal’s 855 units. Because the Gold Chart metric and the contract’s performance incentive were so dissimilar, we could not reconcile the information. Environmental Management officials told us that the performance incentives contained in environmental cleanup contracts and the Gold Chart metrics should be aligned. In commenting on the draft report, Environmental Management officials stated that the new Savannah River cleanup contract incorporates Gold Chart metrics. They added, however, that the contract renewals for the Oak Ridge, Fernald, and Rocky Flats facilities do not contain the Gold Chart metrics because each is a cost-plus- incentive-fee contract that awards fee based on the final closure costs and date for the site. It is unclear whether these cost-plus-incentive-fee contracts will more effectively track contractors’ performance because they rely on contractors’ project management systems that DOE has yet to certify. In contrast, the Gold Chart metrics assess the accomplishment of discrete amounts of work that is verifiable. In 1996, we reported that a key factor inhibiting the successful completion of DOE’s major projects was the lack of effective incentives. To the extent that incentives are properly applied, they can help achieve agency goals. On the other hand, if incentives are nonexistent or not effectively applied, a project may not be successfully completed. Sixteen of the 33 major projects we reviewed had no incentive fees directly associated with the successful completion of work. Nine of these 16 projects involve closure work at the Fernald and Rocky Flats sites, where the payment of incentive fees is based on an overall average of the cost and schedule status for all site closure activities, including major projects and other site activities. Environmental Management officials told us that rather than awarding incentive fees specifically for completing any of the 9 major projects, or for other key interim milestones, the Fernald and Rocky Flats contracts award provisional incentive fees for meeting or exceeding overall targets for a fiscal year, provided the contractors successfully achieve site closure on schedule. However, it remains to be seen whether this approach will be effective in completing major projects on time and within cost. For example, although a major project at the Fernald site that we reviewed was experiencing cost growth to the point where it was expected to exceed its cost baseline—the total cost estimate to accomplish the project—DOE considered the overall average of the cost and schedule status for all site activities at Fernald to be acceptable and paid the contractor provisional incentive fees for fiscal year 2003. Similarly, a major project at the Rocky Flats site had overrun its estimated cost by about $42 million through fiscal year 2003. However, this overrun was offset by an underrun of about $46 million in activities such as general counsel work and planning and integration that, according to DOE information, had historically been understaffed. The net effect was that DOE paid the contractor provisional incentive fees because the contractor’s overall cost and schedule status for fiscal year 2003 was considered to be acceptable. In addition to these other contracting problems, we found that DOE program offices treated indirect work-related activities differently in awarding incentive fees. In late 2002, Environmental Management decided that award fee determinations will consider only contractor activities directly related to cleanup work, while excluding such indirect work- related activities as providing timely and accurate reports to DOE, providing support services to the government, and complying with the contract because these activities are basic expectations of any contractor. Environmental Management made this determination after its review of contractors’ authorized fee incentives identified numerous examples of incentive fee payments for indirect work-related activities. The review also found that Environmental Management was paying some contractors additional fees for performing work safely that the review concluded was a basic expectation, and not exceptional performance worthy of additional fee. NNSA has not conducted a review similar to Environmental Management’s assessing what, if any, indirect work-related activities are worthy of incentive payments. The contractor for one NNSA major project received incentive fee payments for providing timely and accurate reports to DOE and other indirect work-related activities during fiscal year 2003. Discrepancies in the treatment of various indirect work-related activities have occurred because DOE’s guidance does not address the appropriateness of including a contractor’s performance of indirect work-related activities in determining incentive fee awards. In commenting on the draft report, Environmental Management expressed concern that it would be virtually impossible to develop meaningful guidance that could be applied universally to DOE’s diverse programs. We disagree. We believe that all DOE programs should use incentive fees to reward contractors for achieving work-related activities, as opposed to such indirect activities as providing the DOE programs with timely reports. Because most of DOE’s operations are carried out through contracts, contract administration is a significant part of DOE’s work. DOE has relied on unvalidated contractor data to monitor contractors’ progress in executing major projects and awarding fees for performance. This reliance on unvalidated data limits the department’s ability to ensure it gets what it is paying for. Specifically, DOE’s self-assessments of its contract administration in 1997 and 2002 both found that field personnel overly relied on contractor accounting systems and contractor-collected project data without significant validation of these data. However, unlike the 1997 self-assessment, the one in 2002 made no recommendation to fix this problem, and no subsequent self-assessment has been initiated to determine if the problem has continued. DOE has begun to certify the reliability of contractors’ project management systems that generate the performance data used to monitor contractors’ progress; however, the department has no time table for the completion of this certification program. In addition, DOE has not required its contracting officers and contracting officer representatives to receive training in earned value management—a systematic approach for integrating and measuring cost, schedule, and technical (scope) accomplishments on a project or task— even though these officials are required to determine whether contractors’ project management systems meet the private industry’s earned value management standard. Self-assessment is an important tool for evaluating organizational effectiveness. By taking a comprehensive look at itself, an organization can identify weaknesses and plot a course of corrective action. DOE performed comprehensive self-assessments of its contract administration practices in 1997, 1999, and 2002. In 1997, DOE assessed 20 contracts to ensure that financial incentives contained in those contracts were rational, linked to well-defined performance objectives and measures, and properly administered. The self- assessment reported both positive and negative findings. For example, it found that the use of performance-based objectives generally had been effective in directing contractors’ management attention to desired performance outcomes. However, it also found that field personnel overly relied on contractor accounting systems and contractor-collected data without significant validation of these data, and that DOE’s approval of fees earned by the contractors relied upon contractor-generated documents. To correct this deficiency, the self-assessment recommended (1) that the cognizant DOE heads of contracting at each field location, as part of their overall contract administration plan, identify the mechanisms, responsibilities, and authorities for ensuring that contractor performance against established objectives is appropriately monitored and (2) that performance achievements are verified. In 1999, DOE’s follow-up assessment of the effectiveness of the actions taken in response to the 1997 self-assessment found that the recommendation that contractor performance be monitored and achievements verified had been implemented. Specifically, field offices reported that their plans for administering contracts had been appropriately modified and instituted. In addition, the follow-up assessment stated that (1) early results indicated a substantial improvement in the way incentives were being managed from DOE headquarters and administered at DOE field contracting offices and (2) anecdotal evidence suggested that contractor performance had improved. In 2002, the Contract Administration Division again performed a self- assessment that examined, in part, how contract administration planning and execution was conducted at various DOE field locations. The findings and conclusions of this review were somewhat inconsistent with those of the 1999 follow-up assessment. The 2002 review, like the 1997 assessment, determined that few sites had the resources capable of validating contractor cost or technical information and most sites must rely almost exclusively on the contractor’s data. The review noted, in one instance, that financial data provided by the contractor were generally accepted by DOE, not on the basis of reasonableness and allowability, but on the basis of the contractor’s “acceptable” self-assessment of the procedures used to collect those data. However, unlike the 1997 assessment, the 2002 review contained no specific recommendation to correct this overreliance on contractor data. According to the Director of DOE’s Contract Administration Division, because of funding constraints and other factors, no broad self-assessment of contractor administration has been done since 2002. The director added that DOE now conducts individual site assessments as necessary rather than conducting more comprehensive assessments. According to information provided to us in April 2004, the last individual site assessment was made in August 2003 and documented in December 2003. This site assessment identified problems similar to those reported in the 2002 self- assessment. Specifically, the site assessment noted that, with respect to one contract reviewed, there was no evidence of effective cost controls and/or contract management. The site assessment contained no formal recommendation to fix this problem. On the other hand, the site assessment contained a recommendation to address the high rate of expenditure on this contract over the remaining 2-year-option period. The assessment recommended that the DOE site office review the scope and cost of its current task orders for prioritization and inclusion in the remaining option term. In August 2003, DOE began to certify the reliability of contractors’ project management systems that generate the performance data used to monitor contractors’ progress. However, as of December 2004, the department has assessed and certified project management systems for only 2 of the 33 major projects we reviewed and does not have a time table for completing this certification program. In commenting on the draft report, DOE noted that both Environmental Management and the Office of Engineering and Construction Management have been validating contractors’ cost and schedule performance baselines for several years. In our view, DOE validation of contractor baselines will not fully address the problems that have been identified. Validating baselines is just the first step in performing adequate contractor oversight. After baselines have been validated, DOE must not overly rely on contractor accounting systems in reporting costs and on contractor- collected project data in awarding fees. That is the message from two DOE self-assessments of performance-based contracting. With respect to DOE’s experience in baseline validation, the Civil Engineering Research Foundation’s July 2004 report for the Office of Engineering and Construction Management found that some improvements in baseline validation were needed. This report noted that many of the DOE projects it reviewed were formulated with inadequate baseline estimates. In addition, the report stated that periodic baseline changes were occurring that masked the true status of certain projects. The report recommended that DOE develop guidelines that appropriately control the rebaselining of projects. DOE further stated that the promulgation of contract management planning guidance and the requirement for a contract management plan addressed many of the issues that the 2002 self-assessment identified. However, in our view, until a subsequent assessment is done, it remains unclear whether this DOE action has adequately resolved the issues identified in the 2002 self-assessment. For fiscal year 2005, DOE is planning to examine the contract management plans and contractors’ purchasing systems. During the early 1990s, OMB issued several reports on civilian agencies’ contract administration practices that found that agencies frequently experienced cost overruns and delays in receiving goods and services because their contracting officials allocated more time to awarding contracts than to administering existing ones. In response, OMB revised its Circular A-11 to require that federal agencies assess and certify contractors’ project management systems for proper use of earned value management principles. OMB also identified several other deficiencies, including a lack of proper training for agency officials performing contract oversight. According to administrators at the National Aeronautics and Space Administration, earned value management training is essential for their contracting officers to adequately assess whether a contractor’s project management system complies with the private industry’s standard. We found that, with the exception of NNSA, DOE has not required its contracting officers or contracting officer representatives to receive earned value management training, even though they are responsible for determining whether the contractor’s project management system complies with the private industry’s earned value management standard after the contract is awarded. The following three DOE documents contain the contracting officer’s responsibilities, the standards against which those responsibilities are to be discharged, and the training requirements for contracting officers: Chapter 1 of DOE’s Reference Book for Contract Administrators, issued in 2000 and in effect through October 2004, outlines the contracting officers’ many responsibilities, including a review of the adequacy of the contractor’s project management system. The reference book states that the system’s adequacy must be confirmed by the contracting officer with the support of other DOE headquarters and field office personnel, as appropriate. The reference book also indicates that corrective action plans resulting from DOE reviews of contractor project management systems are to be tracked until the DOE contracting officer confirms that all open issues are closed. DOE Order 413.3, “Program and Project Management for the Acquisition of Capital Assets,” also issued in 2000, specifies that contractors’ project management systems must comply with the American National Standards Institute’s standard on earned value management. The order states that this requirement applies only to systems involved in controlling the performance of projects costing more than $20 million in total. The order also requires that contractors’ systems provide cost and schedule performance, milestone status, and financial status to DOE on a monthly basis. DOE Order 361.1A, “Acquisition Career Development Program,” issued in April 2004, outlines the training and certification requirements for DOE contracting officers and contracting officer representatives. The order identifies a training curriculum for these officers by functional area—including, among others, procurement contracts; interagency agreements and sales contracts; grants and cooperative agreements; loans and loan guarantees; and the government purchase card. The order, however, does not require either the contracting officer or the contracting officer representative to receive earned value management training. The Director of the Contract Administration Division corroborated our assessment of DOE’s order for acquisition career development. The director noted that the only reference to earned value management training in DOE Order 361.1A requires that DOE project directors, not contracting officers, complete a course on earned value management systems. Without this training, however, it is unclear how DOE contracting officers and contracting officer representatives can fulfill their responsibilities and properly assess the adequacy of the project management systems of departmental contractors. In providing us with exit conference comments, DOE Office of Contract Management officials acknowledged that contracting officers do have a responsibility in the area of earned value management and will be receiving training on that subject in the future. Subsequently, in December 2004, DOE provided contracting professionals at DOE headquarters with a 1-hour course on earned value management. DOE said that this training session, which was video recorded, is being required nationwide for all DOE contracting officials. As opposed to this 1-hour course, we noted that NNSA requires its contracting officials to participate in a 48-hour course on the fundamentals of earned value management. The reliability of the project cost and schedule data that PARS provides to senior DOE managers is limited by problems with the data’s accuracy, completeness, and timeliness. In general, the accuracy of PARS report data is uncertain because DOE (1) has assessed the reliability of contractors’ project management systems for only 2 of the 33 major projects we reviewed, (2) generally measures projects’ cost and schedule performance in PARS against the current DOE-approved cost and schedule baselines without also tracking performance against the original targets, and (3) has not provided most of its major project directors with the training needed to ensure contractors are generating accurate performance data. PARS report data are not complete because DOE program offices have not submitted performance data to PARS for 3 major projects, as well as at least 2 smaller projects, and PARS reports do not provide each project’s estimated cost at completion or other helpful, forward-looking data. In addition, the Office of Engineering and Construction Management stated that the June 2004 PARS report’s performance data for 6 major projects and 5 smaller projects were significantly out of date, primarily because contractors did not provide updated project performance information. Senior managers have used PARS data to take actions that averted cost increases for certain projects that were experiencing cost or schedule challenges. Without reliable data, however, PARS has not provided senior managers with information about cost increases and schedule slippages for many projects, and the status of many other projects is uncertain. Three factors impair the accuracy of cost and schedule data reported in PARS. First, DOE officials told us they have little assurance that the cost and schedule data for most projects in PARS are accurate because DOE has not assessed the reliability of contractors’ project management systems that generate such data for data reliability, particularly those systems believed to be using incorrect methods. Second, for almost all projects, PARS reports compare cost and schedule performance against DOE’s current baselines, without identifying the extent of cost or schedule slippages that previously occurred. Third, most DOE project directors lack the necessary training to evaluate and verify the accuracy of the performance data that contractors generate, according to DOE officials. OMB Circular A-11 and DOE Order 413.3 require that DOE assess and certify contractors’ project management systems for proper use of earned value management principles in generating cost and schedule performance data before the department approves a project’s cost and schedule baseline at its Critical Decision 2 milestone. Earned value management, when used correctly, produces data that reflect a contractor’s progress toward completing a project within cost and schedule targets. In essence, earned value management measures the value of work completed against the cost and schedule of work planned, as opposed to comparing actual with planned expenditures. To illustrate, assume a contract calls for 4 miles of railroad track to be laid in 4 weeks at a cost of $4 million. After 3 weeks of work, assume $2 million has been spent. By analyzing planned versus actual expenditures, it appears the project is underrunning the estimated costs. However, an earned value analysis reveals that the project is in trouble because even though only $2 million has been spent, only 1 mile of track has been laid; thus, the contract is only 25 percent complete. On the basis of the value of work done, the project will cost $8 million ($2 million to complete each mile of track), and the 4 miles of track will take a total of 12 weeks (3 weeks for each mile of track) to complete instead of the originally estimated 4 weeks. To ensure correct application of earned value management principles, contractors must develop budgets and schedules based on measurable components of a project, which include defined start points, end points, and scopes of work. In addition, contractors must calculate the value of work performed against the budgets and schedules for the measurable project components. Experts in earned value management told us that without defined start and end points and other measurable project components, project performance data give little insight as to whether cost and schedule performance are on track, and the data might mask more serious problems. DOE’s Office of Engineering and Construction Management and the Defense Contract Management Agency assess whether a given contractor’s project management system properly uses earned value management principles by examining whether the contractor’s system complies with the industry standards and verifying that the contractor is using the system to manage the project. Once a contractor has fully addressed the concerns identified by the assessment, DOE is to certify the project management system, attesting that project performance data—data that convey progress toward the approved cost and schedule targets—are generated reliably. Assessment and certification of contractors’ earned value management systems are critical components of DOE’s management of its performance- based contracting, according to DOE earned value management training documents. While only three systems have been assessed since August 2003, Office of Engineering and Construction Management officials told us that they and the Defense Contract Management Agency, working together, could assess the project management systems for about 10 contractors in a given year now that they are becoming more familiar with the process. In August 2003, the Office of Engineering and Construction Management and the Defense Contract Management Agency began the process of assessing contractors’ project management systems as a basis for certifying that they properly use earned value management principles. In September 2004, DOE certified Sandia National Laboratories’ project management system for 1 major project, the Microsystems and Engineering Sciences Applications project, and 6 smaller projects. DOE also plans to certify Oak Ridge National Laboratory’s project management system for another major project, the Spallation Neutron Source, once minor deficiencies are corrected. Overall, however, DOE has assessed project management systems for only 2 of the 33 major projects we reviewed—and 8 of the 73 projects in PARS—that have passed Critical Decision 2 with DOE-approved cost and schedule baselines. (The remaining 65 projects in PARS whose systems have not been assessed have baseline costs of nearly $75 billion.) According to an Office of Engineering and Construction Management official, the first three contractors’ systems were selected for assessment on the basis of visibility, significance, and criticality to the Department’s success, but also because cognizant DOE officials were confident that the contractors’ project management systems would meet certification criteria. The National Research Council’s 2004 report on DOE’s project management found that the quality of earned value management across the department’s projects was inconsistent and stated that senior DOE managers do not know whether the reported data on cost and schedule performance are accurate unless contractors’ systems are assessed and certified. Because DOE has only recently begun to assess contractors’ project management systems that feed data into PARS, DOE officials acknowledged to us that they lack assurance regarding the accuracy of PARS performance data, adding that they believe some of the project management systems not yet assessed have important deficiencies. For example, a DOE expert in earned value management noted that contractors for most Environmental Management projects—about half of the projects in PARS that have passed Critical Decision 2—have not properly implemented earned value management principles because, among other things, many of the projects’ components lack defined start and end points. For example, the earned value management expert believes, on the basis of his assessment of work breakdown structures and other project components, that the contractor’s project management system for the $10-billion Yucca Mountain Nuclear Waste Repository project does not properly use earned value management principles and generates performance data that cannot be regarded as accurate. Consequently, senior DOE managers have no assurance that cost and schedule targets will be met, even if the data suggest they will. Similarly, for several major projects we examined, the contractors’ project management systems do not seem to properly implement earned value management principles to measure cost and schedule performance. For example, the $2-billion East Tennessee Technology Park project at Oak Ridge lacks measurable project components. In some instances, work is categorized into activities such as “general operations” and “contractor operations” that have no apparent defined start and end points. According to the expert in earned value management, the categories of work for this project make it difficult to accurately measure project performance because there is no clear activity or time frame against which to measure costs incurred or time spent. Instead, PARS data for this project seem to measure only the project’s expenditures, which can conceal information on the project’s cost and schedule status and progress toward completion. In addition, the $5.7-billion Tank Waste Treatment and Immobilization Plant at Hanford, Washington, lacks discrete, measurable project components because work is categorized into activities such as “providing technology” and “providing infrastructure” that lack defined start and end points. While we recognize that it is appropriate, according to industry standards, to categorize a small amount of work in this fashion, DOE project management officials said the particular categories of work in these instances reflected a poor comprehension of earned value management and limited their confidence in the assessment of project performance. Two Office of Engineering and Construction Management officials acknowledged that the accuracy of data for these projects is uncertain because DOE has not assessed whether the contractors’ project management systems properly applied earned value management principles. One of these officials suggested that the contractors’ project management systems for such projects should be assessed as soon as possible to correct deficiencies and improve the reliability of project performance data provided to senior managers to oversee progress toward cost and schedule targets. The Director of the Office of Engineering and Construction Management agreed that DOE should develop a schedule that would give priority to assessing these and other high-risk and high-cost systems. As of January 2005, a schedule had not been developed, but the director told us that he was in the process of doing so. The accuracy of the PARS report data is further impaired because PARS reports generally do not show total cost overruns and schedule slippages, even though DOE requires each project team to estimate life-cycle costs and assess project performance against established cost and schedule baselines. Instead, a project’s DOE project director updates the cost and schedule baselines in PARS when DOE approves a contract modification. As a result, PARS reports show relatively small variances between a project’s actual performance and its approved baselines, so that many of the projects we reviewed appear not to have experienced problems when, in fact, they did. For almost all projects, PARS reports do not provide data that would enable senior DOE managers to assess (1) a contractor’s performance against the project’s original DOE-approved baselines to identify total cost overruns and schedule slippages or (2) the effect of any DOE initiatives to control a project’s costs. The Civil Engineering Research Foundation’s July 2004 report similarly found that PARS cost and schedule data often do not convey the actual status of projects since their inception because of periodic revisions of cost or schedule baselines. Furthermore, for most Environmental Management projects, PARS measures project performance from arbitrary dates, such as the beginning of the fiscal year, which do not necessarily correspond to progress toward DOE-approved targets. The following examples illustrate how PARS has masked problems with projects by giving an incomplete picture of project costs or project performance: The January 2004 PARS report showed that the $1.6-billion Spent Nuclear Fuels Stabilization and Disposition project at Hanford, Washington, was on track to meet cost and schedule performance targets. However, by April, total costs for the project increased by nearly $150 million. DOE officials acknowledged that because the January 2004 PARS report to senior DOE managers measured only project performance from the beginning of the fiscal year, instead of against the DOE-approved baselines, the PARS report concealed longer term problems that threatened the project’s completion within costs. In October 2002, the Tritium Extraction Facility at Savannah River, South Carolina, had an approved total cost of about $400 million. Costs for the project increased more than $100 million by September 2003, and subsequent PARS reports showed that costs were on track to meet cost targets, despite the 25 percent increase in the project’s costs. In June 2004, Environmental Management restructured the PARS reporting for 4 projects at Oak Ridge, Tennessee, by combining their respective costs and schedules with those of other Oak Ridge projects. As a result, Environmental Management stopped reporting project performance data for each project, masking the fact that 2 of them, totaling about $300 million, were significantly behind schedule. Two Office of Engineering and Construction Management officials believe the projects should be reported separately because combining projects’ respective cost and schedule data can inhibit the correct use of earned value management. The April 2004 PARS report showed that the total cost of the Soil and Water Remediation project at Ashtabula, Ohio, would be $45 million, although the performance data indicated the project would not likely meet its baselines. However, this amount does not include about $109 million in expenditures on this project by October 1, 2003. Environmental Management reports this project’s total costs to be about $157 million—more than three times the amount reported in PARS. PARS reports that total project costs for the Nuclear Facility Deactivation and Decommissioning project at Columbus, Ohio, will be about $31.5 million. However, this amount does not include about $106 million in expenditures prior to 2004. Environmental Management estimates that this project’s total cost will exceed $163 million—more than five times the amount reported in PARS. The June 2004 PARS report showed that 90 percent of the 63 projects with approved baselines were expected to meet their cost and schedule baselines. However, this percentage may reflect project managers’ efforts to keep the projects’ baselines up to date rather than improvements in project management performance because PARS generally measures projects’ performance against the most current DOE-approved baselines. For example, as shown in table 1, the October 2002 PARS report’s assessment of 2 major projects was red because both projects were expected to breach their cost/schedule performance baselines. However, the September 2003 PARS report’s assessment of these major projects was green because total project costs were within the revised baseline that DOE had subsequently approved. The September 2003 PARS report did not indicate the extent to which each project’s total costs had exceeded the costs that DOE approved at Critical Decision 2 on the basis of an approved conceptual design report and acquisition strategy. In addition to these projects, the 90 percent figure includes many Environmental Management projects, whose performance is measured over time frames that do not necessarily reflect performance against DOE- approved baselines. Further, the 90 percent figure does not reflect the 4 Oak Ridge projects whose performance data showed imminent performance problems before being combined with the performance data of other projects at the site. DOE officials told us that the monthly PARS reports are the primary tool for communicating project performance information to senior management. However, for many projects—particularly those overseen by Environmental Management—PARS does not report projects’ life-cycle costs or performance against original baselines, even though DOE requires each project team to estimate life-cycle costs and assess project performance against established cost baselines and schedule milestones. Office of Engineering and Construction Management officials acknowledged that reporting life-cycle costs and project performance against original cost and schedule baselines in PARS would make cost or schedule challenges easier to identify, and Environmental Management officials told us they plan to report life-cycle costs and project performance against original baselines in PARS reports beginning by December 2004. In addition to Environmental Management’s plans for PARS reporting, the Office of Engineering and Construction Management intends to make several upgrades to the PARS database, such as making the process for entering monthly data more efficient and easier for users to understand and ensuring that the correct data are being entered. Office of Engineering and Construction Management officials reported that they are in the process of implementing these improvements. However, these upgrades do not address the limitations to reporting accurate data that we identified. Furthermore, these improvements do not address limitations in the reliability of data stemming from contractor’s project management systems that have not been assessed or data that have not been reviewed. Project directors are DOE’s focal point for assessing the contractors’ cost and schedule performance data that feed into PARS. However, most of DOE’s project directors have not been certified in earned value management, further reducing assurances that PARS data are accurate. Because DOE believes that it is critical for project directors to understand earned value management, the department informally designates its project directors as “acting directors” if they have not completed the project manager career development program, which includes training in earned value management. Office of Engineering and Construction Management officials told us that while some acting project directors are proficient in earned value management and capable of evaluating the reliability of contractor-generated data, other acting project directors are not. DOE recently implemented the project management career development program through which project directors are being trained in, among other things, earned value management. However, DOE had trained only about 25 percent of them through this program as of July 2004, with plans to train the remaining 75 percent by May 2006. A DOE official told us that the appropriate level of earned value management training for acting project directors depends on their experience in using earned value management. While DOE aims to assess project directors’ capabilities in earned value management to ensure that they are competent, validating the adequacy of prior earned value management experience for acting project directors has been time consuming. The lack of trained projects directors reviewing the accuracy of a project’s performance data may, in some cases, adversely affect the ability of senior DOE managers to properly assess the status of major projects. In addition to reporting data of questionable accuracy, PARS provides incomplete data, therefore senior DOE managers may not be aware of the need to implement corrective actions to prevent cost overruns or schedule slippages. We identified the following 5 projects—3 major projects to refurbish nuclear weapons and 2 projects costing more than $100 million each—that are not in the PARS database, despite DOE’s requirement that projects costing more than $5 million provide monthly reporting: W80 Life Extension Program. NNSA recently increased the total cost of this program, designed to extend the service life of the W80 nuclear warhead by replacing components, from $1.3 billion to about $2.45 billion. W76 Trident Missile Life Extension Program. NNSA expects this project, designed to extend the service life of the W76 nuclear warhead by replacing components, to cost about $680 million over the next 4 years. B61 Alteration 357 Life Extension Program. NNSA expects this project, designed to extend the service life of the B61 bomb, to cost nearly $500 million. Our July 2003 report recommended that DOE improve its oversight of the life extension program’s cost and schedule status. Purple and BlueGene/L Supercomputers under the Advanced Simulation and Computing Program. NNSA expects this project, to cost about $290 million and be completed in 2005. Enterprise Project. NNSA increased the total cost of this project, which will replace the accounting and management systems at Los Alamos National Laboratory, from about $70 million when it was initiated in 2001 to nearly $160 million. The National Research Council’s 2004 report found that DOE has not acted in a timely fashion to include all projects costing more than $5 million in PARS. Office of Engineering and Construction Management officials told us DOE is still in the process of applying project management principles to many of the department’s operational activities. While DOE’s program offices are responsible for converting these activities to projects, many of the program office personnel responsible for applying project management principles do not have the necessary training, according to an Office of Engineering and Construction Management official. While project management training is available, DOE has required only project directors and other senior-level employees to take this training. An Office of Engineering and Construction Management official told us this training would help expedite the application of project management principles to DOE’s operational activities. In addition, for many projects included in the PARS database, PARS reports do not provide important performance information that senior DOE managers need to assess the projects’ status. In some cases, project performance data are not reported because the project is incorrectly listed as being in the design phase when, in fact, it has passed Critical Decision 2. For example, contractors have spent almost half of the approved funds for 2 projects at the Idaho National Engineering and Environmental Laboratory projected to cost $4.3 billion without reporting performance data in PARS. The PARS reports show that these projects are still in the design phase and, therefore, are not subject to reporting performance data, but a DOE official acknowledged that both projects have, in fact, passed Critical Decision 3 and other subsequent milestones. As a result, senior DOE managers cannot rely on PARS for accurate and current performance information for these projects, nor can they rely on PARS to determine whether these projects require corrective actions. For these and other projects, PARS also lacks forward-looking data, such as scheduled work to be performed, the projects’ upcoming milestones, and the projects’ estimated cost at completion. Without such data, PARS cannot provide information on projects’ cost or schedule challenges and DOE management does not have a basis for projecting progress or identifying trends. While not in PARS, this information is available from acting project directors. For example, although early cost savings for the Microsystems and Engineering Sciences Applications project at Sandia National Laboratories led to favorable performance data, DOE’s project director identified supply imbalances in the steel market that would increase the estimated construction costs. Using this information, the project director revised the project’s estimated total cost. Currently, PARS reports to senior DOE managers lack such forward-looking data that could alert them to future cost or schedule challenges. The National Research Council’s 2004 report stated that PARS reports should display forward- looking data to notify senior managers of upcoming milestones. In addition, several acting project directors told us that forward-looking data, such as data on estimated costs at completion, should be included in PARS to identify project performance challenges for senior DOE managers. To further illustrate this need, the total costs of some DOE projects are projected to increase dramatically in the future, despite PARS reports showing that they are expected to be completed on time and within budget. For example, PARS report data show that the Hanford’s Tank Waste Treatment and Immobilization Plant is projected to meet the DOE- approved baseline of $5.78 billion. However, PARS does not show that DOE approved a $1.4-billion increase above the project’s original contract estimate of $4.35 billion in April 2003, nor does it show that the U.S. Army Corps of Engineers, in a May 2004 report, stated that project costs would probably exceed the $5.78-billion cost baseline by $720 million. Even though the DOE project management teams knew of cost and schedule performance problems for the Tank Waste Treatment and Immobilization Plant project, PARS reports have shown that this project was on track for meeting cost and schedule targets. An Office of Engineering and Construction Management official told us that PARS monthly reports do not include forward-looking data and trend data to minimize the amount of time necessary for senior managers’ review. As a result, PARS did not provide senior DOE managers for this and other projects with important information to analyze potential future challenges. Forward-looking performance information, such as scheduled work to be performed and estimated cost at completion, would better enable senior managers to address project management challenges and minimize cost overruns or schedule slippages. Further compounding reliability concerns, we identified problems with the timeliness of PARS data that may limit the ability of senior DOE managers to effectively identify and apply corrective actions. Specifically, we found that cost and schedule performance data were significantly out of date at some time during our review for 8 of the 33 major projects we reviewed and 20 smaller projects in PARS that had passed Critical Decision 2. In these instances, data were out of date because DOE has not effectively enforced requirements that contractors produce updated monthly cost and schedule performance data, and that project directors ensure current performance data are reported into PARS. For some projects, the lack of up-to-date data masked problems that resulted in cost overruns and schedule slippages. For instance: The September 2003 PARS report showed that the Spent Nuclear Fuels project at Hanford, Washington, was on track to meet its DOE-approved total project cost of about $1.6 billion and its schedule completion date of 2007; however, these data were 3 months out of date. Subsequently, the April 2004 PARS report (1) showed that total project costs had exceeded the project’s cost baseline by nearly $150 million and (2) indicated that the project would exceed this revised total cost and the scheduled completion date would slip. In June 2004, the contractor requested additional funding from DOE because both cost and schedule performance continued to worsen. The September 2003 PARS report showed that the K25/27 Buildings Deactivation and Decommissioning Removal project at Oak Ridge, Tennessee, was on track to meet its DOE-approved total project cost of about $265 million and its schedule completion date of 2008. However, the contractor did not update the project’s performance data until April 2004, when the PARS report showed the project would still meet its cost baseline. Environmental Management officials told us that although they knew for several months that the K25/27 project’s total cost would exceed its baseline, the PARS cost data were not updated because the project was being combined with 5 other Oak Ridge projects. The total cost of the K25/27 project could exceed $400 million—more than 50 percent above the DOE-approved total project cost. In June 2004, the Soil and Water Remediation project at Pantex, Texas, had a DOE-approved total project cost of about $175 million, but the Office of Engineering and Construction Management could not assess the project’s performance because data were not provided. Subsequently, the September 2004 PARS report showed that the project was at risk of exceeding its DOE-approved schedule target. In addition to these timeliness problems, the monthly data in PARS reports typically lag a project’s actual performance by 2 to 3 months because of the time contractors need to generate the data and the time DOE project managers need to review and incorporate the summary data into the PARS database. The 2004 National Research Council report stated that the lack of timely data prevents senior managers from using PARS to assess the performance of projects in real time. Similarly, Department of Defense officials familiar with project management have said that using such data to assess project performance is like “overseeing by looking through a rear view mirror” because performance problems have usually gotten worse by the time departmental managers become aware of them. We found that the Department of Defense requires all of its newer contracts to use electronic data interchange to provide more timely information to department program managers. In addition, some acting project directors told us that electronically linking PARS to contractors’ project management systems would improve timeliness because manually entering cost and schedule data into the PARS database had often resulted in delays of 2 to 3 months to complete the process. In some instances, data were entered incorrectly, although in each instance the data were corrected before being reported to senior managers. While the DOE project directors we contacted uniformly agree that manually entered data are correctly entered by the time PARS monthly reports are delivered to senior managers, electronically linking PARS to contractor systems could eliminate the potential for such errors and enhance senior managers’ ability to address potential cost or schedule challenges in real time. Alternatively, DOE might include a provision requiring timely monthly reporting in all applicable contracts. When data can be relied upon, DOE senior managers have taken corrective actions to address cost or schedule challenges while minimizing costs to the government. For example, NNSA terminated the Sandia Underground Reactor Facility project, which was intended to reduce the future operational costs associated with securing a reactor, when management learned that cost estimates had increased by more than 150 percent between project conception and the final design phase. The project was terminated before costs were incurred. In another instance, Environmental Management approved a contractor’s recovery plan to complete the Melton Valley Closure project at Oak Ridge, Tennessee, whose schedule performance had slipped dramatically and required corrective actions. The contractor lengthened work hours and modified its approach for constructing a subproject. As a result, the recovery plan showed that the scope of work could be accomplished without increasing project schedule. Since 1990, we have designated DOE’s contract management, which we have broadly defined to include contract administration and project management, as a high-risk area for fraud, waste, abuse, and mismanagement. Although DOE has implemented important contract administration and project management reforms, problems persist and many major projects continue to experience millions of dollars in cost overruns and years of delays. Two deficiencies—the lack of contracting criteria for major projects and the lack of reviews of the project management terms in major project contracts—have resulted in questionable DOE contracting decisions that limit its ability to effectively control cost and schedule performance. For example, many of DOE’s contracts for major projects have used performance incentives that have used a technical, schedule, or performance incentive without an associated cost incentive or cost constraint, thereby giving contractors an incentive to pay limited attention to costs when working toward meeting technical or performance levels in order to earn a higher award fee. Furthermore, for major projects, DOE has given insufficient emphasis to the oversight of contract administration, which begins after contracts are awarded and helps ensure that the department gets what it pays for. DOE needs to give increased emphasis to reviewing how it administers contracts; correcting previously identified weaknesses, such as overreliance on contractor data; and providing training to its contracting officers. Without such actions, the department is totally dependent on its contractors’ self-reports on their performance. Because of problems with the accuracy, completeness, and timeliness of the PARS data, senior DOE managers lack key project performance information for assessing the progress of many major projects and making decisions about corrective actions. In particular, because DOE has assessed the reliability of only three contractors’ project management systems that feed data into PARS, senior managers cannot be certain that the contractor systems are producing reliable data. Such data are critical to good project management and affect DOE’s assessment of contractor performance. Absent reliable data from the contractor systems, DOE lacks assurance that the fees it awards for a contractor’s project management actions are well deserved. To ensure the use of effective performance incentives for major projects, we recommend that the Secretary of Energy direct the Associate Deputy Secretary with responsibility for contract and project management to take the following two actions: develop a major projects chapter in the DOE Acquisition Guide that specifies a systematic contracting approach, including, for example, criteria for (1) ensuring that incentive fee awards are based on reliable performance data, (2) using appropriate cost and schedule incentives, (3) better linking fee awards to performance for major projects that are part of larger site cleanups, and (4) determining which indirect work- related activities should and should not be considered in awarding contractors’ fees, and clarify roles and responsibilities for reviewing contracts prior to award to ensure project management consistency. To strengthen departmental oversight of contract administration for major projects, we recommend that the Secretary of Energy direct the Associate Deputy Secretary with responsibility for contract and project management to take the following three actions: conduct comprehensive self-assessments of contract administration at least every 3 years, identify corrective actions to reduce the overreliance on unvalidated contractor data in awarding contract fees that was identified in previous self-assessments, and train contracting officials in earned value management. To improve the reliability and usefulness of project performance data in PARS, we recommend that the Secretary of Energy direct the appropriate managers to take the following seven actions: develop a schedule for assessing the reliability of the contractors’ project management systems, giving priority to major projects and those projects with systems believed to be using incorrect methods to generate PARS data; revise DOE manual 413.3-1 to provide guidance that enhances the accurate reporting of total cost and project performance data into PARS, such as the reporting of life-of-project cost and schedule variances; expedite training for major project directors in earned value ensure that program office officials receive currently available project management training so that they can better identify the elements of a project, and apply the project management concepts necessary for them to report performance data in PARS; incorporate forward-looking trend data into PARS reports so that senior managers can better identify negative trends and potentially take corrective action; explore options for ensuring that contractors provide cost and schedule performance data to PARS on a monthly basis, such as making monthly submissions a requirement in all applicable contracts; and explore options for providing senior DOE managers with more timely project performance data by, for example, electronically linking contractors’ project management systems to PARS. We provided DOE with a draft of this report for its review and comment. In written comments, DOE generally concurred with our recommendations but provided clarifying comments on four of the recommendations. (See app. III.) First, concerning our recommendation that DOE develop a major projects chapter in its Acquisition Guide, DOE stated that the department has already developed an extensive body of material that constitutes a “systematic contracting approach” for the acquisition and management of departmental major projects, but added that the department will develop an overview and summary of this information in a major projects chapter in its Acquisition Guide. We believe this chapter will further enhance DOE’s guidance, particularly if the department provides criteria that address each of the four issues identified in our first recommendation. Second, concerning our recommendation on DOE’s comprehensive assessment of contract administration, DOE stated that the department did not stop conducting comprehensive assessments. In response, we have revised our recommendation to state that DOE should conduct these assessments at least every 3 years. Third, concerning our recommendation that DOE identify corrective actions for reducing overreliance on unvalidated contractor data, DOE stated that the department had already taken positive steps to reduce its overreliance on contractor data by, for example, reviewing and validating such data and project baselines. DOE added that the department would continue to identify any corrective actions necessary to reduce overreliance on contractors’ data in awarding fees. While we agree that validating project baselines is an important first step, we believe that DOE’s efforts to ensure that contractor performance data are reliable by certifying contractors’ project management systems is vital. Fourth, concerning our recommendation that DOE link PARS and contractors’ project management systems, DOE stated that our recommendation is too narrowly focused, particularly in light of DOE’s efforts to implement a departmentwide enterprise architecture solution. We agree, and we have revised our recommendation accordingly. In addition, DOE stated that it believes the draft report contained a number of inaccuracies and provided detailed comments. We have revised the report, where appropriate, in response to these comments. 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 the Secretary of Energy 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 on this report, please contact me at (202) 512-3841. Key contributors to this report were Richard Cheston, Robert Baney, Nathan Anderson, Bernice Dawson, Cynthia Norris, Judy Pagano, and Doreen Feldman. Cost incentive or cost constraint for individual project in contract? Schedule performance incentive for individual project in contract? Fee available for individual project? Non-Nuclear Facility Decontamination and Decommissioning (OH-FN-0050) Solid Waste Stabilization & Disposition (OH-FN-0013) Cost plus incentive Hanford Reservation: River Protection Hanford Tank Waste Treatment and Immobilization Plant (01-D-416) Radioactive Liquid Tank Waste Stabilization & Disposition (ORP-0014) Interim Tank Retrieval System (94-D-407) Tank Farm Restoration and Safe Operations (97-D-402) Hanford Reservation at Richland, Washington Nuclear Facility Decontamination and Decommissioning—Fast Flux Test Facility Project (RL-0042) Nuclear Facility Decontamination and Decommissioning—Remainder of Hanford (RL-0040) Nuclear Facility Decontamination and Decommissioning—River Corridor Closure Project (RL-0041) Nuclear Material Stabilization & Disposition – PFP (RL-0011) Soil and Water Remediation – Vadose Zone (RL-0030) Cost plus award Solid Waste Stabilization & Disposition—200 Area (RL-0013) Cost incentive or cost constraint for individual project in contract? Schedule performance incentive for individual project in contract? Fee available for individual project? Idaho National Engineering and Environmental Laboratory Advanced Mixed Waste Treatment Facility (97-PVT-2) Fixed price Spent Nuclear Fuel Dry Storage (98-PVT-2) East Tennessee Technology Park Three-Building D&D and Recycle Project (OR-0040) Facilities Capability Assurance Program (88-D-122-27 & 88-D-122-42) Rocky Flats Facility at Denver, Colorado Nuclear Facility D&D/North Side Facility Closures (RF-0040) Nuclear Facility D&D/South Site Facility Closures (RF-0041) Nuclear Material Stabilization & Disposition (RF-0011) Cost plus incentive Solid Waste Stabilization & Disposition (RF-0013) Microsystems and Engineering Science Application (01-D-108) High-Level Waste Removal from Filled Waste Tanks (SR-0014C) Cost incentive or cost constraint for individual project in contract? Schedule performance incentive for individual project in contract? Fee available for individual project? Although the September 2004 PARS report showed that this project would cost less than $400 million, we included it in our review because it was included in our 2002 review of DOE’s major projects. (GAO, Contract Reform: DOE Has Made Progress, but Actions Needed to Ensure Initiatives Have Improved Results, GAO-02-798 (Washington, D.C.: Sept. 13, 2002).) This project was designated as a major project when DOE’s threshold was $100 million. NNSA stated that each of these life extension projects involved multiple management and operating contractors (not 1 contract) in multiple locations, which is different from every other project that is listed in this appendix. Our review focused primarily on 33 major projects that had passed, as of March 2004, the Department of Energy’s (DOE) Critical Decision 2 milestone—the point at which the department approves a project’s cost, schedule, and scope baselines on the basis of an approved conceptual design report and acquisition strategy. The projects we reviewed include 28 projects that cost more than $400 million each and 5 projects that our 2002 assessment defined as major projects because their total costs exceeded $100 million each. Our review did not include 46 major projects that, as of March 2004, had not passed the Critical Decision 2 milestone. Since March 2004, at least 6 major projects have passed the Critical Decision 2 milestone and now have approved baselines. The remaining major projects do not have approved baselines for measuring performance. To assess DOE’s use of performance incentives in contracts to effectively control cost and maintain schedules, we reviewed relevant requirements in the Federal Acquisition Regulation (FAR) and the DOE Acquisition Regulation, as well as DOE Order 413.3, DOE manual 413.3-1, and DOE’s Acquisition Guide, to obtain information on the factors that should be used in determining a contractor’s fee. Through this effort, we identified whether the department provided guidance on the appropriate circumstances for using each contract type and the appropriate factors for determining a contractor’s fee. In particular, we examined requirements regarding contract provisions for award fees; cost, schedule, and performance incentives; and fee determination plans. We then compared government and departmental requirements with project-specific elements found in the contracts for each of the 33 major projects that have DOE-approved cost, schedule, and scope baselines to determine whether DOE has used appropriate (1) types of performance incentives, such as cost or schedule incentives, and (2) fee determination plans and fee payments. For instance, to assess whether DOE’s contracts used the appropriate incentives for each of three types of contracts, we compared the types of incentives that DOE’s contracts and relevant modifications used for each of the 33 major projects with the types of incentives that the FAR and the DOE Acquisition Regulation, as well as departmental orders and guidance, require. We then interviewed cognizant DOE officials to discuss reasons for the inconsistencies we found. In addition, we examined various contract-related documents associated with the 33 major projects we reviewed, such as the “Gold Chart” metrics that Environmental Management uses to measure its progress in DOE’s annual budget submission to the Congress. Specifically, we compared the Gold Chart’s performance metrics for each of Environmental Management’s 25 major projects with the performance measures in each projects’ contract. Where differences were identified, we discussed the contents of the Gold Chart and the associated projects’ contract with appropriate DOE contracting officials. Furthermore, we interviewed officials in DOE’s Office of Contract Management and officials in the Office of Engineering and Construction Management to determine the extent to which DOE had reviewed, prior to award, the contracts for the 33 major projects to ensure that they included appropriate project management provisions. To assess the reliability of the data DOE uses to monitor and assess contractor performance, we reviewed the Office of Management and Budget’s (OMB) directives, DOE’s Reference Book for Contract Administrators, and other DOE documents and studies to identify relevant requirements and departmental guidance. We identified the roles and responsibilities of contract administration officials and examined the extent to which these officials adhered to their responsibilities. More specifically, we reviewed the department’s recent contract administration self-assessments and the frequency with which they were conducted. In so doing, we examined the department’s recommendations for improving contract administration and determined whether the recommendations were followed. If they were not followed, we discussed the reasons with cognizant officials in the Contract Administration Division. We also examined DOE’s order for acquisition career development, and other related DOE directives, to assess training requirements for DOE’s contracting officers and contracting officer representatives, particularly regarding training in earned value management principles. To determine the reliability of Project Analysis and Reporting System (PARS) data used by senior managers for project oversight, we assessed the accuracy, completeness, and timeliness of PARS data. To assess the accuracy of the project performance data in PARS, we did the following: Reviewed DOE Order 413.3, “Program and Project Management for the Acquisition of Capital Assets,” and its implementing guidance; OMB Circular A-11, part 7, “Planning, Budgeting, Acquisition, and Management of Capital Assets”; and various documents outlining the requirements in American National Standards Institute/Electronic Industries Association-748-1998, which defines the requirements for earned value management—the component of contractors’ project management systems critical for producing reliable project performance data. Interviewed cognizant DOE officials in the Office of Engineering and Construction Management, the Office of Environmental Management, the Office of Science, and the National Nuclear Security Administration on the extent to which the performance data that DOE contractors’ project management systems produced for PARS met earned value management requirements. These officials included a DOE expert in earned value management, who is responsible for assessing the accuracy of the data that various projects’ systems produce. Where specific deficiencies in a contractor’s project management system were identified, we obtained relevant documents from the appropriate acting DOE project director and analyzed whether the contractor generated project performance data in accordance with the industry standard. We also interviewed officials in two other major contracting agencies—the Department of Defense and the National Aeronautics and Space Administration—about their experience in implementing earned value management requirements. Compared data in monthly PARS reports provided to senior DOE managers from January through September 2004 with project-specific cost and schedule data obtained from earlier PARS reports, cognizant program offices, project status reports, Inspector General reports, and external reviews. When we identified total cost or project performance data discrepancies between PARS and these other sources, we contacted relevant project officials to determine their cause. Identified the extent to which contractor-generated data in PARS were sufficiently reviewed and verified by DOE by (1) identifying requirements in DOE Order 413.3 and its implementing guidance for the departmental review and verification of contractor project performance data and (2) interviewing DOE project management officials to determine whether the current breadth of review was adequate and what plans, if any, DOE had for increasing the rigor of its review and verification of contractor data. To assess the completeness of PARS data, we determined whether the PARS database included major DOE activities—those costing more than $400 million or that DOE management had designated—identified in our prior reports, Inspector General reports, DOE press releases, and printouts from DOE’s Management Accounting and Reporting System. For projects that were not included in PARS, we contacted headquarters project management officials to determine if the projects met the criteria for PARS reporting. For projects that were included in PARS, we examined the completeness of reported data in various data fields by reviewing printouts from the PARS database and by reviewing the reports of the National Academies’ National Research Council and the Civil Engineering Research Foundation, which also examined the completeness of PARS data. In addition, we reviewed a 2004 report by the U.S. Army Corps of Engineers on a major project at Hanford, Washington. Moreover, we discussed options with DOE officials for reporting additional data that would improve PARS’ ability to enable senior DOE managers to identify potential cost or schedule challenges. To assess the timeliness of PARS data, we reviewed PARS monthly reports to senior DOE managers and identified projects whose performance data were out-of-date. For many of these projects, we talked to headquarters and project officials to determine the reasons for delay and explored options with them on how timeliness could be improved. We also interviewed numerous acting DOE project directors to learn how data from their project management systems were summarized and incorporated into the PARS database. In addition, we explored options with DOE headquarters and project officials for improving the timeliness of all data reported in PARS. Given our review of the documentation provided by DOE and our discussions with DOE officials, we have reservations about the reliability of PARS data. These issues are discussed in this report. We conducted our work from January 2004 through January 2005 in accordance with generally accepted government auditing standards, which included an assessment of data reliability and internal controls. Nuclear Waste: Absence of Key Management Reforms on Hanford’s Cleanup Project Adds to Challenges of Achieving Cost and Schedule Goals. GAO-04-611. Washington, D.C.: June 9, 2004. Nuclear Waste Cleanup: DOE Has Made Some Progress in Cleaning Up the Paducah Site, but Challenges Remain. GAO-04-457. Washington, D.C.: April 1, 2004. Nuclear Weapons: Opportunities Exist to Improve the Budgeting, Cost Accounting, and Management Associated with the Stockpile Life Extension Program. GAO-03-583. Washington, D.C.: July 28, 2003. Nuclear Waste: Challenges and Savings Opportunities in DOE’s High- Level Waste Cleanup Program. GAO-03-930T. Washington, D.C.: July 17, 2003. Nuclear Waste: Challenges to Achieving Potential Savings in DOE’s High-Level Waste Cleanup Program. GAO-03-593. Washington, D.C.: June 17, 2003. Department of Energy: Status of Contract and Project Management Reforms. GAO-03-570T. Washington, D.C.: March 20, 2003. Major Management Challenges and Program Risks: Department of Energy. GAO-03-100. Washington, D.C.: January 1, 2003. High-Risk Series: An Update. GAO-03-119. Washington, D.C.: January 1, 2003. Contract Reform: DOE Has Made Progress, but Actions Needed to Ensure Initiatives Have Improved Results. GAO-02-798. Washington, D.C.: September 13, 2002. Nuclear Waste: Technical, Schedule, and Cost Uncertainties of the Yucca Mountain Repository Project. GAO-02-191. Washington, D.C.: December 21, 2001. Department of Energy: Follow-Up Review of the National Ignition Facility. GAO-01-677R. Washington, D.C.: June 1, 2001. Nuclear Cleanup: Progress Made at Rocky Flats, but Closure by 2006 Is Unlikely, and Costs May Increase. GAO-01-284. Washington, D.C.: February 28, 2001. High-Risk Series: An Update. GAO-01-263. Washington, D.C.: January 1, 2001. Major Management Challenges and Program Risks: Department of Energy. GAO-01-246. Washington, D.C.: January 1, 2001.

The Department of Energy (DOE) pays its contractors billions of dollars each year to implement its major projects--those costing more than $400 million each. Many major projects have experienced substantial cost and schedule overruns, largely because of contract management problems. GAO was asked to assess, for major departmental projects, (1) DOE's use of performance incentives to effectively control costs and maintain schedules, (2) the reliability of the data DOE uses to monitor and assess contractor performance, and (3) the reliability of the Project Assessment and Reporting System (PARS) data that senior managers use for project oversight. DOE could use performance incentives more effectively for controlling costs and schedules if it developed performance incentive guidance and assigned responsibility for reviewing a contract's project management provisions prior to award. DOE has awarded contracts for 15 of 33 major projects that use a schedule or other performance incentive without an associated cost incentive or constraint; thus a contractor could receive full fees by meeting all schedule baselines while substantially overrunning costs. DOE has relied on unvalidated contractor data to monitor contractors' progress in executing major projects and to award fees for performance. In particular, DOE's self-assessment of contract administration in 2002 found that field personnel overly relied on contractors' accounting systems and contractor-collected data in assessing performance, without significant validation of those data. No subsequent self-assessment has been conducted to determine if this problem continues. Furthermore, DOE has not required that its contracting officers receive the training needed to assess the adequacy of contractors' project management systems that generate data used to monitor progress. A lthough development of PARS is a positive step, the reliability of the project performance data that PARS provides to senior DOE managers is limited by problems with accuracy, completeness, and timeliness. Regarding accuracy, DOE has not assessed the reliability of contractors' project management systems that feed data into PARS for 31 of 33 major projects, even though DOE believes that some systems are deficient. Regarding completeness, GAO identified 3 major projects that are not in PARS. As to timeliness, cost and schedule data for 6 major projects in the June 2004 PARS report were significantly out of date because DOE has not required contractors to submit timely performance data. These contract management problems limit DOE's ability to effectively manage its major projects and avoid further cost and schedule slippages.

You are an expert at summarizing long articles. Proceed to summarize the following text: The FSM, the Marshall Islands, and Palau are among the smallest countries in the world. In 2008, the three FAS had a combined resident population of approximately 179,000—104,000 in the FSM, 54,000 in the Marshall Islands, and 21,000 in Palau. In 1947, the United States entered into a trusteeship with the United Nations and became the administering authority of the FSM, the Marshall Islands, and Palau. The four states of the FSM voted in 1978 to become an independent nation, and the Marshall Islands established a constitutional government and declared itself a republic in 1979. Both the FSM and the Marshall Islands remained subject to the authority of the United States under the trusteeship agreement until 1986, when a Compact of Free Association went into effect between the United States and the two nations. In 1994, Palau also entered a Compact of Free Association with the United States and became a sovereign state. Under the compacts, FAS citizens are exempt from meeting the visa and labor certification requirements of the Immigration and Nationality Act (INA) as amended. The migration provisions of the compacts allow compact migrants to enter the United States (including all U.S. states, territories, and possessions) and to lawfully work and establish residence indefinitely. In addition, under the compacts, the United States provided economic assistance, and access to certain federal services and programs, among other things. Also under the compacts, the United States has a responsibility for the defense of the FAS, and the compacts provide the United States with exclusive military use rights in these countries. A further compact-related agreement with the Marshall Islands secured the United States access to the U.S. military facilities on Kwajalein Atoll, which are used for missile testing and space tracking activities. In the 1986 compacts’ enabling legislation, Congress stated that it was not its intent to cause any adverse consequences for United States territories and commonwealths and the state of Hawaii. Congress further declared that it would act sympathetically and expeditiously to redress any adverse consequences and authorized compensation for these areas that might experience increased demands on their educational and social services by compact migrants from the Marshall Islands and the FSM. The legislation also required the President to report and make recommendations annually to the Congress regarding adverse consequences resulting from the compact and provide statistics on compact migration. In November 2000, Congress made the submission of annual impact reports optional and shifted the responsibility for preparing compact impact reports from the President, with Interior as the responsible agency, to the governors of Hawaii and the territories. In December 2003, Congress approved the amended compacts with the FSM and the Marshall Islands and took steps in the amended compacts’ enabling legislation to address compact migrant impact in U.S. areas. The legislation restated Congress’s intent not to cause any adverse consequences for the areas defined as affected jurisdictions—Guam, Hawaii, the CNMI, and American Samoa. The act authorized and appropriated $30 million for each fiscal year from 2004 to 2023 for grants to the affected jurisdictions, to aid in defraying costs incurred by these jurisdictions as a result of increased demand for health, educational, social, or public safety services, or for infrastructure related to such services, due to the residence of compact migrants in their jurisdiction. Interior’s Office of Insular Affairs (OIA) reviews the affected jurisdictions’ annual proposals for the use of the funds and provides them to affected jurisdictions as grants. Grants are to be used only for health, educational, social, or public safety services, or infrastructure related to such services due to the residence of compact migrants. Under the amended compacts’ enabling legislation, the affected jurisdictions are to receive their portion of the $30 million per year through 2023 in proportion to the number of compact migrants living there, as determined by an enumeration to be undertaken by Interior and supervised by Census or another organization at least every 5 years beginning in fiscal year 2003. The act permits Interior to use up to $300,000 of the compact impact funds, adjusted for inflation, for each enumeration. The legislation defines the population to be enumerated as persons, or those persons’ children under the age of 18, who pursuant to the compacts are admitted to, or resident in, an affected jurisdiction as of the date of the most recently published enumeration. In contrast to the original compacts’ enabling legislation, the amended compacts’ enabling legislation permits, but does not require, affected jurisdictions to report on compact migrant impact. If Interior receives such reports from the affected jurisdictions, it must submit reports to Congress that include, among other things, the Governor’s comments and Administration’s analysis of any such impacts. Under the initial compacts with the FSM and the Marshall Islands, the United States provided $2.1 billion in economic assistance to these governments. Under the amended compacts, the United States will provide an estimated combined total of $3.6 billion in economic assistance, much of it in a form known as “sector grants,” in annually decreasing amounts from 2004 through 2023. The amended compacts require that the sector grants be targeted to sectors such as education, health care, the environment, public sector capacity building, private sector development, and public infrastructure, or for other sectors as mutually agreed, with priority given to education and health. The amended compacts also established two management committees, the U.S.-Federated States of Micronesia Joint Economic Management Committee and the U.S.-Republic of the Marshall Islands Joint Economic Management and Financial Accountability Committee. Each committee has two FAS representatives and three U.S. representatives from, respectively, Interior, the Department of State, and the Department of Health and Human Services, with the Interior representative serving as chair. These committees review and approve compact grant allocations and performance objectives for the upcoming year on an annual basis and may attach conditions to the grants. Figure 1 shows the locations of the FAS and the affected jurisdictions. Census has gathered data through multiple efforts that can be used to describe aspects of the FAS migration to U.S. areas. Data are currently available through Census’s decennial censuses, which cover all U.S. areas, and its American Community Survey (ACS), which covers the 50 states, the District of Columbia and Puerto Rico. In addition, under agreements with Interior, Census has conducted special enumerations of compact migrants in affected jurisdictions, such as in 2003 and the 2008 enumeration required by the amended compacts’ enabling legislation. The next such required enumeration must occur by 2013. The decennial census is an enumeration of the U.S. population that is constitutionally required every 10 years. The 2010 decennial census data was gathered as of a specific day: April 1, 2010.  The 2010 decennial census in the 50 states is a 10-question survey that gathers limited demographic data such as sex, age, and race. The 2010 decennial census race question provided multiple choices for respondents to identify the race of each member of the household, with one choice being “Other Pacific Islander.” Respondents could identify multiple races for each individual and could further identify themselves by writing in a specific race. The decennial census in the 50 states does not collect respondents’ place of birth or year of entry, both of which are needed to identify those who arrived during the period of the compacts and are defined as compact migrants by the amended compacts’ enabling legislation.  Unlike the census in the 50 states, the decennial census in the insular areas—including Guam and the CNMI—is a detailed survey that collects a variety of demographic and economic information including respondents’ place of birth and year of entry, both of which are needed to identify compact migrants. Begun in 2005, the ACS uses a series of monthly samples to produce data for the same small areas of the United States (census tracts and block groups) used in the decennial census and formerly surveyed via the decennial census long form. To conduct the ACS, Census mails survey forms to selected households and, if a household does not respond, follows up by telephone and sometimes in person. Census then uses the information obtained from the surveys to estimate results for the entire population of larger areas that have a determined level of statistical precision. The ACS collects a variety of demographic and economic information on an ongoing basis, including data such as place of birth and year of entry that can be used to identify compact migrants. The ACS reports estimates from individual or multiple years of data rather than point-in-time counts, such as the decennial census provides. Interior has conducted four sets of enumerations of compact migrants in affected jurisdictions. The 1993, 1998, and 2003 surveys used the “snowball” technique; Census, working under an interagency agreement with Interior, employed a two-pronged approach in 2008. In the snowball technique used by Census for the 2003 survey and by prior surveys, trained workers who spoke the FAS languages asked the respondent in compact migrant households for referrals to other compact migrant households until they had surveyed every identified compact migrant. The surveys provided a count of compact migrants and demographic information such as employment, occupation, education, and reasons for migration. The snowball technique is a nonprobability method.  The two-pronged approach used one approach in Guam and the CNMI and another in Hawaii. In Guam and the CNMI, Census designed a block sample probability surveyand collected only the data needed to establish whether the respondents and th eir children could be classified as compact migrants. Census used the survey results to produce an estimate for each affected jurisdiction’s population. data from the 2005, 2006, and 2007 ACS needed to identify migrants and their children. In the CNMI, Census surveyed only the island of Saipan. Because few migrants and approximately 10 percent of the total CNMI population live on the CNMI’s other inhabited islands Census estimated the migrant population on the other islands using data from the 2000 decennial census. Interior for both enumerations. Census and Interior officials did not retain a record of the cost of the 2003 snowball enumeration, but in 2011 the director of the 2003 effort estimated the cost at $400,000 to $500,000, including Census headquarters and field costs but excluding the cost of a final report. In 2008, the two-pronged approach cost approximately $1.3 million, including headquarters and field costs and the cost of final reporting. The combined data from Census’ 2005-2009 ACS and the 2008 required enumerations in Guam and the CNMI estimated approximately 56,000 compact migrants—nearly a quarter of all FAS citizens—living in U.S. areas, with the largest populations in Guam and Hawaii. An estimated 57.6 percent of all compact migrants lived in affected jurisdictions: 32.5 percent in Guam, 21.4 percent in Hawaii, and 3.7 percent in the CNMI. According to ACS data, nine mainland states had estimated compact migrant populations of more than 1,000. (See fig. 2.) In comments on a draft of this report, the government of Arkansas stated that it had serious doubts about the accuracy of the ACS estimate for Arkansas shown in figure 2, particularly in comparison to the higher count implied by 2010 decennial Census data and school enrollment data from Springdale, Arkansas. See appendix IV for a discussion of the differences between these data sources, and see appendix II for the varying estimates in Arkansas. On the basis of these combined data, we estimate that approximately 68 percent of compact migrants were from the FSM, 23 percent were from the Marshall Islands, and 9 percent were from Palau. According to these estimates, although the FSM produced the highest number of migrants, Marshallese predominated in Arizona, Arkansas, California, and Washington. See appendix III for Census’s 2005-2009 ACS estimates of compact migrants by U.S. area and FAS of origin. Census has also published the 2010 decennial census counts of Pacific Islanders, with respondents identifying themselves by race, for the 50 U.S. states. Decennial census data include published state-level information on the Marshallese population and will provide counts of ethnicities from the FSM and Palauans in the future. According to these data, there are more than 1,000 Marshallese identified by race in five states, with the largest number in Hawaii and Arkansas. See appendix IV for information on the Marshallese population gathered through the 2010 decennial census in the 50 states. Surveys that Interior conducted in affected jurisdictions from 1993 through 2008 show growth in the compact migrant populations in Guam and Hawaii. In the CNMI, the compact migrant population declined between 2003 and 2008, mirroring a general decline in the CNMI population. (See fig. 3.) From 2003 through 2008, the percentage of the total compact migrant population grew in Guam and Hawaii. In 2008, compact migrants represented approximately 12 percent of the total population in Guam and one percent of the total population of Hawaii. (See fig. 4.) Census’s 2003 survey of compact migrants in the affected jurisdictions found that most migrated to the affected jurisdictions for employment or to accompany migrating relatives. Employment was the most common reason for migration in Guam and CNMI, followed by accompanying relatives. In Hawaii, slightly more migrants identified accompanying relatives than employment as their reason for migration. In Guam and the CNMI, less than 1 percent of migrants cited medical reasons for migration; in Hawaii, 10 percent cited medical reasons. Census’s 2008 survey did not ask about reasons for migration. However, during our interviews in 2011, compact migrants and officials from FAS embassies and consulates identified employment opportunities, educational opportunities, accompanying relatives, and access to health care as reasons for migration, similar to the findings from Census’s previous surveys. The two-pronged 2008 enumeration, on which the current allocation of compact impact grants is based, had certain strengths and limitations. Strengths of the 2008 enumeration included its reliance on available data in Hawaii, lowering the enumeration’s cost, and its use of a probability method in all jurisdictions that allows Census to statistically calculate the quality of the data and report margins of error for the enumerations in all three jurisdictions. Limitations of Census’s approach for the 2008 enumeration included its use of two different methods and its use of data from two different time periods, both of which affect the perceived fairness and usefulness of the enumerations. In addition, data resulting from the 2008 approach has limited comparability with data from the prior surveys and includes limited demographic information, limiting the usefulness of the 2008 data for purposes other than the required enumeration.  Use of two different methods. The data produced by block sampling in Guam and the CNMI and the ACS tabulations in Hawaii that were used for the 2008 enumeration are not fully comparable among the affected jurisdictions.  Use of data from different time periods. Because the 2008 enumeration used data from two different time periods—2008 for Guam and the CNMI and 2005 to 2007 for Hawaii—the enumerations for the respective jurisdictions do not reflect the continuing migration to Hawaii after 2007 but do reflect such migration to Guam and the CNMI. The effect of the earlier time frame is to undercount the compact migrants in Hawaii relative to the counts in Guam and the CNMI.  Limited comparability with prior enumeration. The shift in approaches from prior enumerations to 2008 limits Interior’s and affected jurisdictions’ ability to draw inferences from trends in the data. Some differences in the counts for those years may be attributable to the change in methodology rather than changes in the populations. However, using the same methodology at different points in time does not guarantee comparability of data across time.  Limited collection of demographic data. In 2008, Census did not collect information on characteristics of compact migrants in Guam and the CNMI beyond that required for the enumerations. Collected ACS demographic data on characteristics such as employment, income, and age distribution may not be statistically reliable for populations as small as that of compact migrants in Hawaii. The numbers of compact migrants found by the ACS in each year’s Hawaii survey are very small. For example, the 2006 ACS identified, by place of birth and arrival after the compact’s effective date, 55 persons from the FSM, 30 persons from the Marshall Islands, and 3 from Palau. The ACS for 2005-2007 identified a cumulative total of 295 compact migrants, from which Census estimated the total reported population. Affected jurisdictions expressed concerns about the potential accuracy and fairness of the 2008 enumeration approach. Guam, Hawaii, and CNMI officials expressed a preference for the snowball method that was used for the prior enumeration, stating that it was a more suitable approach to enumerating compact migrants. Further, though the snowball method used in the past had undercounted migrants, these officials were concerned that the 2008 approach would also miscount. Both Guam and CNMI officials stated that the compact migrant population changed addresses frequently, potentially affecting the sampling methodology and leading to a miscount. Hawaii expressed concern that the use of ACS data for the state from earlier years would not reflect recent migration and, in contrast to the special survey to be conducted in Guam and the CNMI, would eliminate Hawaii’s local input into the survey while permitting such input from Guam and the CNMI. However, Guam and the CNMI also stated that implementation of the survey was rushed and they had only limited opportunity to provide such input. In addition, Guam, Hawaii, and CNMI officials expressed concern that the approach chosen for 2008 would provide fewer demographic data. Led by the University of Hawaii, the Hawaii Governor’s office prepared an unsolicited proposal to Interior to conduct a snowball survey in all three affected jurisdictions. Responding to the affected jurisdictions’ concerns, Census officials stated that the snowball method was statistically insufficient and was unlikely to meet statistical survey criteria established by OMB in 2006. These criteria require agencies initiating a new statistical survey to document the precision required of the estimates (e.g., the size of differences that need to be detected). Interior offered to adopt Hawaii’s proposal if all affected jurisdictions agreed to it; however, Guam and the CNMI did not agree to the proposal. In addition, Interior cited Census’s independence as an advantage of its conducting the enumerations. Officials in all three affected jurisdictions, however, remained dissatisfied with the 2008 enumeration approach. (See app. V for attributes of the 2008 approach compared with the approach used for the prior enumeration.) Although Interior has not yet selected an approach for its 2013 enumeration of compact migrants in the affected jurisdictions, Interior and Census officials are discussing a preliminary approach that would have strengths and limitations similar to those we found in the 2008 approach. As of July 2011, according to Census officials, no agreement was in place for Census to conduct this work. However, according to both Interior and Census officials, if Interior employs Census for the 2013 enumeration, Census would again deploy a two-pronged approach, using the 2010 decennial census results for Guam and the CNMI and the ACS for Hawaii. Interior has not determined the cost of the preliminary approach or weighed its strengths and limitations. Our analysis shows that the strength of the preliminary 2013 approach would be its low cost; because it would draw solely from existing Census data, it would require no new data collection. However, it would have limitations similar to those we found in the 2008 approach, compromising both its fairness as a basis for distributing compact impact funds as well as the usefulness of the data it produces.  Use of two different methods. Using the counts provided through the full enumeration contained in the 2010 census in Guam and the CNMI produces single numbers for these jurisdictions. In Hawaii, use of the ACS would provide an estimated total based on a sample with calculated level of precision.  Use of data from different time periods. The preliminary approach would use data from April 1, 2010 for Guam and the CNMI and from multiple ACS monthly samples at different points in time for Hawaii.  Limited comparability with prior data. The change in enumeration method for Guam and CNMI would limit the comparability of the 2008 and 2013 enumerations.  Limited collection of demographic data. Detailed demographic data could be produced for compact migrants in Guam and CNMI, because the 2010 decennial census in those locations collected such data. However, as in 2008, demographic data from the ACS in Hawaii could lack statistical reliability because of the small number of migrants included in the ACS sample. In addition, the 2010 census and the ACS may provide different coverage of the compact migrant populations. The 2010 census collection followed a widespread campaign by Census and community groups to encourage participation, while the ACS collection efforts are not accompanied by this level of outreach. For 2004 through 2010, the affected jurisdictions’ reports to Interior show more than $1 billion in costs for services related to compact migrants. During that period, Guam’s reported costs increased by nearly 111 percent, and Hawaii’s costs increased by approximately 108 percent. The CNMI’s reported costs decreased by approximately 53 percent, reflecting the decline in the CNMI compact migrant population. Figure 5 shows compact impact costs reported by the affected jurisdictions for 1996 through 2010. For more details, see appendix VI. The affected jurisdictions reported impact costs for educational, health, public safety, and social services. Education accounted for the largest share of reported expenses in all three jurisdictions, and health care costs accounted for the second-largest share overall. (See table 1.) Our analysis of data in affected jurisdictions’ impact reports for 2004 through 2010 found that, reflecting the growing numbers of compact migrants, annual costs for educational services across all jurisdictions increased from approximately $46 million to $89 million, or by 93 percent. Annual costs for health services across all jurisdictions increased from approximately $33 million to $54 million, or by 66 percent. The affected jurisdictions’ impact reports, numerous studies, federal and state officials, and officials from affected jurisdictions have identified several other factors, in addition to growing migrant populations, that contribute to the cost of providing public services to compact migrants.  Educational services. Compact migrant school children generally lag academically owing to (1) poor-quality schools in the FAS; (2) limited language skills and experience with a school environment; and (3) difficulties in involving parents in their children’s education, due to language barriers. Various officials from affected jurisdictions, Interior, and service providers said these factors increase the resources required to provide educational services to compact migrants relative to other students.  Health services. FAS citizens have high rates of obesity; diabetes; hypertension; cardiovascular disease; and communicable diseases such as tuberculosis, Hansen’s disease, and sexually transmitted diseases. The Department of the Interior’s Inspector General has reported on inadequate health care systems in the FAS, which can lead to the prevalence of these health issues among FAS citizens. These health factors also lead some FAS citizens to migrate in order to gain access to the U.S. health care system. In U.S. areas, compact migrants’ low household incomes may lead many migrants to rely on public health services.  Social services. Like many other migrant populations, compact migrants often face challenges related to homelessness, reliance on public housing, and crowded living conditions. Various officials in Guam and Hawaii also cited compact migrants’ limited eligibility for a number of federal programs, particularly Medicaid, as a key contributor to the cost of compact migration borne by the affected jurisdictions. Table 2 shows compact migrants’ eligibility status for selected federal benefit programs. In some cases, affected jurisdictions have provided services for compact migrants at local expense that are similar to those available to U.S. citizens. For example, Guam, Hawaii and the CNMI provide funding for medical services that, prior to 1996, were available through Medicaid to low-income non-U.S. citizen compact migrants. U.S.-born children of compact migrants are eligible as citizens for the benefits available to them as U.S. citizens. We identified a number of weaknesses in affected jurisdictions’ reporting of compact impacts to Interior from 2004 through 2010 related to accuracy, adequacy of documentation, and comprehensiveness. Examples of such weaknesses include the following (see appendix VI for more details).  Definition of compact migrants. For several impact reports that we examined, the reporting local government agencies (state and territorial agencies in the affected jurisdictions) did not define compact migrants according to the criteria in the amended compacts enabling legislation when calculating service costs. For instance, some agencies defined and counted compact migrants using the proxy measures of ethnicity, language, or citizenship rather than the definition in the amended compacts’ enabling legislation. Using ethnicity or language as a proxy measure could lead to overstating costs, since neither measure would exclude individuals who came to the jurisdiction prior to the compact, while using citizenship as a proxy measure could lead to understating costs, since it would exclude U.S.- born children of compact migrants.  Federal funding. States and territories receive federal funding for specific programs that offsets a portion of the costs of providing services to compact migrants. However, two of the three affected jurisdictions’ public school systems and health agencies did not account for these offsets in their impact reporting, thus overstating reported compact impact costs.  Revenue. Multiple local government agencies that receive revenues, such as user fees, associated with services provided to compact migrants did not consider them in their compact impact reports, thus overstating reported costs.  Capital costs. Many local government agencies did not include capital costs in their impact reporting. Capital costs entail, for example, providing additional classrooms to accommodate an increase in students or additional health care facilities. In cases where compact migration has resulted in the expansion of facilities, agencies understated compact migrant impact by omitting these costs.  Per person costs. A number of local government agencies used an average per-person service cost for the jurisdiction rather than specific costs associated with providing services to compact migrants. Hawaii reported in 2008 that several costly diseases are overrepresented within the compact migrant population. Using the average cost may either overstate or understate the true cost of service provision. In some cases—for example, the provision of health services—the service cost for each compact migrant could be determined. However, a number of agencies apply a range of approaches, such as using the simple average cost (e.g., cost per student) or factoring in higher costs if additional or more costly services are used.  Discretionary costs. Some compact impact costs local government agencies reported were for benefits or services provided at the discretion of the affected jurisdiction.  Data reliability. One local government agency used data on compact migrants that were found to be in error in a subsequent compilation of their impact reporting and caused an overstatement of total costs in its impact reporting. A number of local government agencies did not disclose their methodology, including any assumptions, definitions, and other key elements, for developing impact costs making it difficult to evaluate reported costs. For those years when the affected jurisdictions submitted impact reports to Interior, not all local government agencies in the jurisdictions included all compact impact costs for those years. Between the affected jurisdictions the scope of reporting differed, with one jurisdiction not reporting cost related to police services. Guidelines that Interior developed in 1994 for compact impact reporting for Guam and the CNMI do not adequately address certain concepts key to reliable estimates of impact costs. Developed in response to a 1993 recommendation by the Interior Inspector General, the guidelines suggest that impact costs in Guam and the CNMI should, among other concepts, (1) exclude FAS citizens who were present prior to the compacts, (2) specify omitted federal program costs, and (3) be developed using appropriate methodologies. However, the 1994 guidelines do not address certain concepts, such as calculating revenue received from providing services to compact migrants; including capital costs; and ensuring that data are reliable and reporting is consistent. Several Hawaii and CNMI officials from the reporting local government agencies we met with, as well as Interior officials, were not aware of the 1994 guidelines and had not used them. Officials at the Guam Bureau of Statistics and Plans, which was in possession of the guidelines, said that the bureau attempts to adhere to them when preparing compact impact cost estimates. The bureau does not provide these guidelines in its annual letter to the agencies when requesting compact impact costs since the agencies do not submit their reports for Interior directly. The bureau said it applies the guidelines to the data it receives from the agencies prior to submitting the final report to Interior. However, we found some cases where the bureau and local Guam agencies did not follow the guidelines. Interior’s reporting to Congress on compact impacts reported by the affected jurisdictions has been limited. The amended compacts’ enabling legislation requires Interior, if it receives compact impact comments from the Governor of an affected jurisdiction by February 1, to submit a report with specific required elements on compact impact to Congress no later than May 1 of that year. As of August 2011, Interior had submitted one required report to Congress in 2010 but had not submitted any reports in 2004 through 2009, although at least one affected jurisdiction had reported compact impacts to Interior in each of those years. Although Interior officials stated they were preparing their 2011 congressional report, as of August 2011 it had not been submitted. Interior’s 2010 report did not address all elements required by the amended compacts’ enabling legislation: Interior’s report lacked information from the Guam and Hawaii governors’ compact impact reports regarding increasing compact migrant costs, the types of services being used, and the associated costs for each local government agency. Interior’s report did not analyze the impact cost information provided by the two governments. However, Interior noted that the affected jurisdictions’ compact impact reports do not calculate compact migrants’ contributions. Interior’s report did not state its views on recommendations for corrective action, such as Hawaii’s suggestion to authorize compact migrant eligibility for all federal assistance programs to reduce impact. However, Interior relayed requests from the governors of Guam and Hawaii for additional funds and provided a summary of Interior’s compact impact funding provided to Guam and Hawaii. In August 2011, Interior reminded affected jurisdictions of their option to submit annual compact impact reports and identified a point of contact at Interior to which the reports may be submitted. Interior also noted that it is currently developing a process to ensure timely submissions to Congress. Compact migrants participate in local economies through their participation in the labor force, payment of taxes, consumption of local goods and services, and receipt of remittances. Previous compact migrant surveys estimated compact migrants’ participation in the labor force, but existing data on other compact migrant contributions such as tax revenues, local consumption, or remittances are not available or sufficiently reliable to quantify their effects. According to data from the 2003 Surveys of Micronesian Migrants, the majority of compact migrants participated in CNMI’s and Guam’s labor force and over 40 percent participated in Hawaii’s labor force. However, compact migrants generally participate in the labor force at lower rates than the general population. The 2003 data also showed that compact migrants from the Marshall Islands generally had lower labor force participation rates than compact migrants from the FSM and Palau. Compact migrant workers generally work in low-skilled occupations. According to data from the 2003 survey, the majority of compact migrant workers work in the private sector as (1) operators, fabricators, and laborers; (2) service workers; and (3) technical, sales, and administrative support. Guam and Hawaii do not have more recent data on compact migrant workforce participation, but CNMI Department of Finance data show that, on average, compact migrants comprised 2.3 percent of the CNMI workforce from 2004 through 2009 and had income 14 percent higher than other workers. Persons born in the FAS may also serve in the U.S. armed services and, as of August 2011, 381 were serving on active duty. Compact migrants participate in local economies through taxation, but reliable data quantifying their effect are not available. Guam and Hawaii do not collect data on the ethnicity of taxpayers or other information that could be used to disaggregate the taxes paid by compact migrants from overall receipts. However, for Guam, our estimates show that compact migrant workers paid $971 less (68 percent less) per capita in taxes than other workers in 2009. Approximately 60 percent of this difference results from compact migrant workers’ being much less likely to be employed in Guam’s higher paying public sector. The remaining difference results from the higher number of exemptions that compact migrant workers could claim, on average, for family members when filing taxes. Alone among affected jurisdictions, the CNMI collects data on citizenship that could be used to identify the taxes paid by compact migrants. However, the data provided by the CNMI include only the amount of taxes withheld and not the amount ultimately paid. These data may overestimate the amount of taxes paid, since a portion of taxes withheld may be returned to the taxpayer. Compact migrants contribute to the local economy by consuming local goods and services and by spending remittances that they receive from their home islands in affected jurisdictions. Their total consumption and economic effect may be reduced if they remit some of their income to their home islands. Data from 1998 suggest that compact migrants generally consume less of their income than does the general population; however, since that time, no data quantifying consumption by compact migrants has been published. Compact migrants we met with confirmed that they send remittances to their home islands; however, estimates and methodologies for remittances have many limitations and vary significantly across sources, calling their reliability into question. From fiscal years 2004 through 2010, the $30 million in annual compact impact grants, which Interior has awarded in accordance with the enumerations of compact migrants, have addressed a portion of each jurisdiction’s reported impact costs. Of the $210 million in impact grants, approximately $102 million was provided to Guam, $75 million to Hawaii, and $33 million to the CNMI (see fig. 6). In their compact impact reports to Interior, the governors of Guam and Hawaii have highlighted the gaps between their reported impact costs and the amounts of the compact impact grants, requesting that the federal government provide additional support. Interior has approved affected jurisdictions’ applications for compact impact grants to be used for general support of local budgets, projects, and for specific departmental purchases in the areas of health, education, public safety, and social services.  Guam. The largest annual compact impact grants to Guam in fiscal years 2005 through 2010 supported public school construction and maintenance. Most other compact impact grants to Guam funded health and public safety purchases, such as the purchase or renovation of facilities, emergency vehicles, and medical supplies, among many others.  Hawaii. All compact impact grants to Hawaii in fiscal years 2004 through 2010 were provided to its Department of Human Services to offset the cost of state-funded medical services.  CNMI. Compact impact grants to the CNMI in fiscal years 2004 through 2010 supported the operations of several CNMI government departments, such as the departments of public health and public safety, and the public school system. See appendix VII for a description of Interior’s grant reviews and a list of compact impact grants to the affected jurisdictions from fiscal years 2004 to 2011. Compact migrants confront complex challenges related to the compact migrants’ unfamiliarity with local language and culture, limited job skills, and difficulty in accessing available services, according to various government officials, services providers, and compact migrants. Compact impact grants are generally not used to directly target these complex challenges. However, a report by the Hawaii Compacts of Free Association Taskforce released in 2008 recommended a review of the allocation and use of compact grants that the state received from Interior to determine whether there is a way to spend compact impact grants that would have a more effective long-term impact. Officials, providers, and migrants identified the following needs: Language and cultural assistance. Guam education, health, and social service officials reported, among other challenging cultural gaps facing arriving migrants, the need for interpreters to assist patients and families. Hawaii health providers noted that language and cultural barriers compromise care delivery. In addition, the Hawaii Taskforce report identified a need to develop translation and interpreter resources. A number of compact migrants in Guam and Hawaii identified language and cultural issues as a source of difficulty in using government services and identified a need for translators and language tutors. Job training. The Governor of Guam noted that FSM migrants in Guam face challenges due to their lack of job skills and education. Various members of the compact migrant community in Hawaii also cited lack of job skills as a challenge and said that job training is needed to help migrants gain employment. Access to basic services. Hawaii officials identified lack of coordination of services as a challenge. Various FAS officials noted that their citizens are at times frustrated in their attempts to obtain basic documents such as social security numbers and driver’s licenses from officials who are unaware of the compact provisions for compact migrants. In addition, several compact migrants in Hawaii noted that compact migrants are often unaware of available benefits. To more directly address these needs, various government officials, service providers, and compact migrants suggested the establishment of centers offering multiple services to migrants. In Guam, the Center for Micronesian Empowerment provides culture, language, and job skills training, as well as help in finding employment, to both arriving and resident compact migrants. According to one of the center’s founders, the language and cultural training has reduced employee attrition in companies that hire the trainees, and migrants who receive job skills training are almost guaranteed to find employment. Guam officials also noted that Interior grants had previously funded another resource center for FAS citizens that supported migrant efforts to assimilate and provided outreach and services to newly arriving migrants.  The Hawaii Taskforce report recommended the establishment of multipurpose cultural outreach service centers or mobile service delivery centers, among other options, to standardize service delivery processes and promote accessibility.  A senior official at the Hawaii State Department of Health advocated a “one-stop” service center approach for migrants with medical and other government services, with staff who can assist with language and cultural issues. Kokua Kalihi Valley, a community nonprofit in Hawaii, includes elements of such an approach, providing health, social, and youth services, among others, to compact migrants.  Several compact migrants in Hawaii suggested the establishment of a community center to help people adjust and acclimate—for example, by teaching them how to work with schools and access services. Sector grants awarded in fiscal years 2004 through 2010 may have helped mitigate compact impact by supporting the health and education sectors and, in some instances, directly targeted issues related to compact impact in the affected jurisdictions. In 2001, we reported that targeting assistance to the health and education sectors in the FSM and the Marshall Islands might lessen compact migration and its impact in the affected jurisdictions. For example, better education systems in the FSM and the Marshall Islands might reduce the motivation to migrate and enable those who do migrate to better succeed in U.S. schools. Also, targeting health spending where health services are limited might reduce the number of citizens who travel to the United States seeking medical care. Further, programs aimed at improving the health status of FAS citizens might reduce the impact of migrating citizens on the U.S. health care system. Under the amended compacts, the U.S.-Micronesia and U.S.-Marshall Islands joint management committees, chaired by Interior, annually review and approve sector grants that allocate funds primarily for education, health, and infrastructure. The amended compacts and related agreements outline the joint management committees’ responsibilities as including allocating sector grants and recommending ways to increase the effectiveness of sector grant assistance. Based on the joint management committees’ annual approval of sector grants, Interior has made available approximately $808 million in sector grant funds in fiscal years 2004 through 2010. (See table 3 for sector grant allocations approved for fiscal year 2011.) In allocating sector grants for fiscal years 2004 through 2010, the joint management committees did not formally address the needs of compact migrants or their impact on U.S. states and territories, according to Interior officials. In 2011, the committees formally placed compact impact on their annual meeting agendas; however, as of September 2011 they had not allocated 2012 sector grant funding to directly address issues that concern the compact migrants or the affected jurisdictions. The amended compacts indicate that the sector grants are to be used for sectors such as education, health care, the environment, public sector capacity building, and private sector development in the FSM and Marshall Islands but may be used for other sectors as mutually agreed, with priorities in the education and health care sectors. We found some examples of grants that directly address compact migrants’ needs in affected jurisdictions and thus respond to some of the affected jurisdictions’ concerns.  For fiscal years 2010 and 2011, three of the four states of the FSM agreed to use a total of approximately $842,000 of supplemental education grants to fund the Center for Micronesian Empowerment, which assists Micronesians in Guam with language and culture training, developing job skills, and finding employment.  For fiscal years 2009 and 2010, Interior awarded approximately $3.4 million in health sector grants to the FSM and the Marshall Islands to address an outbreak of multidrug-resistant tuberculosis—a public health concern and a costly communicable disease that has occurred among migrants in the affected jurisdictions. During our visits to the affected jurisdictions in February 2011, the Governor of Guam identified a need to use sector grants in the FSM to improve education and health services to reduce compact impact in Guam, noting that he and the President of the FSM had discussed ways to work together to improve assimilation of migrants from the FSM in Guam. FSM migrants in Guam identified a need for cultural education and job training at home before citizens migrate to the United States. In Hawaii, officials identified the need to address health and social issues in the FSM and the Marshall Islands to better prepare FAS citizens considering migration and reduce the need for migrants to seek health and social services in Hawaii. In addition, compact migrants in Hawaii suggested that U.S. grant funds currently going to the FSM and the Marshall Islands be used to establish a compact migrants’ cultural center in Hawaii. In May 2011, Members of Congress wrote to Interior and the Department of State asking that a portion of sector grants be used to fund a program to prepare FAS citizens for migration and to establish and operate dialysis treatment facilities in the FSM and the Marshall Islands so that patients will not seek treatment in the United States. In their annual meetings held in August and September of 2011, both joint management committees formally placed compact impact and fiscal year 2012 sector grants on their agendas, but neither committee allocated sector grants that directly address compact migration. Although the compact migrant population represents a tiny fraction of migrants in the United States, the population can have significant impacts on the U.S. communities where they reside. To help defray costs of providing services to compact migrants, Congress has appropriated compact impact funds that Interior allocates to the affected jurisdictions in proportion to the required periodic enumerations of compact migrants. However, developing a cost-effective enumeration approach that is fair, is accepted as credible by affected jurisdictions, and produces additional demographic data remains a challenge. Thorough consideration of the strengths, limitations, and costs of the preliminary approach for the 2013 enumeration, as well as the concerns of affected jurisdictions, would enhance Interior’s ability to select a credible and reliable approach. Although the affected jurisdictions have reported rising costs of addressing compact migrants’ needs for health, education, and social services, the jurisdictions’ estimates of these costs have weaknesses that affect their reliability. Moreover, Interior’s 1994 guidelines for reporting compact impact do not address certain concepts, such as defining compact migrants and calculating revenues, that are essential for reliable estimates of impact costs. Providing more rigorous guidelines to the affected jurisdictions that address concepts essential to producing reliable impact estimates and promoting their use for compact impact reports would increase the likelihood that Interior can provide reliable information on compact impacts to Congress. Interior’s compact impact grants have generally been used for affected jurisdictions’ budget support, projects, and purchases in the areas of education, health, and public safety. Meanwhile, government officials, service providers, and compact migrants noted the complex challenges confronting both service providers and migrants and suggested approaches to directly address these challenges. For example, centers offering multiple services could address migrants’ needs for basic services as well as facilitate provision of services and improve migrants’ access. One affected jurisdiction also noted the need to review the allocation and uses of the grants to determine whether they could be spent in a way that would increase their long-term effectiveness. Given that compact impact grants only partially offset the affected jurisdictions’ reported rising impact costs, Interior working with the affected jurisdictions to identify alternative uses of the grants could more effectively address compact impact. Available data suggest that about 56,000 citizens of the FSM, the Marshall Islands, and Palau—nearly a quarter of all FAS citizens—reside in the United States and its territories under provisions of the U.S. compacts with those countries. In Guam and Hawaii, officials have advocated the use of sector grants to reduce the impact of compact migration by improving education, health, and social services in the FSM and the Marshall Islands, and compact migrants cited the need for assistance in adapting to life after migration. The joint U.S. - FSM and U.S. - Marshall Islands committees’ allocations of sector grants since 2003 have supported the health and education sectors in the FSM and the Marshall Islands and may indirectly help to mitigate compact impact in the affected jurisdictions. The committees have included compact impact on their recent agendas; however, they have not yet considered potential uses of the grants to directly address the issues that concern compact migrants or the affected jurisdictions. We recommend that the Secretary of the Interior take the following four actions: In order to select the most appropriate approach for its next enumeration of compact migrants, fully consider the strengths and limitations of its preliminary approach for 2013, weighing the cost of the approach with the need for data that will be fair as well as useful to the affected jurisdictions. In order to strengthen its ability to collect, evaluate, and transmit reliable information to Congress, disseminate guidelines to the affected jurisdictions that adequately address concepts essential to producing reliable impact estimates, and call for the affected jurisdictions to apply these guidelines when developing compact impact reports. In order to promote the most effective use of compact impact grants, work with the affected jurisdictions to evaluate the current use of grant funds and consider alternative uses of these grants to reduce compact impact. In order to help mitigate compact impact and better assist FSM and Marshall Islands citizens who migrate to the United States, work with the U.S.-FSM and U.S.-Marshall Islands joint management committees to consider uses of sector grants that would address the concerns of FSM and Marshallese migrants and the affected jurisdictions. We provided a draft of this report to the Department of the Interior; the Department of State; the Census Bureau; and the governments of Guam, Hawaii, the CNMI, Arkansas, the FSM, Marshall Islands, and Palau for review. All except the Department of State provided written comments, which we have summarized below with our responses. See appendixes VIII through XVI for reproductions of the comments, along with our detailed responses. Interior generally agreed with our findings and the recommendations that it fully consider the strengths and limitations of enumeration approaches and that it disseminate guidelines on impact estimates. However, Interior disagreed with our recommendation that it work with the affected jurisdictions to evaluate the use of compact impact grant funds and consider alternative uses. Interior stated that the amended compacts’ enabling legislation authorizes broad uses of compact impact grants and that it has chosen to respect the funding priorities of the governors. Further, Interior stated that it did not believe that practical gains can be made by proposing alternatives. We believe Interior should not rule out the possibility of practical gains through a consideration of alternate uses of the grant funds. During our review, government officials and service providers suggested alternative uses of compact impact funding that may more directly address compact impact, such as measures to reduce certain health costs through the provision of preventive care. The governors of Guam and the CNMI agreed with this recommendation, and the governor of Hawaii noted that ideas to increase long-term capacity or efficiency of resources could be of great benefit to the affected jurisdictions. We retain our recommendation for Interior to work with governors to evaluate their current use of funds and to consider alternative uses. Interior agreed with our recommendation that it work with the U.S.-FSM and U.S.-Marshall Islands joint management committees to consider uses of sector grants that would address the concerns of compact migrants and the affected jurisdictions, subject to the funds being used within the FAS. However, Interior stated that our draft report implied that compact sector grant funds should be shifted from providing assistance to the FAS governments to providing assistance to FAS citizens living in the affected jurisdictions, an action that Interior sees as inconsistent with the compacts and their enabling legislation. We agree with Interior that compact sector grants are to support the governments of the FSM and the Marshall Islands by providing grant assistance to be used in certain sectors such as education and health care, or for other sectors as mutually agreed. We expect that compact sector grant awards will be provided consistent with the terms of the compacts and the amended compacts’ enabling legislation; we do not intend to imply that funds should be shifted from FAS governments to FAS migrants. In response to Interior’s concern, we clarified that our findings and recommendation highlight the opportunity for the joint management committees to consider the use of sector grants to the FSM and Marshall Islands in ways that address the concerns of FAS citizens—whether they are in the FAS or in U.S. areas—and the concerns of the affected jurisdictions. The recommendation supports consideration of the use of sector grants in ways that respond to the concerns of FSM and Marshall Islands migrants and the affected jurisdictions. Census did not comment on our report’s recommendations but offered a number of largely technical comments on our findings, which we have addressed as appropriate. Census disagreed with our assessment of the limitations of the 2008 enumeration methodologies. However, our findings indicate that the 2008 Guam and CNMI surveys are not comparable with the ACS estimates for Hawaii in terms of their sampling methods and reporting period. In addition, as our report notes, migration is continuing, and Hawaii ACS data does not include nearly a year of additional migration that may be captured in the Guam and CNMI totals. Regarding its varying estimates of compact migrants in Arkansas, Census stated that the different estimates are not based on the same criteria and therefore should not be compared. We agree that the surveys have different bases for identification, and we identify several reasons for these differences in appendix IV of the report. We have also noted Arkansas’s and Hawaii’s observations about the accuracy and reliability of the ACS data. The government of Hawaii generally agreed with our recommendations and made several related observations. In particular, in response to our recommendation that Interior disseminate guidelines to the affected jurisdictions for estimating compact impact, the government of Hawaii said it would be willing to consider using such guidelines if they do not create undue burdens. Regarding our recommendation that Interior work with the affected jurisdictions to evaluate current uses of compact impact grants and consider alternative uses, the government of Hawaii noted that it had always used compact impact assistance for direct services to compact migrants, and said it had done so efficiently and effectively. However, Hawaii noted that ideas to increase long-term capacity or efficiency, or proposals to strengthen support infrastructure, could be of future benefit. The government of Hawaii stated that a portion of the sector grants to the FAS might be more effectively used to provide services to their compact migrants and suggested that affected jurisdictions provide input on the use of sector grants. The government of Guam agreed in principle to the four recommendations in our report. Regarding the required enumerations of compact migrants, the government of Guam stated that Interior’s decision not to use the enumerations to collect additional demographic data has resulted in the loss of valuable information. The government of Guam also welcomed legislative proposals for federal impact aid for education and restoration of Medicaid eligibility. Regarding our recommendation to consider uses of sector grants to address compact impact, the government of Guam cautioned that while such use may lessen impact on affected jurisdictions, diverting them from use within the FAS must be carefully weighed. The government of Guam also stated that the report does not discuss some options available in the amended compacts' enabling legislation to address compact impact, including: direct financial compensation to affected jurisdictions, nondiscriminatory limits on migration, and debt relief to offset previous costs. Our report notes the authorization of additional appropriations but does not address limits on migration. We added a note to the report to describe the debt relief provision but also note that it expired on February 28, 2005. The government of the CNMI generally agreed with our findings and recommendations and stated that Interior should consult with the CNMI on developing cost guidance based on Interior Inspector General, Office of Management and Budget, and GAO guidance. The government of the CNMI also recommended that Congress provide additional appropriations to redress the outstanding costs for services provided to compact migrants from past years to the present. The government of Arkansas generally agreed with our findings but expressed serious reservations about the ACS data shown in figure 2 of our report. The government of Arkansas asked that figure 2 show Census’s 2010 decennial census count based on race rather than the estimate of compact migrants based on ACS 2005-2009 data. We agree that there are differences between the counts and list some of the reasons for the differences in appendix IV. We have added additional text to the report body to present Arkansas’s concerns and more thoroughly describe the differences between the data sources. The government of the FSM commented that weaknesses we identified in affected jurisdictions’ impact cost reporting, combined with the lack of information on the positive contributions of compact migrants, leaves the net impact unknown. The FSM asked that the service of its citizens in the U.S. armed forces be recognized in our report. In response, we obtained information on the number of FAS-born persons on active duty in the armed forces and have included it in the report. Further, the FSM expressed concern that disagreements regarding the compact migrant enumerations will continue and requested that parties involved in the 2013 enumeration reach an agreement on the best approach. The government of the Marshall Islands stated that a methodology should be developed to calculate net compact impact and requested that the contributions of Marshall Islands citizens in the U.S. armed forces be recognized in our report. The government of the Marshall Islands commented that it views the immigration privileges under the compact as a cornerstone of its free association with the United States and that any changes to them will lead to a deterioration in the relationship between the United States and the Marshall Islands. The government of the Marshall Islands also cited specific steps it has taken to address compact migrant impact, including establishing a task force working on and implementing a program to address communicable diseases, and producing a video for Marshallese that describes intending migrants’ rights, duties, and responsibilities while living in the United States. Regarding the recommendation that Interior work with the U.S.-FSM and U.S.-Marshall Islands joint management committees to consider uses of sector grants, the government of the Marshall Islands stated that the amended compact provides only for uses of the grants in the Marshall Islands. We clarified some statements and our recommendation in response to this observation. The government of the Marshall Islands further stated that the amended compacts’ enabling legislation authorized additional appropriations for grants to affected jurisdictions to offset impact and that it is the responsibility of Congress to compensate affected jurisdictions for any adverse impact. The government of Palau generally agreed with our findings. Palau also emphasized that positive compact impact should be determined and asked that the contributions of Palau’s citizens in the U.S. armed forces be recognized in our report. The government of Palau commented that our report does not adequately explore whether compact impact differs among FAS citizens. However, we found that not all local government agencies reported compact impact costs by FAS country, limiting our ability to perform such an analysis. Finally, the government of Palau stated that some persons who entered the United States after the date of the compacts may be lawfully present under authorities other than those of Section 141 of the compact and therefore would not count towards compact impact. We agree and have noted this in the report. We are sending copies of this report to the Secretary of the Interior, the Secretary of State, and the Director of the U.S. Census Bureau. 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) 512-3149 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 XVII. This report describes migration to U.S. areas from the Federated States of Micronesia (FSM), the Marshall Islands, and Palau under those countries’ compacts of free association with the United States; reviews approaches to enumerating these compact migrants; evaluates reporting of these migrant’s impact on Guam, Hawaii, and the Commonwealth of the Northern Mariana Islands (CNMI); and reviews Department of the Interior (Interior) grants related to compact migration. In addition, appendix II provides information on the growing Marshallese compact migrant population in Arkansas and its impact. To describe compact migration to U.S. areas, we reviewed survey data from 1993 through 2010. As part of this review, to approximate the dispersion of compact migrants, we arranged with the U.S. Census Bureau (Census) to purchase a special tabulation of multiyear American Community Survey (ACS) data gathered from 2005 through 2009. These state estimates represent migrants if they are present in sufficient numbers to be reportable; state estimates are unreportable when fewer than 50 people respond in each category of cross-tabulated data. Census also applies statistical disclosure avoidance techniques to the tabulated data to protect respondent confidentiality, such as suppressing the number and location of compact migrants. The new tabulation mirrors the one used by Census to estimate the number of compact migrants in Hawaii in 2008 using ACS data. To determine the trend of migrants as a percentage of the populations of affected jurisdictions and identify reasons for migration, we reviewed our previous report on compact migrant impact and analyzed the information presented in previous enumerations. To estimate the populations of affected jurisdictions, FSM, and the Marshall Islands in 2003 and 2008, we used the 1999 Marshall Islands census, an estimate from the Marshall Islands’ embassy to the U.S. for the 2011 population, and 2000 and 2010 censuses for the FSM and the affected jurisdictions, assumed that the population changed at a constant rate, and interpolated the population counts for the years in between. The 1993 and 1998 estimates of affected jurisdiction population are existing Census estimates. To assess Interior and Census approaches to enumerating compact migrants in affected jurisdictions, we reviewed the requirement for the enumerations in the amended compacts’ enabling legislation. In addition, we interviewed Census and Interior officials and officials in affected jurisdictions who had contacted or worked with Census and Interior as they developed the 2003 and 2008 enumerations. We also reviewed affected jurisdictions’ written critiques of the enumerations. We reviewed Office of Management and Budget (OMB) survey criteria, and we compared the surveys to these criteria by reviewing the reported methodology of the 2003 survey and the supporting documents for the 2008 survey such as the enumerator’s manual, Census’s source and accuracy statement, and Census quality control review documents. We also conducted a literature review to identify existing studies of the uses and limitations of the various methods for enumerating populations such as compact migrants. To compile the compact impact costs reported by the governments of Guam, Hawaii, and the CNMI, we used the most recent data that they submitted to Interior for 1986 through 2010, Interior’s 2010 compact impact report to Congress, and data from our previous report. We then categorized the reported costs using the categories that the amended compacts’ enabling legislation defines as eligible for compact impact funding—education, health, public safety, and social services and infrastructure related to such services—to identify the main sources of compact impact reported by the affected jurisdictions. For additional context, we reviewed the narrative of the reports submitted by affected jurisdictions and interviewed compact migrants and officials in affected jurisdictions. To identify the eligibility of compact migrants for selected federal programs that may help address the compact impact on affected jurisdictions, we reviewed existing legislation and discussed our findings with officials from affected jurisdictions and subject matter experts. To evaluate the affected jurisdictions’ estimates of compact impact costs, we compared the costs that the affected jurisdictions had reported to Interior since 2004 with cost estimation criteria that we developed based on OMB guidelines as well as our own guidance on cost -benefit analyses, a previous report on costs associated with illegal alien schoolchildren, and requirements in the amended compacts’ enabling legislation. We identified the methodologies used by local government agencies in the affected jurisdictions to develop their compact impact costs and determined their limitations by reviewing the compact impact reports; interviewing officials from many of the reporting agencies in affected jurisdictions; and collecting information from the Guam and the CNMI’s single audit reports. Using our cost criteria, we developed questions and circulated them to affected jurisdictions’ reporting agencies, providing them an opportunity to further explain how they derived their estimates. Not all agencies responded to these questions; therefore, additional examples beyond the ones we have identified may exist. Table 8 includes Hawaii’s most recent reported compact impact costs which were submitted to Interior in August 2011. However, our analysis of compact impact reporting does not include this information. Officials from Hawaii’s Department of Human Services, Department of Health, and Department of Education said that their reporting methodologies had generally not changed since their last report, which was submitted in 2008 and which we included in our analysis. However, the Department of Education said that it excluded federal funds from its 2008 through 2011 compact impact costs and corrected its reporting error regarding the number of compact students for 2006 through 2008. In addition, the Department of Health said that the Tuberculosis Branch changed its methodology and the Family Health Services Division changed its presentation of the data to show excluded federal funds. To identify federal funding received by Guam and the CNMI for programs serving compact migrants, we analyzed single audit reports from 2005 through 2009 in the CNMI and from 2004 through 2008 in Guam. To assess Interior’s guidelines on compact impact reporting, we reviewed the requirements contained in the amended compacts’ enabling legislation, and we identified and reviewed Interior’s 1994 compact impact reporting guidelines and the Interior Office of Inspector General’s 1993 report that prompted the creation of these guidelines. We also interviewed officials from the affected jurisdictions and Interior regarding their use of these guidelines to develop cost estimates. To assess Interior’s compliance with the congressional reporting requirements of the amended compacts’ enabling legislation, we reviewed the legislation, met with Interior officials, and assessed the Interior’s 2010 report to Congress against the specific elements required in the legislation. To describe compact migrants’ participation in local economies, we generally used data from the Micronesian surveys in 1997 and 2003 as reported in the 2008 report of the 2003 survey, supplementing these data where possible with additional information from local and natio nal agencies and other literature. To determine whether additional data on the compact migrants’ role in the economy exist, we contacted agencies from affected jurisdictions that address labor and taxation and reviewed reports and data sets. These sources of additional information and data include the following:  To describe compact migrant health status and the health and education systems in the FAS, we reviewed and summarized published literature.  To describe compact migrants’ contributions to the labor market in the CNMI, we analyzed data from the CNMI Department of Finance for 2001 through 2009, comparing the size of the compact migrant labor force to the size of the overall CNMI labor force and the income of the compact migrants to that of the general population.  To compare the amount of taxes paid by compact migrants with the amount paid by the general population in Guam, we used data from the 2008 and 2009 Guam Annual Census of Establishments, the 2008 and 2009 Guam Current Employment Reports, the 2008 Guam Statistical Yearbook, and the 2008 migrant survey. These data allowed us to estimate under certain assumptions the number of compact migrants and others working in the private and public sectors, their average wages, and taxes paid. The method we used to prepare this estimate drew on a method first outlined by an official in the Guam Bureau of Statistics and Plans.  To estimate the amount of remittances that migrants sent and received while in the U.S. areas, we analyzed data from the Inter- American Dialogue, the fiscal year 2008 Economic Reviews of the FSM and the Marshall Islands, and data reported in the 2008 report of the 2003 survey. Because of the limitations and significant variation in the estimates provided by these three sources, we determined that these data were not sufficiently reliable for our purposes.  To determine the number of FAS-born persons serving in the U.S. armed forces, we requested a special tabulation from the Department of Defense’s Active Duty Personnel Master and Reserve Components Common Personnel Data System. To review Interior’s compact impact grants, we reviewed our previous report on Interior grant management, the requirements of the amended compacts’ enabling legislation, and Interior’s 2010 Financial Assistance Manual. We assessed the management of the grants against the legislation and manual by reviewing Interior’s compact impact grant files for Guam, Hawaii, and the CNMI for fiscal years 2004 through 2011. In each grant file, we reviewed grant narratives and correspondence and collected the grant name, number, amount, description, status, remaining balance, and purpose, as well as any funding redirections or deobligations. To determine the extent to which compact sector grants may address compact impact, we interviewed compact migrants and Interior and affected jurisdiction officials and collected grant allocation data from Interior for compact sector grants. We then discussed the nature of sector grants and compact impacts in the affected jurisdictions with Interior officials to identify the amount and purpose of compact sector grants that could be linked to addressing compact migrant impact. To provide information on the migrant population and impact in Arkansas, we met with state and Springdale, Arkansas officials and with employers and migrants. We reviewed existing Census population reports and the Census tabulation of ACS data as well as existing Arkansas government reporting and published literature on Arkansas’s compact migrant impact. Although the amended compacts’ enabling legislation does not define Arkansas as an affected jurisdiction and the state government therefore does not submit reports to Interior, we compiled data available for 2004 through 2010 from the Arkansas Department of Health, Arkansas Department of Correction, and the Springdale School District. We then assessed the limitations of these data in the same manner as we assessed the data for affected jurisdictions. We conducted this performance audit from September 2010 through 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. In response to congressional interest, this case study reviews existing enumerations of the compact migrant population of Arkansas and their impact. Arkansas’s compact migrant population is almost exclusively from the Marshall Islands and is concentrated in the rapidly growing northwest Arkansas counties of Benton and Washington (see fig. 7). The amended compacts’ enabling legislation does not define Arkansas as an affected jurisdiction; therefore, the state is not eligible to receive compact impact grants, and data on Arkansas’s migrant population and impact are limited in comparison to data for the affected jurisdictions. Tabulations of data from the 2005-2009 ACS show an estimated 1,150 (with a 90 percent confidence interval of 933 to 1,367) Marshallese compact migrants living in Arkansas. The 2010 decennial census reports that 4,324 persons in Arkansas responding to the race question on the 2010 form identified themselves as Marshallese. Additionally, in 2009 and 2010, the Springdale School District reported that 1,323 and 1,579 students, respectively, identified as Pacific Islanders when enrolling in Springdale schools. In comments on a draft of this report, the government of Arkansas stated that it had serious doubts about the count of Arkansas migrants using ACS data and Census commented that the estimates described here are not based on the same criteria and should not be compared. See appendix IV of this report for a further discussion of the differences between ACS and 2010 decennial census data. Concerns in Arkansas regarding compact migrants are similar to those expressed by officials in affected jurisdictions. Arkansas government officials and service providers cited the following concerns: migrant students lagging academically behind their peers; low levels of family involvement in education; the prevalence of communicable and noncommunicable diseases; reluctance of migrants to use preventive health care; language barriers; cultural barriers; and crowded living conditions. To address some of these concerns, Northwest Arkansas local government and social service agencies have begun to offer services to the Marshallese community in recent years. For example:  The Springdale School District has provided supplemental tutoring and employs two Marshallese translators.  The Jones Center for Families, a nonprofit community service organization, employs a Marshallese Community Outreach Coordinator and has helped facilitate the activities of the Gaps in Services to Marshallese Task Force, a network of interested individuals headed by a retired Jones Center employee.  The task force has used grants from the Centers for Disease Control and Prevention and the Arkansas Minority Health Commission to survey the health concerns of Marshallese and prepare an outreach booklet and DVD to aid Marshallese migrants in adapting to life in the state.  The Washington County Department of Health dedicates four staff to its Marshallese Outreach Team and will add two more staff when it opens the Marshallese outreach clinic in 2011.  Some local agencies noted that they work in cooperation with the Marshall Islands consulate in Springdale. Opened in 2008, this consulate is the only FAS consulate in the continental United States. Data provided by Arkansas state officials for 2004 through 2010 identified approximately $51 million in costs for education, health, and public safety services to compact migrants (see table 4). Available data from Arkansas are not comparable with data from affected jurisdictions. Arkansas does not collect data on a number of costs reported by Guam, Hawaii, and the CNMI, particularly costs for social services. In addition, not all Arkansas state agencies compiled their cost data on compact impact annually, whereas the affected jurisdictions have generally compiled their data annually. Education. The estimated education service costs are for the Springdale School District, where most Marshallese school children live. The estimate for Springdale is based on average per-pupil expenditures, similar to some of the affected jurisdictions’ cost estimates. However, these expenditures may overstate actual costs to the extent there is excess capacity in the schools to absorb a marginal increase in population. The estimates may also understate actual costs by not including higher than average costs for additional services to Marshallese, such as language education. Finally, student population data prior to 2009 are incomplete. Health. Arkansas estimated costs for health services to compact migrants by compiling costs for the population identified as of Pacific Islander ethnicity; as a result, Arkansas’s estimates may overstate compact migrant health costs by including services to Pacific Islanders who are not compact migrants. However, the estimates do not include costs for the Arkansas Women, Infants and Children Program and were not complete for all years for tuberculosis and sexually transmitted disease treatment, potentially leading to an underestimate of total costs. Social services. Arkansas does not track the use of some state-funded services by ethnicity and therefore could not estimate the costs of providing these services to compact migrants. However, officials stated that compact migrants are eligible for programs such as the state’s Division of Developmental Disabilities Services; Division of Youth Services; and ARKids First, which provides health insurance to low- income U.S.-citizen children of compact migrants. Unlike affected jurisdictions, Arkansas does not provide Medicaid equivalent services to noncitizen compact migrants. As in affected jurisdictions, Arkansas compact migrants contribute to the local economy through payment of taxes and participation in the labor market. Taxes. Marshallese are subject to federal, state, and local taxes; however Arkansas does not disaggregate the tax revenue by ethnic categories or citizenship and there are no data on consumption and remittances. Labor market. Marshallese fill a significant niche in the local poultry industry. According to employers in northwest Arkansas, Marshallese represent between 14 and 37.9 percent of the total workforce at some plants of major poultry producers, such as Tyson, Cargill, and George’s. Tyson officials in Springdale stated that they have begun referring some Marshallese job applicants to plants elsewhere in Arkansas and in Oklahoma. In addition, Tyson may begin recruiting workers in the Marshall Islands. According to Marshall Islands officials, Tyson representatives have visited the Marshall Islands. Table 5 shows the estimated population of the compact migrants from each FAS in the U.S. states based on tabulations of Census’ 2005-2009 ACS. Taking into account sampling uncertainty, the table shows the lower-bound and upper-bound population interval that corresponds to a 90 percent confidence interval. Estimates of compact migrants from each FAS in Guam and the CNMI, using data from Census’s 2008 survey of compact migrants, are shown for comparison. The 2010 decennial census identified 22,434 Native Hawaiian or Pacific Islanders—alone or in combination with another race—who identified themselves specifically as Marshallese residing in the 50 U.S. states in 2010. The largest Marshallese populations were in Hawaii, Arkansas, and Washington, which together accounted for 62 percent of the total reported Marshallese residing in the 50 states. See table 6. As of September 2011, Census has not released a separate count of U.S. residents who identified themselves as one of the FSM ethnicities or Palauan, but plans to do so between December 2011 and April 2012. As of November 2011, Census race data for Guam and the CNMI had yet to be released. The number of Marshallese reported by the 2010 decennial census differs from estimates of Marshallese compact migrants derived from the Census 2005-2009 ACS. For example, the 2010 census reported 7,412 Marshallese in Hawaii and 4,324 in Arkansas, while the ACS tabulation estimates 3,535 and 1,150 Marshallese compact migrants in Hawaii and Arkansas, respectively. The census counts are not meant to be compared with ACS 5 year estimates of compact migrants and several factors may explain the differences:  The ACS and 2010 census figures use different definitions. The ACS compact migrant estimates include only those born in the Marshall Islands who arrived in the United States under the terms of the compact after 1986 and their children. The census counts are defined by the respondents’ reported race and not limited by the post-1986 time frame of the compact.  The ACS and 2010 census figures have different time frames. The ACS estimates are based on data collected from 2005-2009 and do not include compact migrants to U.S. areas in 2010. In addition, the ACS estimate does not include births that are included in the 2010 counts.  The ACS and 2010 census use different approaches. The 2010 census attempts to reach all persons in the United States, while the ACS is a sample of the population. The sampling method used by the ACS was not specifically designed to make estimates of a population as small as the compact migrants.  The ACS and 2010 census have different levels of outreach. Census ran extensive public service announcements of the 2010 survey, and local governments and community groups encouraged participation. However, Census does not conduct a similar public campaign to encourage participation in the ACS. Table 7 shows key attributes, related to survey design, coverage, nonresponse, measurement, and sampling error, for the 2003 and 2008 Census approaches to enumerating compact migrants. Since 1986, affected jurisdictions have submitted to Interior compact impact reports that include descriptions of, and estimated costs for, education, health, public safety, and social services that local government agencies provided to compact migrants (see table 8 for costs reported for 1986 through 2010). However, assessed against best practices for cost estimation, the 2004-2010 estimates contain a number of limitations with regard to accuracy, adequate documentation, and comprehensiveness, affecting the reported costs’ credibility and preventing a precise calculation of total compact impact on the affected jurisdictions. Best practices and guidance state, among other things, that to be credible, cost estimations should be characterized by accuracy, adequate documentation, and comprehensiveness.  Accuracy. Estimates should contain few errors and reflect actual costs.  Adequate documentation. Cost estimates should include a detailed description of the derivation of the reported costs, such as the source data used, the calculations performed and their results, and the methodology used. Cost estimates should be captured in such a way that the data can be traced back to, and verified against, their sources, so that estimates can be replicated and updated.  Comprehensiveness. Estimates should be structured in sufficient detail to ensure that cost elements are neither omitted nor double counted and should include documentation of all assumptions. We found a number of limitations affecting the credibility of cost estimates in the compact impact reports (2004-2010) that we reviewed. (See appendix I for a description of our methodology in evaluating the cost estimates.) Definition of compact migrants. Several local government reporting agencies that responded to our inquiries did not define compact migrants according to the criteria in the amended compacts’ enabling legislation and, as a result, may have either overcounted or undercounted costs. The legislation defines the population to be enumerated as persons, or those persons’ children under the age of 18, who pursuant to the compacts are admitted to, or resident in, an affected jurisdiction as of the date of the most recently published enumeration. By counting compact migrants based on their ethnicity or language, agencies may have overcounted by including those present prior to the compacts; by identifying compact migrants by their citizenship, agencies may have undercounted, because they would have excluded compact migrants’ U.S.-born children under the age of 18. For example, school administrative data from each of the affected jurisdictions show a potential for overcounting by identifying compact migrant children by means of ethnicity (as in Guam and the CNMI) or the language spoken at home (as in Hawaii). According to the 2003 Census survey data, approximately 32 percent of FAS citizens identified in the CNMI, 10 percent of those identified in Guam, and 13 percent of those identified in Hawaii were not part of the defined impact population. Therefore, the number of children used to estimate impacts may also be overstated. Federal funding. Guam, Hawaii, and the CNMI, among other U.S. states and territories, receive federal funding for programs that compact migrants use; however, not all compact impact reports accounted for this stream of funding. For example, the Hawaii Department of Education reported as compact impact the cost of programs that federal funding had partially addressed. In addition, Guam and the CNMI’s single audit reports show that these jurisdictions have received federal revenue from various agencies such as the U.S. departments of Health and Human Services (HHS), Agriculture, and Homeland Security. To the extent that revenue for these programs is based on population counts or data on usage, the presence of, and use of services by, compact migrants lead to federal offsets. For example, in fiscal years 2004 through 2008, Guam received an annual average of $1,027,825 from HHS for the Consolidated Health Centers program, an amount based partly on the number of beneficiaries in Guam. Based on Guam’s resident and compact migrant populations in 2008, services to compact migrants accounted for a $112,942 share of that amount—equal to 16 percent of compact migrant impact costs reported by the Guam Bureau of Primary Care Services. However, in reporting impact costs, the Guam Bureau of Primary Care Services did not deduct the HHS funding that was used for compact migrants. Revenue. Multiple local government agencies that receive fees as a result of providing services to compact migrants did not consider them in their compact impact reports. For example, the CNMI Department of Public Health and Guam Department of Mental Health and Substance Abuse did not include payments received from compact migrants into their costs. This exclusion of revenue may cause an overstatement of the total impact reported. Capital costs. Many local government agencies, such as the CNMI Public School System, did not include capital costs in their annual compact impact reporting. This exclusion can cause an understatement of total costs of providing services to compact migrants. Per person costs. Many local government agencies estimated impact costs based on average, rather than specific, costs of providing services to compact migrants, possibly leading to under or overestimations. For example, the CNMI Department of Public Health based the cost of providing healthcare services to compact migrants on the number served out of the total patient load instead of totaling each patient’s specific costs. However, other agencies more comprehensively accounted for costs by including additional compact impact expenses beyond the average costs. For example, the Hawaii Department of Education included language training costs in its reported per pupil expenditures. Alternatively, the CNMI Public School system did not include special services such as language training or translation which suggests an underestimation. Discretionary costs. Some compact impact costs reported by local government agencies were for benefits or services provided at the discretion of the affected jurisdiction. Data reliability. In one case, we found a discrepancy between the data reported and the data provided during this review. According to the Hawaii Department of Education, this discrepancy resulted from a system error that caused a double counting of Marshallese students over a 5- year period, which resulted in an overestimation of impact costs. For its 2011 impact report, the Department of Education said it excluded federal funds from its 2008 through 2011 compact impact costs and corrected the reporting error made regarding the number of compact students for 2006 through 2008. Many local government agencies did not report their methodologies for estimating costs of providing services to compact migrants under the compacts. For example, the Hawaii Department of Human Services did not provide a detailed description of how it derived its estimates. As a result, it is difficult to determine whether the reported figures are accurate. Further, some agency methodologies vary between affected jurisdictions. For example, Guam prorates police costs based on the percentage of compact migrants in the total population, and the CNMI prorates its police costs based on the percentage of total arrests that are FAS citizens. The Guam Bureau of Statistics and Plans said it documented its methodologies in its 1995 compact impact report and applied these approaches in calculating its compact impact costs. However, these methodologies were not discussed in Guam’s annual reports from 2004 to 2010 and were generally not used by the reporting agencies. Hawaii has not submitted annual compact impact reporting each year and is not required to do so, but for those years when affected jurisdictions submitted impact reports to Interior, not all local government agencies included all compact impact costs. However, some agency costs were reported in subsequent fiscal year reports. For example, Hawaii did not provide estimated costs to Interior in 2005 and 2006, although it included partial costs incurred in those years in its 2007 and 2008 reports. Without comprehensive data in the year they are submitted, the compact impact reports could understate Hawaii’s total costs. In addition, compact impact reporting has not been consistent across affected jurisdictions. For example, Guam and the CNMI included the cost of providing police services, while Hawaii did not. Interior distributed the compact impact grants to the affected jurisdictions in 2004 through 2010 as follows:  From fiscal year 2004 through 2009, based on the results of 2003 enumeration, Interior annually awarded approximately $14 million to Guam, $10.6 million to Hawaii, and $5.2 million to the CNMI. In fiscal year 2010, having recalculated the division of funds based on the results of the 2008 enumeration, Interior awarded approximately $16.8 million to Guam, $11.2 million to Hawaii, and $1.9 million to the CNMI. The amended compacts’ enabling legislation and Interior’s Office of Insular Affairs’ Financial Assistance Manual guide the administration and management of compact impact grants. An official at Interior said the agency uses the same grant management process for compact impact funds as it does its other grants. To implement these requirements, Interior has reviewed and at times questioned whether the proposed uses of compact impact grant funds were in keeping with the amended compacts’ enabling legislation. While the vast majority of Interior reviews resulted in approvals, Interior questioned some uses in Guam and the CNMI. Specifically: Interior initially viewed Guam’s fiscal 2010 request to fund a Community Pool Complex and Fitness Trail as only distantly connected to compact migrants. Ultimately, Interior accepted Guam’s justification that it could improve the health of migrants by reducing obesity and provide a healthy outlet for youth, thereby reducing public safety concerns. In fiscal year 2011, Interior approved the use of compact impact grant funds for Guam Memorial Hospital Authority (GMHA), but restricted their use to future purchases rather than paying past bills, contrary to previous Interior practice. According to an Interior official, this change was made in order to strengthen the link between migrant impacts and compact funds and to stop “bandaging” the chronic financial issues of GMHA. In fiscal year 2006, Interior denied a CNMI grant proposal to use $400,000 for the Marianas Visitors Authority and $500,000 for Financial Control/Economic Recovery Initiatives. An Interior official said the agency did not retain documentation of the specific nature of these grant requests or why it denied them. As of August 2011, Guam had approximately $14.2 million in compact impact grant funds available from fiscal years 2004 to 2011 that it had yet to draw down from Interior. Both Hawaii and the CNMI have fully drawn down prior fiscal year funds. See table 9 for a complete list of Interior compact impact grant awards by jurisdiction and fiscal year. 1. The Department of the Interior suggested that our report’s use of the terms “compensation” and “reimbursement” to describe compact impact funds could give the impression that these funds were intended to fully reimburse the affected jurisdictions for their added expenses when the amended compacts' enabling legislation states that compact impact grants are “to aid in defraying costs incurred by affected jurisdictions as a result of increased demands placed on health, educational, social, or public safety services or infrastructure related to such services due to the residence in affected jurisdictions” of compact migrants. We have modified the text to make our characterization of the act’s intent clearer. Also in response to this comment, as well as comments received from Guam, we have cited additional provisions of the amended compacts’ enabling legislation that authorize funds to address compact impact. As the affected jurisdictions may view the law as implying a reimbursement, we have kept such a characterization when it reflects the viewpoint of the affected jurisdiction. 2. The Department of the Interior stated that the record of the compact negotiations, the compact agreements, and the amended compacts’ implementing legislation do not support the use of sector grants to provide assistance to FAS expatriates living in affected jurisdictions. Interior stated that the compact provides sector grants to support FAS government activities in-country and that the few training programs taking place outside of the FAS are the result of the FAS governments’ choices in the use of sector grants. We agree with Interior that the sector grants listed in the compacts are to support the governments of the FSM and the Marshall Islands by providing grants in certain sectors such as health care and education; however, we note that the compacts allow grants to fund other sectors as mutually agreed and we have added this text to our description of compact economic assistance. Currently, limited FSM compact grant funds are being used to support worker training in Guam, addressing a concern of compact migrants in Guam as well as the Guam government. According to the Center for Micronesian Empowerment, approximately 45 percent of its trainees in Guam are compact migrants residing in Guam. 3. The Department of the Interior did not agree with our recommendation that it work with affected jurisdictions to evaluate the current use of compact impact grant funds and consider alternative uses. Interior observed that the amended compacts' enabling legislation authorizes broad uses and that it has chosen to respect the priorities of governors. Interior further stated that it does not believe there would be any practical gains from proposing alternative uses. We believe this position overlooks opportunities to respect the priorities of the governors while at the same time working with the governors to review their current use of funds and consider alternatives uses. In the course of our review we identified alternative grant uses for consideration. We found that government officials, service providers, and compact migrants in the affected jurisdictions identified a significant need for language and cultural assistance, job training, and improved access to basic services for compact migrants. The sources suggested that migrant needs could be addressed by, for example, establishing centers that offer such services. This may also help reduce some of the negative impact from compact migration. For example, more translators could result in more effective health treatment. Other alternative uses may also offer practical gains. For example, health experts have advocated for the adoption of primary health care as a more cost-effective strategy for providing health care in the Pacific Islands. This adoption would address the need for preventive care among Micronesians and Marshallese in Hawaii—studies have shown that the Marshallese in Hawaii do not generally seek preventive care and only seek professional health care when they experience a certain level of pain. 4. The Department of the Interior stated that it believes compact sector grants are limited to use within the FAS; however, Interior agreed that some activities may be related both to sector grant priorities and to programs that would better prepare migrants to live and work in the United States. Interior stated that our report implies that compact sector grant funds should be shifted from providing assistance to the FAS governments to providing assistance to FAS citizens living in affected jurisdictions, an action that Interior sees as inconsistent with the compacts and their enabling legislation. We expect that compact sector grant awards will be provided consistent with the terms of the compacts and the amended compacts’ enabling legislation; we do not intend to imply that funds should be shifted from the FAS governments to FAS migrants. In response to Interior’s concern, we clarified that our findings and recommendation highlight the opportunity for the joint management committees to consider the use of sector grants to the FSM and Marshall Islands in ways that address the concerns of FAS citizens—whether they are in the FAS or in U.S. areas—and the concerns of the affected jurisdictions. The recommendation supports consideration of the use of sector grants in ways that respond to the concerns of FSM and Marshall Islands migrants and the affected jurisdictions. 1. Census emphasized that the migrant survey content was purposely chosen to enumerate compact migrants while minimizing costs and maximizing respondent participation. As our report notes, however, collecting only those data needed to enumerate migrants limited the collection of data that stakeholders such as affected jurisdictions would have found useful. 2. Census stated that, in contrast to our report’s findings, the 2008 Guam and CNMI surveys were designed to produce estimates with a similar coefficient of variation to the ACS estimates for Hawaii. However, the 2008 Guam and CNMI estimates are point-in-time estimates while the ACS is a multiyear estimate. As Census guidance on interpreting the ACS multiyear estimates states, “The ACS estimates the average of a characteristic over the year or period years, as opposed to the characteristic at a point in time” and “When comparing estimates across geographies or subpopulations, users should compare the same period length for each estimate.” Our findings do not suggest that the 2008 Guam and CNMI surveys are not comparable with the ACS estimates for Hawaii in terms of reliability, but rather are not comparable in terms of their sampling methods and reporting period. We show that the estimates have similar relative errors, as presented in appendix V. If the reported precision for the Guam and CNMI surveys is accurately estimated, and includes proxy respondents, the estimates have similar levels of precision. 3. Census recommended that the Department of the Interior adopt the two-pronged approach described in our report for the 2013 enumeration of compact migrants and stated that the approach would provide cost-effective required estimates. We agree that the low cost is a strength of this approach. As our report notes, however, the 2013 two-pronged approach will have limitations such as using data from different time periods, limited comparability with prior data, and limited collection of demographic data. 4. Census referred to a footnote in our draft report that indicated that the homeless population was not represented in the 2008 surveys. We have moved this discussion to appendix V and included an assessment of the varying coverage of the homeless population of the 2003 snowball, ACS, and 2008 migrant survey in Guam and the CNMI. 5. Census disagreed with our statement that the effect of using an earlier time frame of data in Hawaii relative to Guam and the CNMI results in an undercount of compact migrants in Hawaii relative to Guam and the CNMI. However, as our report notes, migration is ongoing, with approximately 7,000 persons estimated to have left the FSM and the Marshall Islands in 2007 and 2008. Other available data also indicate that the migrant population is growing. Because the Hawaii data do not include 2008 and the Guam and CNMI data are from the closing months of 2008, nearly a year of additional migration is captured in the Guam and CNMI totals that is not included in the Hawaii ACS data. Alexander and Navarro (2003) show that even the upper bound of the ACS multiyear confidence interval, an amount that is greater than the estimate, can lag behind the actual value for a growing small population at a given point in time. 6. Census stated that the frequent changing of address by the compact migrant population, cited by Guam and CNMI officials as potentially leading to a miscount, would not produce bias in the surveys as designed. We agree with Census’ comment that inaccurate migrant counts in the sample design would lead to lack of efficiency and not bias. However, we note that researchers inside and outside the Census Bureau studying the foreign-born population agreed that an assumption of complete coverage of legal immigrants and temporary migrants in the 2000 Census was unreasonable indicating the potential for coverage error and bias of the estimates based on the 2000 Census sampling frame. Further, migrants, especially those who frequently change address, are not only hard to count in the census, but they also are less likely to participate in other surveys, indicating the potential for nonresponse bias. Census further stated that it gave both Guam and CNMI an opportunity to provide local information that might improve the accuracy but that neither produced this information before the design had to be finalized. However, we note that both Guam and CNMI officials stated that, from their perspective, implementation of the survey was rushed and they had only limited opportunity to provide such input. 7. Regarding our statement about the change in enumeration method limiting the comparability of the 2008 and 2013 enumerations, Census stated that both methods would provide a comparable count, which is what is required for the purpose of determining funding. We note that the estimates across jurisdictions, within an enumeration, are not comparable. We note that estimates across enumerations are not comparable due to changing methodology and the lack of use of a method that is statistically designed to measure change over time. 8. Census asserted that its varying estimates of compact migrants in Arkansas are not based on the same criteria and therefore should not be compared. We agree that the surveys have different bases for identification and have identified several reasons for these differences in appendix IV. However, we have also noted Arkansas’ concerns about the accuracy of the ACS data. 9. Census disagreed with our observation that the ACS was not designed to make estimates of a population as small as the compact migrants and notes that concluding that the ACS cannot provide reliable estimates depends on which definition of “reliable” is used. We note that the Census Bureau did not determine the level of precision, or reliability, necessary for these estimates to be used for funding. As we show in appendix III, while the ACS can be used to detect the presence of compact migrants, the smaller the population, the less reliable the estimates will be, as indicated by the wide confidence intervals. In some cases, the estimates are so unreliable that we suppressed them. 10. In response to our observation that Census did not provide an unweighted response rate, Census stated that it is not usual for the agency to publish unweighted response rates. Our review of OMB Standards and Guidelines for Statistical Surveys indicates that both unweighted and weighted response rates should be calculated and reported. However, an unweighted response rate was not provided in Census Survey Documentation that we received for review. 11. Census disagreed with our statement that the use of proxy respondents indicates an overstatement of the response rate and asserts that proxy responses are generally accepted in household surveys and included in the response rate. Proxy respondents are substitutions for the intended sample member, and Census acknowledged that proxy responses are a potential source of nonsampling error due to the proxy respondent’s potential lack of knowledge of the sample respondent’s information. OMB guidelines and standards call for the calculation of response rates without substitutions, as well as overall response rates that include substitutions. 12. Census stated that the issues of nonresponse bias, as well as collection strategy and content, that we highlight regarding the 2008 survey effort were also present in the 2003 survey but are not listed for the 2003 survey. For the 2003 survey, we had no documentation of the nonresponse bias or the collection strategy and content information related to personal interviewers leaving contact information. We have noted Census’s comments in the report. 13. Census stated that final weights were used when calculating the variance estimates. While we acknowledge that final weights, including a nonresponse adjustment factor, were used when calculating variances, Census documentation does not indicate that variance estimates properly accounted for the variability due to the nonresponse adjustment factor, such as through the use of replicate weight methodologies, and thus will likely result in an underestimate of the variance. 1. The government of Hawaii stated that while the report sets out relative strengths and weaknesses of the different enumeration methodologies, it does not highlight the inherent inadequacies of the American Community Survey (ACS) for enumeration of small discrete groups such as compact migrants. Throughout the report we note the limitations of the ACS. As our report notes, ACS data have limited statistical reliability for populations as small as compact migrants in Hawaii. We further note in appendix V that ACS estimates are not equivalent to point-in-time estimates and may be biased due to nonresponse and coverage error. 2. The government of Hawaii stated that the report does not point out the discrepancies between the Census estimates in each affected jurisdiction and the utilization data for services provided by agencies in each jurisdiction, such as the number of compact migrant students enrolled in school. We did explore the use of school data in particular as a basis for evaluating the enumeration findings; however, we found that the schools identified compact migrant students by language (as in Hawaii) or ethnicity (as in Guam and the CNMI). These definitions do not match that contained in the amended compacts' enabling legislation and could include the children of persons with FAS ethnicity who were present in Hawaii prior to the compacts or the children of persons who were born in U.S. areas. For this reason, although they are informative in a general way, the difference between the school data and the enumeration data could result from methodological differences as well as from any potential miscount in the enumeration. 3. The government of Hawaii stated that it agrees that a portion of the sector grants given to the FAS might more effectively be used to provide services to compact citizens living in the affected jurisdictions and that the affected jurisdictions should provide input into the uses of the grants. In response to other comments, we clarified our recommendation regarding compact sector grants to not imply that the use of sector grants to address migration concerns should be in the affected jurisdictions. Our recommendation is to highlight the nexus between sector grants and the issues that concern the FAS, compact migrants and affected jurisdictions. We also report that the Federated States of Micronesia has used sector grant funds for activities in the affected jurisdiction of Guam. compacts, it seems compact migrants are treated as if they are citizens in that they have access to all federal and local services unless specifically barred; therefore, reimbursement is justified for all services rendered because they are provided on a nondiscriminatory basis. We believe that our recommendation that Interior prepare adequate cost guidance will help in determining compact impact costs. 1. The Arkansas Department of Health expressed serious doubts about the count of Arkansas migrants based on American Community Survey data and asked that 2010 census data be used to create figure 2 rather than the ACS data. We agree that there are differences between the count based on the ACS data and that based on 2010 decennial census data and have listed some of the reasons for the differences in appendix IV. We have added text to the report to more explicitly describe this appendix, the differences between the data sets, and Arkansas’s concerns. 1. The government of the FSM stated that our findings on compact migrant participation in local economies are not conclusive as to the net impact of migrants. The amended compacts' enabling legislation does not require the inclusion of such data in affected jurisdictions’ impact reports and complete data on compact migrants’ contribution to local economies does not exist. We provided available information on labor market participation, taxes, consumption, and remittances. 2. The government of the FSM stated the importance of clearly defining a compact migrant for the purposes of enumeration and reporting compact impact. As our report notes, Interior interprets the legislation's definition of a qualified nonimmigrant—which generally refers to a compact migrant living in an affected jurisdiction—as including those migrants' children under the age of 18 who are born in the United States; therefore, some U.S. citizens are included in the count of migrants. We have used Interior’s definition for our estimates of compact migrants and costs. As our report also notes, a number of reporting local government agencies in affected jurisdictions do not use the definition of compact migrants in the amended compacts' enabling legislation, which affects the reliability of their reported compact impact costs. 3. The government of the FSM cited the fact that its citizens are eligible to serve, and have served, in the armed forces and asked that we include them in the count of migrants. We have obtained data from the Department of Defense on persons born in the FAS who are on active duty in the U.S. armed forces and have added this to the report. 4. The government of the FSM referred to a statement in the draft report that migrants pay into the Medicaid program but do not receive benefits. This statement was in error and has been deleted from the report. 1. The government of the Marshall Islands stated that not including Marshallese citizen contributions to the economies of U.S. areas is a serious flaw that undermines the credibility of claimed compact impact costs. The Marshall Islands recommended that a methodology be developed that determines “net” compact costs. The amended compacts' enabling legislation does not require the inclusion of such data in affected jurisdictions’ impact reports and complete data on compact migrants’ contribution to local economies does not exist. We provided available information on labor market participation, taxes, consumption, and remittances. 2. The government of the Marshall Islands asked that the participation of Marshall Islands citizens in the armed forces of the United States also be taken into account. We have obtained data from the Department of Defense on persons born in the FAS who are on active duty in the U.S. armed forces and have added this to the report. 3. The government of the Marshall Islands noted that a number of Marshallese migrants attending public schools in the United States are U.S. citizens and that, while they may legally be included for purposes of compact impact costs, it questioned the inclusion of U.S. citizens in determining impact costs. As our report notes, Interior interprets the legislation’s definition of qualified nonimmigrant—which generally refers to a compact migrant living in an affected jurisdiction—as including those migrants’ children under the age of 18 who are born in the United States; therefore, some U.S. citizens are included in the count of compact migrants. The Census ACS tabulation we obtained for our estimates used Interior’s definition of a compact migrant. The ACS interviews current residents— that is, those in the house on the day of the interview who have been staying there for more than 2 months, regardless of the individuals’ usual residence. 4. The government of the Marshall Islands stated that it would be helpful to provide government leaders and decision makers with comparative information on emigration, or migration rates from other Pacific Island nations. This analysis was not part of the scope of our audit. 5. The government of the Marshall Islands stated that some of the data for enumerations for Marshallese in the state of Hawaii may be erroneous and overstated since some Marshallese only transit through Hawaii for a short period before moving to the U.S. mainland to accept employment. We do not have data to verify this assertion. 6. The government of the Marshall Islands stated that although there is discussion in the report regarding U.S.-Marshall Islands joint management committee taking action to deal with compact impact costs in affected jurisdictions in the United States, sector grants were never designed or funded for that purpose. In response to the government of the Marshall Islands and other comments, we clarified our recommendation regarding compact sector grants to not imply that the use of sector grants to address migration concerns should be in the affected jurisdictions. We also note that, though we did not find instances of the Marshall Islands using grant funds for activities in affected jurisdictions, the FSM has done so in Guam. 1. The government of Palau noted that our draft report’s use of the term “Micronesian” to refer to citizens of the Federated States of Micronesia may be confusing, as Micronesian also has a larger meaning related to persons living on multiple Pacific islands. We have reviewed the report and now refer to the Federated States of Micronesia as the FSM. In keeping with a commonly used definition, we use the term “Micronesia” to refer to the three compact nations. 2. The government of Palau stated that our report does not adequately address the lack of information regarding "positive impact" from compact migration. The amended compacts' enabling legislation does not require the inclusion of such data in affected jurisdictions’ impact reports, and complete data on compact migrants’ contribution to local economies does not exist. We provided available information on labor market participation, taxes, consumption, and remittances. 3. The government of Palau noted that FAS citizens serve in the U.S. armed forces. We have obtained data from the Department of Defense on persons born in the FAS who are on active duty in the U.S. armed forces and have added this to the report. 4. The government of Palau stated that most agencies have included capital costs in their impact reporting, thus contributing to a gross overstatement of the costs associated with migrants. However, in our review, we did not find cases where agencies included such capital costs in their impact reporting. Such costs could be legitimate and addressed by future Interior guidelines. 5. The government of Palau stated that our report does not adequately explore the differences in the impact between the three FAS. Not all local government agencies reported compact impact costs by FAS country, and this assessment was not included in the scope of our review. Complete data on compact migrants’ contribution to local economies does not exist; however, we provided available information on labor market participation, taxes, consumption, and remittances. If Interior implements our recommendation to disseminate adequate guidance on compact impact reporting to affected jurisdictions, assessing impact by FAS country may be a topic for Interior to address. 6. The government of Palau stated that our estimate of Palauan migrants is an accurate estimate, but that many Palauans emigrated before the compacts came into effect and, while ethnically Palauan, should not be considered in calculating the impact of FAS emigration. However, the Census tabulation and survey we used in estimating the number of Palauan compact migrants only included those who arrived in U.S. areas after the date of the Palau compact. Those who arrived in the United States prior to that date, and their children, are not included in our estimate. 7. The government of Palau noted that ethnic Palauans in the United States may be U.S. citizens, permanent resident aliens (Green Card holders), or members of the U.S. Armed Forces and their dependents, as well as compact migrants. As our report notes, Interior interprets the legislation’s definition of qualified nonimmigrant—which generally refers to a compact migrant living in an affected jurisdiction—as including those migrants’ children under the age of 18 who are born in the United States; therefore, some U.S. citizens are included in the count of migrants. However, we agree with Palau’s comment that some persons who entered the United States after the date of the compacts may be lawfully present in U.S. areas under authorities other than those of Section 141 of the compacts and have noted this in the report. In addition to the contact named above, Emil Friberg, Jr., Assistant Director; Keesha Egebrecht; Fang He; Reid Lowe; Mary Moutsos; Michael Simon; Sonya Vartivarian; Adam Vogt; Greg Wilmoth; and Monique Williams made key contributions to this report. Michael Derr, Bob Lunsford, and Jena Sinkfield provided additional technical assistance.

U.S. compacts with the freely associated states (FAS)--the Federated States of Micronesia (FSM), the Marshall Islands, and Palau--permit FAS citizens to migrate to the United States and its territories (U.S. areas) without regard to visa and labor certification requirements. Thousands of FAS citizens have migrated to U.S. areas (compact migrants)--particularly to the Commonwealth of the Northern Mariana Islands (CNMI), Guam, and Hawaii, which are defined as affected jurisdictions. In fiscal year 2004, Congress appropriated $30 million annually for 20 years to help defray affected jurisdictions' costs for migrant services (compact impact). Though not required, affected jurisdictions can report these costs to the Department of the Interior (Interior), which allocates the $30 million as impact grants in proportion to compact migrant enumerations required every 5 years. This report (1) describes compact migration, (2) reviews enumeration approaches, (3) evaluates impact reporting, and (4) reviews Interior grants related to compact impact. GAO reviewed U.S. agency data, recent enumerations, impact reports, and grants and it also interviewed officials, employers, and migrants in the affected jurisdictions. Combined data from the U.S. Census Bureau's (Census) 2005-2009 American Community Survey (ACS) and the required enumeration in 2008 estimate that a total of roughly 56,000 compact migrants from the FSM, the Marshall Islands, and Palau--nearly a quarter of all FAS citizens--were living in U.S. areas. Compact migrants resided throughout U.S. areas, with approximately 58 percent of all compact migrants living in the affected jurisdictions. According to the 2008 required enumeration, compact migrant populations continued to grow in Guam and Hawaii and were roughly 12 percent of the population of Guam and 1 percent of the population of Hawaii. Working under agreements with Interior, Census used a different approach for the most recent enumeration than for prior enumerations, employing two methods in 2008: (1) a one-time survey in Guam and the CNMI and (2) a tabulation of existing multiyear ACS data for Hawaii. The affected jurisdictions opposed the change in approach. The 2008 approach allowed for determining the precision of the estimates but did not yield comparable results across jurisdictions or detailed information on compact migrants. Interior and Census officials have a preliminary plan for the required 2013 enumeration but Interior has not determined its cost or assessed its strengths and limitations. The methods used by affected jurisdictions to collect and report on compact impact have weaknesses that reduce their accuracy. For fiscal years 2004 through 2010, Hawaii, Guam and the CNMI reported more than $1 billion in costs associated with providing education, health, and social services to compact migrants. However, some jurisdictions did not accurately define compact migrants, account for federal funding that supplemented local expenditures, or include revenue received from compact migrants. Although Interior is required to report to Congress any compact impacts that the affected jurisdictions report to Interior, it has not provided the affected jurisdictions with adequate guidance on estimating compact impact. Compact migrants participate in local economies through employment, taxation and consumption, but data on these effects are limited. From fiscal years 2004 to 2010, Interior awarded approximately $210 million in compact impact grants to the affected jurisdictions, which used the funds primarily for budget support, projects, and purchases in the areas of education, health, and public safety. In Guam and Hawaii, government officials, service providers, and compact migrants discussed approaches to more directly address challenges related to migration by bridging language barriers, providing job training, and increasing access to services. The amended compacts also made available $808 million in sector grants for the FSM and the Marshall Islands from fiscal years 2004 to 2010. Sector grants are jointly allocated by the joint U.S.-FSM and U.S.-Marshall Islands management committees and have been used primarily in the FAS for health and education. Few sector grants directly address issues that concern compact migrants or the affected jurisdictions. The committees had not formally placed compact impact on their annual meeting agendas until 2011 and have not yet allocated any 2012 sector grant funds to directly address compact impact. GAO recommends that Interior assess the 2013 enumeration approach, disseminate adequate guidance on estimating compact impact, and encourage uses of grants that better address compact migrants' impact and needs. Interior generally agreed with the report but did not support the recommendation on grant uses.

You are an expert at summarizing long articles. Proceed to summarize the following text: The tax gap is an estimate of the difference between the taxes—including individual income, corporate income, employment, estate, and excise taxes—that should have been timely and accurately paid and what was actually paid for a specific year. The estimate is an aggregate of estimates for the three primary types of noncompliance: (1) underreporting of tax liabilities on tax returns; (2) underpayment of taxes due from filed returns; and (3) nonfiling, which refers to the failure to file a required tax return altogether or timely. Estimates for each type of noncompliance include estimates for some or all of the five types of taxes that IRS administers. IRS develops its tax gap estimates by measuring the rate of taxpayer compliance—the degree to which taxpayers fully and timely complied with their tax obligations. That rate is then used, along with other data and assumptions, to estimate the dollar amount of taxes not timely and accurately paid. For instance, IRS recently estimated that for tax year 2001, from 83.4 percent to 85 percent of owed taxes were paid voluntarily and timely, which translated into an estimate gross tax gap from $312 billion to $353 billion in taxes not paid that should have been. IRS also estimates the amount of the unpaid taxes that it will recover through enforcement and other actions and subtracts that to estimate the net annual tax gap. For tax year 2001, IRS estimated that it would eventually recover about $55 billion for a net tax gap from $257 billion to $298 billion. IRS has estimated the tax gap on multiple occasions, beginning in 1979. IRS’s earlier tax gap estimates relied on the Taxpayer Compliance Measurement Program (TCMP), through which IRS periodically performed line-by-line examinations of randomly selected tax returns. TCMP started with tax year 1963 and examined individual returns most frequently— generally every 3 years—through tax year 1988. IRS contacted all taxpayers selected for TCMP studies. IRS did not implement any TCMP studies after 1988 because of concerns about costs and burdens on taxpayers. Recognizing the need for current compliance data, in 2002 IRS implemented a new compliance study called the National Research Program (NRP) to produce such data while minimizing taxpayer burden. Under NRP, a program that we have encouraged, IRS recently completed its initial review of about 46,000 randomly selected individual tax returns from tax year 2001. Unlike with TCMP studies, IRS did not need to contact taxpayers for every tax return selected under NRP; handled some taxpayer contacts through correspondence, as opposed to face-to-face examinations; and during face-to-face examinations, generally only asked taxpayers to explain information that it was otherwise unable to verify through IRS and third-party databases. IRS has a strategic planning process through which it supports decisions about strategic goals, program development, and resource allocation. Under the Government Performance and Results Act of 1993 (GPRA), agencies are to develop strategic plans as the foundation for results- oriented management. GPRA requires that agency strategic plans identify long-term goals, outline strategies to achieve the goals, and describe how program evaluations were used to establish or revise the goals. GPRA requires federal agencies to establish measures to determine the results of their activities. The nation is facing a range of important new forces that are already working to reshape American society, our place in the world, and the role of the federal government. Our capacity to address these and other emerging needs and challenges will be predicated on when and how we deal with our fiscal challenges—the long-term fiscal pressures we face are daunting and unprecedented in the nation’s history. As this committee is well aware, the size and trend of our projected longer-term deficits means that the nation cannot ignore the resulting fiscal pressures—it is not a matter of whether the nation deals with the fiscal gap, but when and how. Unless we take effective and timely action, our near-term and longer-term deficits present the prospect of chronic and seemingly perpetual budget shortfalls and constraints becoming a fact of life for years to come. Not only would continuing deficits eat away at the capacity of everything the government does, but they will erode our ability to address the wide range of emerging needs and demands competing for a share of a shrinking budget pie. Our long-term simulations illustrate the magnitude of the fiscal challenges we will face in the future. Figures 1 and 2 present these simulations under two different sets of assumptions. In the first, we begin with CBO's January 2005 baseline—-constructed according to the statutory requirements for that baseline. Consistent with these requirements, discretionary spending is assumed to grow with inflation for the first 10 years and tax cuts scheduled to expire are assumed to expire. After 2015, discretionary spending is assumed to grow with the economy, and revenue is held constant as a share of gross domestic product (GDP) at the 2015 level. In the second figure, two assumptions are changed: (1) discretionary spending is assumed to grow with the economy after 2005 rather than merely with inflation and (2) all temporary tax cuts are extended. For both simulations, Social Security and Medicare spending is based on the 2005 Trustees' intermediate projections, and we assume that benefits continue to be paid in full after the trust funds are exhausted. As both these simulations illustrate, absent policy changes on the spending or revenue side of the budget, the growth in spending on federal retirement and health entitlements will encumber an escalating share of the government's resources. Indeed, when we assume that recent tax reductions are made permanent and discretionary spending keeps pace with the economy, our long-term simulations suggest that by 2040 federal revenues may be adequate to pay little more than interest on the federal debt. Neither slowing the growth in discretionary spending nor allowing the tax provisions to expire—nor both together—would eliminate the imbalance. Although revenues will be part of the debate about our fiscal future, assuming no further borrowing, making no changes to Social Security, Medicare, Medicaid, and other drivers of the long-term fiscal gap would require at least a doubling of taxes, and that seems highly implausible. Such significant tax increases would also likely have an adverse effect on economic growth and disposable income available to Americans. Accordingly, substantive reform of Social Security and our major health programs remains critical to recapturing our future fiscal flexibility. Although considerable uncertainty surrounds long-term budget projections, we know two things for certain: the population is aging and the baby boom generation is approaching retirement age. The aging population and rising health care spending will have significant implications not only for the budget but also the economy as a whole. Figure 3 shows the total future draw on the economy represented by Social Security, Medicare, and Medicaid. Under the 2005 Trustees' intermediate estimates and CBO's long-term Medicaid estimates, spending for these entitlement programs combined will grow to 15.2 percent of GDP in 2030 from today's 8.5 percent. It is clear that taken together Social Security, Medicare, and Medicaid represent an unsustainable burden on future generations. Early action to change these programs would yield the highest fiscal dividends for the federal budget and would provide a longer period for prospective beneficiaries to make adjustments in their own planning. Waiting to build economic resources and reform future claims entails risks. First, we lose an important window during which today's relatively large workforce can increase saving and enhance productivity, two elements critical to growing the future economy. We also lose the opportunity to reduce the burden of interest in the federal budget, thereby creating a legacy of higher debt as well as elderly entitlement spending for the relatively smaller workforce of the future. Most critically, we risk losing the opportunity to phase in changes gradually so that all can make the adjustments needed in private and public plans to accommodate this historic shift. Unfortunately, the long-range challenge has become more difficult, and the window of opportunity to address the entitlement challenge is narrowing. Confronting the nation’s fiscal challenge will require nothing less than a fundamental review, reexamination, and reprioritization of all major spending and tax policies and programs that may take a generation or more to resolve. Traditional incremental approaches to budgeting will need to give way to more fundamental and periodic reexaminations of the base of government. Many, if not most, current federal programs and policies were designed decades ago to respond to trends and challenges that existed at the time of their creation. If government is to respond effectively to 21st century trends, it cannot accept what it does, how it does it, who does it, and how it gets financed as “given.” Not only do outmoded commitments, operations, choices of tools, management structures, and tax programs and policies constitute a burden on future generations, but they also erode the government's capacity to align itself with the needs and demands of the 21st century. Reexamining the base of government will be a challenging task, and we at GAO believe we have an obligation to assist and support Congress in this endeavor. To that end, we recently issued a report that provides examples of the kinds of difficult choices the nation faces with regard to discretionary spending; mandatory spending, including entitlements; as well as tax policies and compliance activities. Regarding tax policy, a debate is under way about the future of our tax system that is partly about whether the goals for the nation's tax system can be best achieved using the current structure or a fundamentally reformed tax structure. The debate is also motivated by increasing globalization, the growing complexity of our tax system, and the growing use of tax preferences whose aggregate revenue loss has exceeded all discretionary spending in 5 of the past 10 years. Although outside the scope of this hearing, today's pressing tax challenges raise important questions. For example: Given our current tax system, what tax rate structure is more likely to raise sufficient revenue to fund government and satisfy the public's perception of fairness? Which tax preferences need to be reconsidered because they fail to achieve the objectives intended by the Congress, their costs outweigh their benefits, they duplicate other programs, or other more cost effective means exist for achieving their objectives? Should the basis of the existing system be changed from an income to a consumption base? Would such a change help respond to challenges posed by demographic, economic, and technological changes? How would such a change affect savings and work incentives? How would reforms address such issues as the impact on state and local tax systems and the distribution of burden across the nation's taxpayers? Regarding compliance with our tax laws, the success of our tax system hinges greatly on the public's perception of its fairness and understandability. Compliance is influenced not only by the effectiveness of IRS's enforcement efforts but also by Americans' attitudes about the tax system and their government. A recent survey indicated that about 12 percent of respondents say it is acceptable to cheat on their taxes. Furthermore, the complexity of, and frequent revisions to, the tax system make it more difficult and costly for taxpayers who want to comply to do so and for IRS to explain and enforce tax laws. Complexity also creates a fertile ground for those intentionally seeking to evade taxes and often trips others into unintentional noncompliance. The lack of transparency also fuels disrespect for the tax system and the government. Thus, a crucial challenge for reexamination will be to determine how we can best strengthen enforcement of existing laws to give taxpayers confidence that their friends, neighbors, and business competitors are paying their fair share. We have long been concerned about tax noncompliance and IRS efforts to address it. Collection of unpaid taxes was included in our first high-risk series report in 1990, with a focus on the backlog of uncollected debts owed by taxpayers. In 1995, we added Filing Fraud as a separate high-risk area, narrowing the focus of that high-risk area in 2001 to Earned Income Credit Noncompliance because of the particularly high incidence of fraud and other forms of noncompliance in that program. We expanded our concern about the Collection of Unpaid Taxes in our 2001 high-risk report to include not only unpaid taxes (including tax evasion and unintentional noncompliance) known to IRS, but also the broader enforcement issue of unpaid taxes that IRS has not detected. In our high-risk update that we issued in January, we consolidated these areas into a single high-risk area—Enforcement of the Tax Laws—because we believe the focus of concern on the enforcement of tax laws is not confined to any one segment of the taxpaying population or any single tax provision. Tax law enforcement is a high-risk area in part because past declines in IRS’s enforcement activities threatened to erode taxpayer compliance. In recent years, the resources IRS has been able to dedicate to enforcing the tax laws have declined. For example, the number of revenue agents (those who examine complex returns), revenue officers (those who perform field collection work), and special agents (those who perform criminal investigations) decreased over 21 percent from 1998 through 2003. However, IRS achieved some staffing gains in 2004 and expects modest gains in 2005. IRS’s proposal for fiscal year 2006, if funded and implemented as planned, would return enforcement staffing in these occupations to their highest levels since 1999. Concurrently, IRS's enforcement workload—measured by the number of taxpayer returns filed—has continually increased. For example, from 1997 through 2003, the number of individual income tax returns filed increased by about 8 percent. Over the same period, returns for high income individuals grew by about 81 percent. Due to their income levels, IRS believes that these individuals present a particular compliance risk. In light of declines in enforcement staffing and the increasing number of returns filed, nearly every indicator of IRS's coverage of its enforcement workload has declined in recent years. Although in some cases workload coverage has begun to increase, overall IRS's coverage of known workload is considerably lower than it was just a few years ago. Figure 4 shows the trend in examination rates—the proportion of tax returns that IRS examines each year—for field, correspondence, and total examinations since 1995. Field examinations involve face-to-face examinations and correspondence examinations are typically less comprehensive and complex, involving communication through written notices. IRS experienced steep declines in examination rates from 1995 to 1999, but the examination rate has slowly increased since 2000. However, as the figure shows, the increase in total examination rates of individual filers has been driven mostly by correspondence examinations, while more complex field examinations continue to decline. On the collection front, IRS’s use of enforcement sanctions, such as liens, levies, and seizures, dropped precipitously during the mid- and late 1990s. In fiscal year 2000, IRS’s use of these three sanctions was at 38 percent, 7 percent, and 1 percent, respectively, of fiscal year 1996 levels. However, beginning in fiscal year 2001, IRS’s use of liens and levies began to increase. By fiscal year 2004, IRS’s use of liens, levies, and seizures reached 71 percent, 65 percent, and 4 percent of 1996 levels, respectively. Further, IRS's workload has grown ever more complex as the tax code has grown more complex. IRS is challenged to administer and explain each new provision, thus absorbing resources that otherwise might be used to enforce the tax laws. Concurrently, other areas of particularly serious noncompliance have gained the attention of IRS and Congress, such as abusive tax shelters and schemes employed by businesses and wealthy individuals that often involve complex transactions that may span national boundaries. Given the broad declines in IRS's enforcement workforce, IRS's decreased ability to follow up on suspected noncompliance, and the emergence of sophisticated evasion concerns, IRS is challenged in attempting to ensure that taxpayers fulfill their obligations. IRS is working to further improve its enforcement efforts. In addition to recent favorable trends in enforcement staffing, correspondence examinations, and the use of some enforcement sanctions, IRS has recently made progress with respect to abusive tax shelters through a number of initiatives and recent settlement offers that have resulted in billions of dollars in collected taxes, interest, and penalties. In addition, IRS is developing a centralized cost accounting system, in part to obtain better cost and benefit information on compliance activities, and is modernizing the technology that underpins many core business processes. It has also redesigned some compliance and collections processes and plans additional redesigns as technology improves. Finally, the recently completed NRP study of individual taxpayers not only gives us a benchmark of the status of taxpayers’ compliance but also gives IRS a better basis to target its enforcement efforts. However, IRS’s preliminary compliance estimate based on NRP indicates that compliance has not improved and may be worse than IRS originally estimated. As such, sustained progress toward improving compliance is needed. Reducing the tax gap would be a step toward improving our fiscal sustainability while simultaneously enhancing fairness for those citizens who meet their tax obligations. That said, reducing the tax gap is a challenging task, and closing the entire tax gap is not practical. Reducing the tax gap will not likely be achieved through a single solution, but will likely involve multiple strategies that include reducing tax code complexity, providing quality services to taxpayers, and enhancing enforcement of the tax laws through the use of tools such as tax withholding and information reporting that increase the transparency of income and deductions to both IRS and taxpayers. Also, as IRS moves forward in continuing to address the tax gap, building and maintaining a base of information on the extent of, and reasons for, noncompliance as well as defining desired changes in the tax gap and measuring results of efforts to address it will be critical. Given its size, even small or moderate reductions in the net tax gap could yield substantial returns. For example, based on IRS’s most recent estimate, each 1 percent reduction in the net tax gap would likely yield more than $2.5 billion annually. Thus, a 10 percent to 20 percent reduction of the net tax gap would translate into from $25 billion to $50 billion or more in additional revenue annually. Although reducing the tax gap may be an attractive means to improve the nation’s fiscal position, achieving this end will be a challenging task given persistent levels of noncompliance. IRS has made efforts to reduce the tax gap since the early 1980s; yet the tax gap is still large—although without these efforts it could be even larger. Also, IRS is challenged in reducing the tax gap because the tax gap is spread across the five different types of taxes that IRS administers, and a substantial portion of the tax gap is attributed to taxpayers who are not subject to withholding or information reporting requirements. Moreover, as we have reported in the past, closing the entire tax gap may not be feasible nor desirable, as it could entail more intrusive recordkeeping or reporting than the public is willing to accept or more resources than IRS is able to commit. Although much of the tax gap that IRS currently recovers is through enforcement actions, a sole focus on enforcement will not likely be sufficient to further reduce the net tax gap. Rather, the tax gap must be attacked on multiple fronts and with multiple strategies on a sustained basis. For example, efforts to simplify the tax code and otherwise alter current tax policies may help reduce the tax gap by making it easier for individuals and business to understand and voluntarily comply with their tax obligations. For instance, reducing the multiple tax preferences for retirement savings or education assistance might ease taxpayers’ burden in understanding and complying with the rules associated with these options. Also, simplification may reduce opportunities for tax evasion through vehicles such as abusive tax shelters. However, for any given set of tax policies, IRS’s efforts to reduce the tax gap and ensure appropriate levels of compliance will need to be based on a balanced approach of providing service to taxpayers and enforcing the tax laws. Furthermore, providing quality services to taxpayers is an important part of any overall strategy to improve compliance and thereby reduce the tax gap. As we have reported in the past, one method of improving compliance through service is to educate taxpayers about confusing or commonly misunderstood tax requirements. For example, if the forms and instructions taxpayers use to prepare their taxes are not clear, taxpayers may be confused and make unintentional errors. One method to ensure that forms and instructions are sufficiently clear is to test them before use. However, we reported in 2003 that IRS had tested revisions to only five individual forms and instructions from July 1997 through June 2002, although hundreds of forms and instructions had been revised in 2001 alone. Finally, in terms of enforcement, IRS will need to use multiple strategies and techniques to find noncompliant taxpayers and bring them into compliance. However, a pair of tools has been shown to lead to high levels of compliance: withholding tax from payments to taxpayers and having third parties report information to IRS and the taxpayers on income paid to taxpayers. For example, banks and other financial institutions provide information returns (Forms 1099) to account holders and IRS showing the taxpayers’ annual income from some types of investments. Similarly, most wages, salaries, and tip compensation are reported by employers to employees and IRS through Form W-2. Preliminary findings from NRP indicate that more than 98.5 percent of these types of income are accurately reported on individual returns. In the past, we have identified a few potential areas where additional withholding or information reporting requirements could serve to improve compliance: Requiring tax withholding and more or better information return reporting on payments made to independent contractors. Past IRS data have shown that independent contractors report 97 percent of the income that appears on information returns, while contractors that do not receive these returns report only 83 percent of income. We have also identified other options for improving information reporting for independent contractors, including increasing penalties for failing to file required information returns, lowering the $600 threshold for requiring such returns, and requiring businesses to separately report on their tax returns the total amount of payments to independent contractors. Requiring information return reporting on payments made to corporations. Unlike payments made to sole proprietors, payments made to corporations for services are generally not required to be reported on information returns. IRS and GAO have contended that the lack of such a requirement leads to lower levels of compliance for small corporations. Although Congress has required federal agencies to provide information returns on payments made to contractors since 1997, payments made by others to corporations are generally not covered by information returns. Require more data on information returns dealing with capital gain income. Past IRS studies have indicated that much of the noncompliance associated with capital gains is a result of taxpayers overstating an asset’s “basis,” the amount of money originally paid for the asset. Currently, financial institutions are required to report the sales prices, but not the purchase prices, of stocks and bonds on information returns. Without information on purchase prices, IRS cannot use efficient and effective computer-matching programs to check for compliance and must use much more costly means to examine taxpayer returns in order to verify capital gain income. Although withholding and information returns are highly effective in encouraging compliance, such additional requirements generally impose costs and burdens on the businesses that must implement them. However, continued reexamination of opportunities to expand information reporting and tax withholding could increase the transparency of the tax system. Such reexamination could be especially relevant toward improving compliance in areas that are particularly complex or challenging to administer, such as noncash charitable contributions or net income and losses passed through from “flow-through” entities such as S corporations and partnerships to their shareholders and partners. Finally, making progress on closing the tax gap requires that the tools and techniques being used to promote compliance are evaluated to ensure that they actually are effective. IRS evaluates some of its efforts to assess how well they work, perhaps most notably its current effort to test new procedures designed to reduce noncompliance with the Earned Income Tax Credit, but misses other opportunities. For example, the lack of testing for forms and instructions mentioned earlier is one instance where improved evaluation would be worthwhile. We also reported in 2002 that the effectiveness of the Federal Tax Deposit Alert program—a program that since 1972 has been intended to reduce delinquencies in paying employment taxes—could not be evaluated because IRS had no system to track contacts IRS made with delinquent employers. The availability of current compliance information should enhance IRS’s ability to evaluate the success of its efforts to promote compliance. Regularly measuring compliance can offer many benefits, including helping IRS identify new or major types of noncompliance, identify changes in tax laws and regulations that may improve compliance, more effectively target examinations of tax returns or other enforcement programs, understand the effectiveness of its programs to promote and enforce compliance, and determine its resource needs and allocations. For example, by analyzing 1979 and 1982 TCMP data, IRS identified significant noncompliance with the number of dependents claimed on tax returns and justified a legislative change to address the noncompliance. As a result, for tax year 1987 taxpayers claimed about 5 million fewer dependents on their returns than would have been expected without the change in law. In addition, tax compliance data are useful outside of IRS for tax policy analysis, revenue estimating, and research. A significant portion of IRS’s new tax gap estimate is based on recent compliance data. IRS used data from NRP to update individual income tax underreporting and the portion of individual employment tax underreporting from self-employed individuals. Completion of NRP is a substantial achievement—as table 1 indicates, underreporting of individual income taxes represented about half of the tax gap for 2001 (the estimate ranges from $150 billion to $187 billion out of a gross tax gap estimate that ranges from $312 billion to $353 billion). Also, from $51 billion to $56 billion of the $66 billion to $71 billion in estimated underreported employment tax was due to self-employment tax underreporting. IRS used current, actual data from its Master Files to calculate the underpayment segment of the tax gap. IRS has concerns with the certainty of the overall tax gap estimate in part because some areas of the estimate rely on old data and IRS has no estimates for other areas of the tax gap. IRS does not have estimates for corporate income, employment, and excise tax nonfiling or for excise tax underreporting. For these types of noncompliance, IRS maintains that the data are either difficult to collect, imprecise, or unavailable. IRS has not recently collected compliance data for the remaining segments of the tax gap. For example, IRS used data from the 1970s and 1980s to estimate underreporting of corporate income taxes and employer-withheld employment taxes. IRS is taking several steps that could improve the tax gap estimate for tax year 2001. IRS plans to further analyze the preliminary results from NRP and expects to publish a revised estimate by the end of 2005. The revised estimate will incorporate new methodologies, including those for estimating overall individual income tax underreporting as well as for the portion attributable to self-employed individuals who operate businesses informally, and for estimating individual income tax nonfiling. In addition, IRS research officials have proposed a compliance measurement study that will allow IRS to update underreporting estimates involving flow-through entities. This study, which IRS intends to begin in fiscal year 2006, would take 2 to 3 years to complete. Because either individual taxpayers or corporations may be recipients of income (or losses) from flow-through entities, this study could affect IRS’s estimates for the underreporting gap for individual and corporate income tax. While these data and methodology updates could improve the tax gap estimates, IRS has no documented plans to periodically collect more or better compliance data over the long term. Other than the proposed study of flow-through entities, IRS does not have plans to collect compliance data for other segments of the tax gap. Also, IRS has indicated that given its current research priorities, it would not begin another NRP study of individual income tax returns before 2008, if at all, and would not complete such a study until at least 2010. When IRS initially proposed the NRP study, it had planned to study individual income tax underreporting on a 3-year cycle. According to IRS officials, IRS has not committed to regularly collecting compliance data because of the associated costs and burdens. Taxpayers whose returns are examined through compliance studies such as NRP bear costs in terms of time and money. Also, IRS incurs costs, including direct costs and opportunity costs—revenue that IRS potentially forgoes by using its resources to examine randomly selected returns, which may include returns from compliant taxpayers, as opposed to traditional examinations that focus on taxpayer returns that likely contain noncompliance and may more consistently produce additional tax assessments. Although the costs and burdens of compliance measurement are legitimate concerns, as we have reported in the past, we believe compliance studies to be good investments. Without current compliance data, IRS is less able to determine key areas of noncompliance to address and actions to take to maximize the use of its limited resources. The lack of firm plans to continually obtain fresh compliance data is troubling because the frequency of data collection can have a large impact on the quality and utility of compliance data. As we have reported in the past, the longer the time between compliance measurement surveys, the less useful they become given changes in the economy and tax law. In designing the NRP study, IRS balanced the costs, burdens, and compliance risk of studying that area of the tax gap. Any plans for obtaining and maintaining reasonably current information on compliance levels for all portions of the tax gap would similarly need to take into account costs, burdens, and compliance risks in determining which areas of compliance to measure and the scope and frequency of such measurement. Data on whether taxpayers are unintentionally or intentionally noncompliant with specific tax provisions are critical to IRS for deciding whether its efforts to address specific areas of noncompliance should focus on nonenforcement activities, such as improved forms or publications, or enforcement activities to pursue intentional noncompliance. Recognizing such benefits, the National Taxpayer Advocate has urged IRS to consider performing additional research into causes of noncompliance. We have also reported in the past that rigorous research of the causes of noncompliance seems intuitive. IRS collects data on the reasons for noncompliance for specific tax issues during its examinations of tax returns, including those reviewed for NRP. However, IRS has a number of concerns with the data: The database is incomplete as not all examiners have been sending information on the results, including reasons, of closed examinations to be entered into the database. IRS has not tested the adequacy of the controls for data entry or the reliability of the data being collected. IRS has found instances where examiners close examinations without assigning a reason for noncompliance or by assigning the same reason to all instances of noncompliance, regardless of the situation. IRS has not trained all examiners to deal with the subjectivity of determining reasons to ensure consistent understanding of the reason categories. The data are not representative of the population of noncompliant taxpayers because the examined tax returns were not selected randomly. As IRS continues to collect data on the reasons for noncompliance in the future, it will be important to take these concerns into account. Additionally, as with its efforts to measure compliance, it will be important for IRS to consider the costs and burden of obtaining data on the reasons for noncompliance. Focusing on outcome-oriented goals and establishing measures to assess the actual results, effects, or impact of a program or activity compared to its intended purpose can help agencies improve performance and stakeholders determine whether programs have produced desired results. As such, establishing long-term, quantitative compliance goals offers several benefits for IRS. Perhaps most important, compliance goals coupled with periodic measurements of compliance levels would provide IRS with a better basis for determining to what extent its various service and enforcement efforts contribute to compliance. Additionally, long-term, quantitative goals may help IRS consider new strategies to improve compliance, especially since these strategies could take several years to implement. For example, IRS’s progress toward the goal of having 80 percent of all individual tax returns electronically filed by 2007 has required enhancement of its technology, development of software to support electronic filing, education of taxpayers and practitioners, and other steps that could not be completed in a short time frame. Focusing on intended results can also promote strategic and disciplined management decisions that are more likely to be effective because managers who use fact-based performance analysis are better able to target areas most in need of improvement and select appropriate interventions. Likewise, agency accountability can be enhanced when both agency management and external stakeholders such as Congress can readily measure an agency’s progress toward meeting its goals. Finally, setting long-term, quantitative goals would be consistent with results-oriented management principles that are associated with high-performing organizations and incorporated into the statutory management framework Congress has adopted through GPRA. IRS’s strategies for improving compliance generally lack a clear focus on long-term, quantitative goals and results measurement. Although IRS has established broad qualitative goals and strategies for improving taxpayer service and enhancing enforcement of the tax laws, it has not specified by how much it hopes these strategies will improve compliance. IRS has also identified measures, such as compliance rates for tax reporting, filing, and payment as well as the percentage of Americans who think it is acceptable to cheat on their taxes, which are intended to gauge the progress of its strategies toward its broad goals. However, IRS does not always collect recent data to update these measures and has not established quantitative goals against which to compare the measures. In response to a President's Management Agenda initiative to better integrate budget and performance information, IRS officials said that they are considering various long-term goals for the agency. These goals are to be released by May 2005. The officials have not indicated how many goals will be related to improving taxpayer compliance or whether they will be quantitative and results- oriented. Not unlike other agencies, IRS faces challenges in implementing a results- oriented management approach, such as identifying and collecting the necessary data to make informed judgments about what goals to set and to subsequently measure its progress in reaching such goals. However, having completed the NRP review of income underreporting by individuals, IRS now has an improved foundation for setting a goal or goals for improving taxpayers’ compliance. Nevertheless, measuring progress toward any goals that may be set could be challenging. For example, IRS researchers have found it difficult to determine the extent to which its enforcement actions deter noncompliance or its services improve compliance among taxpayers who want to comply. Measuring these effects is complicated in part because many factors outside of IRS’s actions can affect compliance. However, as the National Taxpayer Advocate’s 2004 annual report to Congress pointed out, current and existing data on noncompliance may help IRS better understand and address this challenge. Furthermore, even if IRS is unable to show that its actions directly affected compliance rates, periodic measurements of compliance levels can indicate the extent to which compliance is improving or declining and provide a basis for reexamining existing programs and triggering corrective actions if necessary. The nation is currently on an imprudent and unsustainable fiscal path that threatens our future. If we act now to address the looming fiscal challenges facing the nation, the lives of our children and grandchildren will be measurably better than if we wait. Nevertheless, the decisions we must make will not be easy. They involve difficult choices about the role of government in our lives and our economy. Acting now will impose sacrifices, but today we have more options with less severe consequences than if we wait. Reducing the tax gap is one option that would help. While our long term- fiscal imbalance is too large to be eliminated by one strategy, reducing the tax gap can ease the difficult decisions that are needed. But, regardless of the contribution that a reduced tax gap can make to easing our long-term challenges, we need to make concerted efforts to address the tax gap because it is fundamentally unfair and threatens Americans’ trust in their government. The tax gap is both a measure of the burden and frustration of taxpayers who want to comply but are tripped by tax code complexity and of willful tax cheating by a minority who want the benefits of government services without paying their fair share. Chairman Grassley, Senator Baucus, and Members of the Committee, this concludes my testimony. At the request of the committee, in the near future, we will issue a report that addresses the tax gap in greater detail and, as appropriate, may make recommendations related to the topics covered in my statement. We look forward to continuing to support the committee’s oversight of the tax gap and related issues. I would be happy to answer any questions you may have at this time. For further information on this testimony, please contact Michael Brostek on (202) 512-9110 or [email protected]. Individuals making key contributions to this testimony include Jeff Arkin, Elizabeth Fan, Shannon Groff, George Guttman, Michael Rose, and Tom Short. 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.

The Internal Revenue Service's (IRS) recent estimate of the difference between what taxpayers timely and accurately paid in taxes and what they owed ranged from $312 billion to $353 billion for tax year 2001. IRS estimates it will eventually recover some of this tax gap, resulting in a net tax gap from $257 billion to $298 billion. The tax gap arises when taxpayers fail to comply with the tax laws by underreporting tax liabilities on tax returns; underpaying taxes due from filed returns; or "nonfiling," which refers to the failure to file a required tax return altogether or in a timely manner. The Chairman and Ranking Minority Member of the Senate Committee on Finance asked GAO to review a number of issues related to the tax gap. This testimony will address GAO's longstanding concerns regarding tax compliance; IRS's efforts to ensure compliance; and the significance of reducing the tax gap, including some steps that may assist with this challenging task. For context, this testimony will also address GAO's most recent simulations of the long-term fiscal outlook and the need for a fundamental reexamination of major spending and tax policies and priorities. Our nation's fiscal policy is on an unsustainable course. As long-term budget simulations by GAO, the Congressional Budget Office, and others show, over the long term we face a large and growing structural deficit due primarily to known demographic trends and rising health care costs. All simulations indicate that the long-term fiscal challenge is too big to be solved by economic growth alone or by making modest changes to existing spending and tax policies. Rather, a fundamental reexamination of major policies and priorities will be important to recapture our fiscal flexibility. Especially relevant to this committee will be deciding whether and how to change current tax policies and how to ensure that tax compliance is as high as practically possible. Tax law enforcement is one factor affecting compliance that has caused concern in the past, due in part to declines in IRS enforcement occupations, examinations, and other enforcement results. The recent turnaround in staffing and some enforcement results is good news, but IRS's recent compliance estimate indicates that compliance levels have not improved and may be worse than it originally estimated. Thus, sustained progress in improving compliance is needed. Reducing the tax gap would help improve fiscal sustainability, but will be challenging given persistent noncompliance. This task will not likely be achieved through a single solution. Rather, the tax gap must be attacked on multiple fronts and with multiple strategies over a sustained period of time, including reducing tax code complexity, providing quality services to taxpayers, enhancing enforcement of tax laws, and evaluating the success of IRS's efforts to promote compliance. Also important is obtaining current information on the extent of, and reasons for, noncompliance. IRS's 2001 tax gap estimate is based in part on recently collected compliance data for individual income tax underreporting. However, IRS does not have firm plans to obtain compliance data for other areas of the tax gap or again collect data on individual income tax underreporting. Finally, IRS lacks quantitative, long-term goals for improving taxpayer compliance, which would be consistent with results-oriented management.

You are an expert at summarizing long articles. Proceed to summarize the following text: EPA offers two types of grants—nondiscretionary and discretionary: Nondiscretionary grants support water infrastructure projects, such as renovating municipal drinking water facilities, and continuing environmental programs, such as the Clean Air Program for monitoring and enforcing Clean Air Act regulations. For these grants, Congress directs awards to one or more classes of prospective recipients who meet specific criteria for eligibility. These continuing environmental grants are often awarded on the basis of formulas prescribed by law or agency regulation. In fiscal year 2002, EPA awarded about $3.5 billion in nondiscretionary grants. EPA has primarily awarded these grants to states or other governmental entities. Discretionary grants fund a variety of activities, such as environmental research and training. EPA has the discretion to independently determine the recipients and funding levels for these grants. In fiscal year 2002, EPA awarded about $719 million in discretionary grants. EPA has awarded these grants to nonprofit organizations and universities in addition to governmental entities. EPA administers and oversees grants through the Grants Administration Division within the Office of Grants and Debarment, 12 program offices in headquarters, and EPA’s 10 regional offices. The Grants Administration Division develops overall grants policy. About 102 grant specialists in headquarters and the regions are responsible for overseeing the administration of grants. EPA also has approximately 3,000 project officers within headquarter program offices and the regions. These officers are responsible for overseeing the technical or programmatic aspects of the grants. While grant specialists are dedicated to grants management, EPA staff members who serve as project officers have other primary responsibilities. The grant process has four phases: Pre-award. EPA reviews the application paperwork and makes an award decision. Award. EPA prepares the grant documents and instructs the grantee on technical requirements, and the grantee signs an agreement to comply with all requirements. Post-award. EPA provides technical assistance and oversight; the grantee completes the work, and the project ends. Closeout of the award. The project officer ensures that the project is completed; the grants management office prepares closeout documents and notifies the grantee that the grant is completed. EPA has had persistent problems in managing its grants. In 1996, EPA’s Inspector General testified before Congress that EPA did not fulfill its obligation to properly monitor grants. Acknowledging these problems, EPA identified oversight, including grant closeouts, as a material weakness—a management control weakness that the EPA Administrator determines is significant enough to report to the President and Congress. EPA’s fiscal year 1999 Integrity Act report indicated that this oversight material weakness had been corrected, but the Inspector General testified that the weakness continued. In 2002, the Inspector General and the Office of Management and Budget recommended that EPA, once again, designate grants management as a material weakness. EPA ultimately decided to maintain this issue as an agency-level weakness, which is a lower level of risk than a material weakness. EPA made this decision because it believes its ongoing corrective action efforts will help to resolve outstanding grants management problems. However, in adding EPA’s grants management to GAO’s list of EPA’s major performance and accountability challenges in January 2003, we signaled our concern that EPA has not yet taken action to ensure that it can manage its grants effectively. EPA faces four major, persistent problems in managing its grants. It must resolve these problems in order to improve its grants management. Specifically, EPA has not always awarded its discretionary grants competitively or ensured that it solicits these grants proposals from a large pool of applicants; effectively overseen its grantees’ progress and compliance with the terms managed its grants so that they are effectively used to achieve effectively managed its grants management resources by holding its staff accountable for performing their duties, ensuring that the staff are adequately trained and appropriately allocated, and providing them with adequate management information. Until September 2002, EPA did not have a policy for competing the discretionary grants that might be eligible for competition—about $719 million of its total $4.2 billion in grant funding in fiscal year 2002. Consequently, EPA was not promoting competition. According to EPA’s own internal management reviews and an Inspector General report, EPA did not always compete its discretionary grants when competition might have been warranted. By competitively soliciting grants, EPA would be able to choose the best project at the least cost to the government and is encouraged by the Federal Grant and Cooperative Agreement Act of 1977. EPA can award its discretionary grants noncompetitively; however, it is required by agency guidance to document the reasons for these decisions in a “decision memorandum.” It has not consistently done so, according to EPA’s internal management reviews. Lack of documentation raises questions about the award process and ultimately about whether EPA is providing its grant funds to the best-qualified applicants. Furthermore, EPA has not always engaged in widespread solicitation when it could be beneficial to do so. This type of solicitation would provide greater assurance that EPA receives proposals from a variety of eligible and highly qualified applicants who otherwise may not have known about grant opportunities. According to a 2001 EPA Inspector General report, program officials indicated that widespread solicitation was not necessary because “word gets out” to eligible applicants. Applicants often sent their proposals directly to these program officials who funded them using “uniquely qualified” as the justification for a noncompetitive award. This procedure creates the appearance of preferential treatment by not offering the same opportunities to all potential applicants. In addition, the agency provided incomplete or inconsistent public information on its grant programs in the Catalog of Federal Domestic Assistance and therefore the public and potential applicants may not have been adequately informed of funding opportunities. EPA has faced five persistent problems in overseeing its grants. First, EPA’s internal reviews found that grantees’ progress reports, one of the best sources of information for monitoring recipients, did not include required financial information, and grantees had not always submitted progress reports in a timely fashion. EPA generally requires recipients to submit progress reports to the project officer within a specified time frame. These reports are to include progress to date, any difficulties encountered, a discussion of expenditures compared to work completed, and an explanation of significant discrepancies. Although the recipient is responsible for submitting timely progress reports that discuss the project’s financial status, the project officer is responsible for ensuring that the recipient has done so. Second, project officers and grant specialists did not always document their monitoring activities, which raises questions about the extent of the monitoring they did conduct. According to an EPA internal review, for example, one grants management office developed a form to ensure monitoring activities were completed, but the form was missing from 50 percent of the grant files reviewed, and when the monitoring form was used, it was not always completed. Furthermore, project officers did not always document that they had monitored required key areas, such as ensuring compliance with the terms and conditions of the grant award. Third, EPA has not always ensured that different types of grantees have adequate financial and internal controls to ensure that they use federal funds properly. For example, in 2001, we reported that EPA’s oversight of nonprofit grantees’ costs did not ensure that grant funds were used for costs allowed under guidance published by the Office of Management and Budget. In particular, EPA’s on-site reviews were flawed. The reviews did not include transaction testing to identify expenditures that are not allowed, such as lobbying. We also found that EPA had conducted on-site reviews at only 4 percent of nonprofit grantees who might have had inexperienced staff and inadequate financial and internal controls. In 2000 and 2002, the EPA Inspector General reported that one state’s department of environmental management and two tribes, respectively, lacked adequate financial and internal controls. These problems could have been identified through EPA oversight of grantees. Fourth, EPA has sometimes not ensured that grantees are complying with certain grant regulations, such as those pertaining to grantee procurement and conflict-of-interest. In 2002, the EPA Inspector General reported that EPA did not monitor grantees’ procurements to determine if the grantees were using a competitive process to obtain the best products, at the best price, from the most qualified firms. In 1999 and 2002, the EPA Inspector General reported conflict-of-interest problems because grant recipients had awarded contracts to parties who had assisted them in preparing their grants and therefore had advance knowledge about grantees’ plans to award contracts. Finally, EPA has not fully ensured that recipients are submitting final reports in a timely manner and meeting grant objectives. For example, in 2000, we reported that EPA had not adequately tracked its Science To Achieve Results research grants to ensure their on-time completion. We found that 144 of the nearly 200 grants we reviewed had missed their deadline for submitting final reports, even after some extensions had been given. Also, in 1998, EPA’s Inspector General reported that EPA had not monitored training assistance grants to nonprofit grantees to determine how many students were being trained or how much the training cost. EPA awarded some grants before considering how the results of the grantees’ work would contribute to achieving environmental results. In 2001, we reported that EPA program officials treated EPA’s strategic goals and objectives not as a tool to guide the selection of grants, but rather as a clerical tool for categorizing grants after the funds were already awarded. By assessing the relevance of these grants to EPA’s strategic plan after selecting the grantees, EPA cannot ensure that it is selecting the projects that will best help it accomplish its mission. EPA has also not developed environmental measures and outcomes for all of its grant programs. In 2000, we reported that EPA did not have program criteria to measure the effectiveness of its Science To Achieve Results program. Instead, EPA’s management of the program focused on the procedures and processes of awarding grants. As a result, EPA was uncertain what the program was achieving. Similarly, the Office of Management and Budget recently evaluated four EPA grant programs to assess the programs’ effectiveness at achieving and measuring results. The office found that these four EPA grant programs lacked outcome- based measures—measures that demonstrated the impact of the programs on improving human health and the environment. The office concluded that one of EPA’s major challenges was demonstrating program effectiveness in achieving public health and environmental results. EPA often does not require grantees to submit work plans that explain how a project would achieve measurable environmental results. The grantee work plan describes the project, its objectives, and the method the grantee will use to accomplish the objectives. An effective work plan should, among other things, list the grant’s expected outcomes. The project officer uses the work plan to evaluate performance under the agreement. In 2002, EPA’s Inspector General reported that EPA approved some grantees’ work plans without determining the projects’ long-term human health and environmental outcomes. In fact, for almost half of the 42 grants reviewed, EPA did not even attempt to measure the projects’ outcomes. Instead, EPA funded grants on the basis of work plans that focused on short-term procedural results, such as meetings or conferences. In some cases, it was unclear what the grant funding had accomplished. Both EPA’s internal management reviews and its Inspector General reports have noted several problems in how effectively and efficiently EPA manages its grants staff and other resources. In terms of staff, the agency has not always held accountable its staff responsible for grants management, such as project officers and grant specialists. EPA’s internal management reviews have found that, in some cases, job descriptions or performance standards were inadequate. The Inspector General recently reported similar findings. According to the Inspector General, agency leadership had not always emphasized the importance of project officer duties, nor held project officers accountable for performing certain duties. More specifically, project officer responsibilities were not clearly defined in their performance agreements and position descriptions, and there were no consequences when required duties were not performed. EPA has also not provided all grant staff with the training necessary to properly manage all aspects of grants. EPA’s internal management reviews have noted that some staff who were managing grants had not completed the basic project officer training. Other staff may have completed the basic training but needed additional training to refresh their skills or to become familiar with all of their grants management responsibilities and requirements. For example, in some instances, project officers were not familiar with the five key areas they were to review when monitoring grantees, such as the financial aspects of a grantee’s performance. Internal management reviews also identified other staff-related problems. For example, some internal reviews stated that EPA did not have enough staff to adequately manage the number of grants it awards. Furthermore, other reviews noted that uneven distribution of workload among staff resulted in poor grants management. EPA has also not adequately managed its resources for supporting grant staff. Some EPA internal management reviews noted a lack of resource commitment—time and money—to conduct grant management activities and develop staff. This lack of resources has hampered staff in performing their duties, according to these reviews. For example, some of these reviews noted that grantee oversight, particularly the on-site reviews, was limited by the scarcity of such resources as travel funds. Finally, staff did not always have the information they needed to effectively manage grants. According to several EPA internal management reviews, staff lacked accessible or useable reference material—such as policy and guidance documents, and other information resources, such as reports of grantee expenditures. Additionally, we and others have reported that EPA does not use information from performance evaluations or information systems to better manage its grants. For example, one EPA region did not analyze the results of its own internal surveys, which were designed to assess the effectiveness of its internal grants management operations. In recent years, EPA has taken a series of actions to address two of its key problem areas: grantee oversight and resource management. It has issued several oversight policies, conducted training, and developed a new data system for grants management. However, EPA’s corrective actions have not been consistently successful because of weaknesses in their implementation and insufficient management emphasis. Between 1998 and 2002, EPA issued three policies to improve its oversight of its grant recipients. These policies have tried to improve oversight by establishing, expanding, and refining the activities of EPA staff involved in managing grants. EPA took additional actions to reduce the backlog of grants needing closeout. EPA’s first policy, issued in May 1998, required grants management office staff to monitor the financial progress and administrative compliance of grant recipients’ activities. The policy also required the staff to conduct site visits or desk reviews to review the adequacy of some grantees’ administrative and financial systems for managing their grants. Furthermore, the grants management offices had to submit biennial monitoring plans, which included their proposed monitoring activities. Finally, the policy included suggested criteria for selecting grantees to be reviewed and guidelines for how to conduct the oversight activities. EPA’s second policy, issued in April 1999, added oversight responsibilities for program staff in headquarters and the regions. The policy required headquarters and regional program offices to submit annual plans outlining their proposed monitoring activities. The policy also suggested activities to be included in these plans, such as monitoring grantees’ progress of work, documenting their efforts, and closing out grants in a timely manner. EPA’s third policy, issued in February 2002, further refined its oversight requirements by having grant management and program offices conduct in-depth monitoring on at least 5 to 10 percent of their grant recipients. The grant management offices had to assess grantees’ financial and administrative capacity, while the program offices had to assess the grantees’ activities in five key areas, such as progress of work and financial expenditures. Furthermore, the grant management offices, as well as regional and headquarters program offices, had to report quarterly on their in-depth monitoring activities. Additionally, the policy committed the Office of Grants and Debarment to the development of a database, which, according to an EPA official, the grants management offices would use to store the results of their in-depth monitoring activities. Finally, the policy included suggested guidance for how to conduct program office reviews. One of the final steps in monitoring is “closing out” grants to ensure that the project was completed and that any remaining funds are recovered. In 1996, EPA had a backlog of over 19,000 grants needing closeout. To reduce such backlogs and prevent future backlogs, EPA, among other things, developed specific procedures for closing out nonconstruction grants and identified a strategy for closing construction grants that included assessing impediments to closing out grants. In terms of resource management, EPA provided grants management training for its staff and some grant recipients. It developed and periodically updated a training manual for project officers. EPA also required project officers to attend a 3-day training course based on this manual and periodically take a refresher course. EPA developed a database to certify that project officers had completed this training. According to an EPA official, grants specialists have also received some training. Finally, EPA conducted a 1-day grants management training course for nonprofit grantees and pilot-tested a standard training course for grants specialists. Finally, EPA has taken steps to improve another critical resource—its primary data system for managing grants. In 1997, it began developing the Integrated Grants Management System (IGMS), which, according to an EPA official, will allow electronic management throughout the life of the grant. EPA believes IGMS could help resolve some of the long-standing problems in grants management by implementing controls to prevent certain documents from being submitted without required elements and providing electronic reminders of when certain activities or documents are due. Additionally, EPA designed the system to reduce the potential for data entry errors. According to an EPA official, IGMS is being developed through modules. In 2001, EPA began implementing the system to control the application and award phases of a grant. Using IGMS, EPA will be able to review the grantee’s application, prepare and review EPA’s documents, and approve the award electronically. In April 2003, EPA will begin using the post- award module of IGMS. This module will allow project officers to enter project milestones into the system, communicate with other staff involved in overseeing grants, receive electronic reports from grantees, and initiate closeout activities electronically. EPA expects that all staff will be using IGMS to electronically manage grants by September 2004. EPA continues to face grant management problems, despite the corrective actions it has taken to date. In 2002, EPA’s Inspector General reported that EPA’s corrective actions were not effectively implemented and specifically, for monitoring, found, among other things, inconsistent performance of monitoring responsibilities, inadequate preparation of monitoring plans, incomplete submission of quarterly compliance reports, and considerable differences among the programs and the regions in the number of on-site evaluations they conducted. As part of our ongoing review, we are assessing EPA’s corrective actions for monitoring and have found mixed results. On the one hand, we have seen some problems. For example, we identified two weaknesses in the database EPA created to store the results of its in-depth reviews. First, only grant management offices—not program offices—had to enter the results of their reviews into this database, and according to an EPA official familiar with the database, not all of them did so. Second, according to the same official, EPA did not design the database so that it could analyze the results of the in-depth reviews to make management improvements. On the other hand, however, we found that EPA’s corrective actions increased the oversight of its grant recipients. In 2002, EPA reported that it had conducted 578 on-site reviews, and 629 desk reviews, which is an increase in both the number of on-site reviews and the number of reviews some offices conducted. In addition, EPA’s 2002 internal reviews indicated some improvements in oversight compared with the prior year’s performance. On another positive note, EPA has made improvements in closing out grants. In 1998, we reported that in some instances EPA’s corrective actions to close out grants were not initially successful. For example, we had found that strategies to reduce the closeout backlog were not always consistently implemented or failed to close out a considerable number of grants, despite making some progress. However, EPA had successfully resolved its backlog problem by 2002. As a result, EPA has been able to eliminate this backlog as a material weakness and receive better assurance that grant commitments have been met. With respect to resource management, EPA implemented corrective actions to improve training, but these actions have not been fully successful. For training, the EPA Inspector General reported that the agency did not have adequate internal controls in place to ensure that project officers were in compliance with the training requirements. Specifically, one region did not track the names and dates of project officers who received training, the agencywide database on training for project officers was inaccurate and had limited functionality, and the on- line refresher course did not have the controls necessary to prevent staff from obtaining false certifications. In addition to the weaknesses in the corrective actions for specific problem areas, the EPA Inspector General found two other problems. First, the agency’s internal grant management reviews did not consistently examine issues to identify and address systemic weaknesses, did not adequately identify the causes of specific weaknesses or how the proposed corrective actions would remedy the identified weakness, and were not sufficiently comprehensive. Furthermore, the Grants Administration Division did not assess the results of these reviews to make management improvements. Second, EPA’s senior resource officials did not ensure compliance with EPA policies or sufficiently emphasize grantee oversight. The Inspector General concluded that the lack of emphasis contributed to the identified implementation weaknesses. In response to this assertion, senior resource officials stated that monitoring is affected by the limited availability of resources, and that they lack control over how regional program offices set priorities. The Inspector General pointed out that these officials are responsible for providing adequate resources; however, none of the officials interviewed had conducted assessments to determine whether they had adequate resources. EPA has recently issued new policies to address two of the key problems we have identified—competition and oversight—and developed a 5-year plan to address its long-standing grants management problems. In September 2002, EPA issued a policy to promote competition in awarding grants by requiring that certain grants be competed. These grants may be awarded noncompetitively only if certain criteria are met, in which case, a detailed justification must be provided. The new policy also created a senior-level advocate for grants competition to oversee the implementation of the policy. In December 2002, EPA also issued a new oversight policy that increases the amount of in-depth monitoring—desk reviews and on-site reviews—that EPA conducts of grantees; mandating that all EPA units enter compliance activities into a database; and requiring transaction testing for unallowable expenditures, such as lobbying, during on-site evaluations reviews. In April 2003, EPA issued a 5-year Grants Management Plan. EPA’s Assistant Administrator for Administration and Resources Management has called implementation of this plan the most critical part of EPA’s grants management oversight efforts. The grants management plan has five goals and accompanying objectives: Promote competition in the award of grants by identifying funding priorities, encouraging a large and diverse group of applicants, promoting the importance of competition within the agency, and providing adequate support for the grant competition advocate. Strengthen EPA’s oversight of grants by improving internal reviews of EPA offices, improving and expanding reviews of EPA grant recipients, developing approaches to prevent or limit grants management weaknesses, establishing clear lines of accountability for grants oversight, and providing high-level coordination, planning, and priority setting. Support identifying and achieving environmental outcomes by including expected environmental outcomes and performance measures in grant workplans, and improving the reporting on progress made in achieving environmental outcomes. Enhance the skills of EPA personnel involved in grants management by updating training materials and courses and improving delivery of training to project officers and grants specialists. Leverage technology to improve program performance by, for example, enhancing and expanding information systems that support grants management and oversight. Although we have not fully assessed EPA’s new policies and grants management plan, I would like to make a few preliminary observations on these recent actions based on our ongoing work. Specifically, EPA’s plan: Recognizes the need for greater involvement of senior officials in ensuring effective grants management throughout the agency. The plan calls for a senior-level grants management council to provide high-level coordination, planning, and priority-setting for grants management. Appears to be comprehensive in that it addresses the four major management problems—competitive grantee selection, oversight, environmental results, and resources—that we identified in our ongoing work. Previous EPA efforts did not address all these problems, nor did they coordinate corrective actions, as this plan proposes. EPA’s plan ties together recent efforts, such as the new policies and ongoing efforts in staff and resource management, and proposes additional efforts to resolve its major grants management problems. Identifies the objectives, milestones, and resources needed to help ensure that the plan’s goals are achieved. Furthermore, EPA is developing an annual companion plan that will outline specific tasks for each goal and objective, identify the person responsible for completing the task, and set an expected completion date. Begins to build accountability into grants management by establishing performance measures for each of the plan’s five goals. Each performance measure establishes a baseline from which to measure progress and target dates for achieving results. For example, as of September 2002, 24 percent of new grants to nonprofit recipients that are subject to the competition policy were competed—EPA’s target is to increase the percentage of these competed grants to 30 percent in 2003, 55 percent in 2004, and 75 percent in 2005. The plan further builds accountability by identifying the need for performance standards for project officers and grants specialists that address grant management responsibilities. Although these actions appear promising, EPA has a long history of undertaking initiatives to improve grants management that have not solved its problems. If the future is to be different from the past, EPA must work aggressively to implement its new policies and its ambitious plan through a sustained, coordinated effort. It will be particularly important for all agency officials involved in managing grants to be committed to and held accountable for achieving the plan’s goals and objectives. Mr. Chairman, this concludes my testimony. I would be happy to answer any questions that you or Members of the Subcommittee may have. For further information, please contact John B. Stephenson at (202) 512- 3841. Individuals making key contributions to this testimony were Andrea Wamstad Brown, Christopher Murray, Paul Schearf, Rebecca Shea, Carol Herrnstadt Shulman, Bruce Skud, and Amy Webbink. 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.

Over the years, EPA has had persistent problems in managing its grants. Grants constituted one-half of the agency's annual budget, or about $4.2 billion in fiscal year 2002. EPA uses grants to implement its programs to protect human health and the environment and awards them to over 3,300 recipients, including state and local governments, tribes, universities, and nonprofit organizations. EPA's ability to efficiently and effectively accomplish its mission largely depends on how well it manages its grant resources and builds in accountability. Since 1996, GAO and EPA's Office of Inspector General have repeatedly reported on EPA's problems in managing its grants. Because these problems have persisted, in January 2003, GAO cited grants management as a major management challenge for EPA. GAO is currently reviewing EPA's efforts to improve grants management at the request of the Chairman of the House Committee on Transportation and Infrastructure and Representative Anne Northup. For this testimony GAO is reporting on results of its previously issued reports and on the grants problems EPA faces, past actions to address these problems, and recently issued EPA policies and a 5-year grants management plan to address its long-standing grants management problems. EPA faces four key problems in managing its grants: (1) selecting the most qualified grant recipients from a large applicant pool, (2) effectively overseeing grantees throughout the life of the grant, (3) measuring the results of the grantees' work, and (4) effectively managing its grants staff and resources. EPA must resolve these problems in order to improve its management of grants. In recent years, EPA has taken a series of actions to address two of its key problem areas: grantee oversight and resource management. EPA actions include issuing several oversight policies, conducting training, and developing a new data system for grants management. However, these past actions were not consistently successful in resolving grants management problems because of weaknesses in implementation and insufficient management emphasis. For example, between 1998 and 2002, EPA issued three policies designed to improve oversight of grantees, but EPA staff did not consistently carry them out. Late in 2002, EPA launched new efforts to address some of its grants management problems. In September 2002, EPA, for the first time, issued a policy to promote competition in awarding grants. In December 2002, it issued a new policy designed to better ensure effective grant oversight. Finally, in April 2003, EPA issued a 5-year grants management plan to address its long-standing grants management problems. GAO is still reviewing these new efforts. Although EPA's recent actions seem promising, the agency has a long history of undertaking initiatives to improve grants management that have not solved its problems. If the future is to be different from the past, EPA must work to aggressively implement its new policies and its ambitious 5-year plan through a sustained, coordinated effort. It will be particularly important for all agency officials involved in managing grants to be committed to and held accountable for achieving the plan's goals and objectives.

You are an expert at summarizing long articles. Proceed to summarize the following text: FDA conducts a variety of activities pursuant to its mission to protect the public health. To carry out these functions, FDA is organized into product centers—which regulate products including human and veterinary drugs, vaccines and other biological products, medical devices, most food, and tobacco—a research center, which provides scientific technology, training, and technical expertise, and offices that carry out various functions of the agency. FDA’s response to the contaminated heparin crisis involved a number of FDA centers and offices. FDA’s activities related to its mission and relevant to the heparin crisis include the following: Overseeing drug and device firms. FDA conducts oversight activities such as inspections and investigations of foreign and domestic manufacturing firms, including their suppliers, to determine compliance with good manufacturing practices (GMP), or sampling of imported products. FDA also takes regulatory actions against firms, when appropriate, by issuing warning letters, detaining imports, or recommending seizure of products. Collaborating with USP. FDA collaborates with USP to help ensure the safety and quality of drug products. Under the Federal Food, Drug, and Cosmetic Act, prescription and over-the-counter drugs sold in the United States generally must comply with quality standards published in the USP- National Formulary. USP sets standards for drug quality, purity, and strength, as well as the tests or methods used to assess quality, purity, and strength. Products that do not meet USP standards using the specified methods are considered adulterated by law. Collaborating with foreign regulatory agencies. FDA has confidentiality commitments to facilitate information sharing with regulatory agencies in 19 countries, including Australia, Canada, France, Germany, and Japan. FDA does not have a confidentiality commitment with China; however, FDA negotiated two memorandums of agreement with China in 2007 aimed at improving the safety of Chinese drug products and medical devices, and food exported to the United States. In recent years, FDA has opened offices abroad, including in India, Europe, Latin America, and China. FDA opened its office in China in November 2008, with posts in Beijing, Shanghai, and Guangzhou. An FDA official said the primary mission of these offices is to help gather more information on the safety and quality of products that are being exported to the United States so that FDA can make better-informed decisions about which products to permit to enter the United States. Monitoring adverse events. FDA monitors drug and device safety through its postmarketing surveillance program. FDA’s Adverse Event Reporting System (AERS) is a database that supports the agency’s postmarketing safety surveillance program for all approved drug and therapeutic biologic products. FDA uses AERS to record adverse event reports and to monitor for new adverse events and medication errors associated with drug products marketed in the United States. FDA uses its Manufacturer and User Facility Device Experience (MAUDE) database to record and monitor reports of adverse events related to medical devices. Communicating with the public. FDA communicates information to the public through a variety of means, including press releases, media briefings, public health advisories, and news interviews. FDA also disseminates information on the agency’s Web site, including regulatory information, scientific research, and educational materials. Responding to emergencies. To respond to emergencies or crises, FDA uses a plan to assist the agency in organizing a coordinated response to events involving FDA-regulated products as well as other identified public health emergencies. At the time of the heparin crisis, FDA had its ERP in place, which was issued in February 2005. Working with external entities. When necessary, FDA enters into working relationships with external entities, such as scientists from universities or drug firms, to assist the agency with matters such as the review of research and product applications. For example, scientists serving on advisory committees review and make recommendations on drug applications, and scientists from universities provide expertise in specific scientific disciplines and enhance the science base of the agency through FDA’s Science Advisor Program. FDA has guidance in place for working with external entities in certain situations, including a guide called The Leveraging Handbook. This handbook references statutes and regulations that apply to the behavior of individual FDA employees. It also contains guidance applicable to FDA as an agency to prevent public perception concerns and demonstrate that the agency is worthy of public trust in carrying out its activities. In addition, other laws, regulations, and policies may apply to FDA’s work with external entities, depending on the nature of the arrangements. FDA, like other federal agencies, generally may not accept voluntary services, which may give rise to claims for payment for which funds are not available. However, with a written agreement that services are provided with no expectation of payment, FDA may accept uncompensated services from external entities. Heparin is a medically necessary drug that acts as an anticoagulant; that is, it prevents the formation of blood clots in the veins, arteries, and lungs (see app. I for technical information on heparin and research related to contaminated heparin). The heparin supply chain starts with a raw source material, primarily derived from the intestines of pigs, that is processed into crude heparin. China is the primary source of crude heparin for U.S. manufacturers because of its abundant pig supply. Thousands of small pig farms in Chinese villages extract and process pig intestines in small workshops called casing facilities. Consolidators collect different batches of heparin, typically called heparin lots, from various workshops and combine them into single heparin lots. The consolidators sell the crude heparin lots to manufacturers, who further refine the crude heparin into heparin API, the active ingredient used in heparin drug products and devices. More than half of the finished heparin products in the United States and globally are made from Chinese-sourced materials. There are seven pharmaceutical companies that manufacture and distribute heparin products in the United States. At the time of the crisis, Baxter and APP Pharmaceuticals (APP) were the two largest manufacturers of heparin in the United States, with each company accounting for about half of the total U.S. heparin supply. Both companies received the majority of their crude heparin from Chinese sources. Several FDA centers and offices were involved in the response to the contaminated heparin crisis. Some of these centers and offices and their relevant functions are described below (see app. II for a complete list of FDA centers, offices, and divisions that were involved in the heparin crisis): Office of the Commissioner—leads FDA and implements FDA’s mission. Office of Crisis Management (OCM)—develops crisis management policies, leads and coordinates the agency’s development and updating of emergency preparedness and response plans, including FDA’s ERP, and coordinates the agency’s emergency response. Office of International Programs—works with agencies and governments to advance public health worldwide. Office of Regulatory Affairs (ORA)—leads inspections of regulated domestic and imported products and domestic and foreign manufacturing facilities, and develops enforcement policies. Center for Drug Evaluation and Research (CDER)—regulates over- the-counter and prescription drugs, including biological therapeutics and generic drugs sold in the United States. Center for Devices and Radiological Health (CDRH)—regulates medical and radiological devices sold in the United States. FDA took several actions during the first half of 2008 to protect the public health in response to the heparin crisis. During that time and afterwards, FDA increased oversight of heparin firms, but sometimes faced limitations in oversight and collaborating with others. FDA also worked with heparin manufacturers to recall contaminated heparin products while ensuring an adequate supply for U.S. consumers. In addition, FDA collaborated with its international regulatory partners to exchange information. Because of limitations related to conducting inspections and investigations of heparin firms in China, FDA could not determine the original source of the heparin contamination. To respond to the heparin crisis, FDA took action related to its responsibility to protect the public health by ensuring the safety and security of the nation’s drug and medical device supplies by taking various actions from January through May 2008. On January 7, 2008, after FDA learned about the severe allergic reactions taking place, the agency initiated an investigation at the dialysis facility where the first observed allergic reactions took place and shared information with CDC. At the same time, FDA contacted a medical device manufacturer since it was initially thought the allergic reactions were in response to a medical device. After FDA learned that the problem possibly was associated with Baxter heparin, on January 9, 2008, the agency began investigations and inspections of heparin drug and device firms. FDA received notification of the first recall of nine lots of Baxter heparin products, which took place on January 17, 2008, and began work with this drug firm to learn more about the problem with its heparin. By January 23, FDA learned that Baxter received its heparin API from Scientific Protein Laboratories’ (SPL) establishments in Wisconsin and China. In early February 2008, the agency worked to postpone an expanded recall of Baxter’s heparin products so it could consult with APP to ensure that APP could supply the U.S. heparin market and mitigate a potential heparin shortage. The second recall, which included all lots of Baxter’s single and multidose vial heparin products, took place on February 29, 2008. FDA also facilitated recalls of heparin-containing medical devices with heparin device firms. As the crisis progressed, FDA took additional actions in February and March 2008. By late February, FDA could distinguish contaminated heparin from uncontaminated heparin using preliminary testing methods and continued working to develop these methods. During that month, FDA also formed an internal task force to coordinate the agency’s response to the heparin crisis and reached out to external scientists to assist the agency in identifying the unknown contaminant and to develop tests to detect this contaminant. On March 5, 2008, FDA identified the type of contaminant in suspect heparin lots and by March 6, it shared newly developed testing methods that could differentiate contaminated heparin from uncontaminated heparin. Some other countries also found contamination in their heparin supplies. Later that month, on March 17, FDA identified oversulfated chondroitin sulfate (OSCS) as a contaminant in the heparin associated with adverse events in the United States. Additionally, because the majority of finished heparin products in the United States and globally are made with ingredients from China, FDA worked to ensure the safety of heparin imports. Throughout the crisis, FDA also provided information about the crisis to a variety of audiences, including the press, physicians, and medical facilities. By April 2008, the agency determined that the number of adverse events involving heparin had returned to precrisis levels. FDA held an international heparin conference on April 17, and 18, 2008 to exchange information with its foreign regulatory counterparts. FDA’s task force continued to meet until May 27, 2008, when it was determined that the crisis was over. Figure 1 shows the timeline of key events in the heparin crisis. In response to the heparin crisis, FDA increased its oversight activities of heparin firms by increasing its inspections, investigations, and monitoring efforts. Inspections. During and after the crisis, FDA conducted an increased number of domestic and foreign heparin-related inspections of drug and device firms compared with the number of inspections prior to the crisis (see fig. 2). In particular, FDA increased its frequency of inspections of Chinese firms associated with OSCS contamination in the United States. In the 20-month period prior to the crisis, FDA did not conduct any inspections of Chinese heparin firms. In contrast, 11 Chinese firms constituted 14 of the 21 heparin-related foreign inspections conducted by FDA during and after the crisis. Of the Chinese firms that FDA inspected, only 2 had been inspected prior to the contaminated heparin crisis. FDA officials said that there were and continue to be significant legal and practical challenges to conducting inspections of crude heparin manufacturers and the casing facilities that supply them, such as the limits on FDA’s ability to require foreign establishments to allow the agency to inspect their facilities, the large number of and incompleteness of FDA’s information on the casing facilities, and the expenses associated with conducting foreign inspections. For these reasons, according to FDA officials, FDA focused on firms’ responsibilities to ensure that they could trace their crude heparin back to qualified suppliers that produce an uncontaminated product. Furthermore, according to officials, during inspections FDA inspectors requested that firms conduct their own investigations of any heparin products for which they received complaints or that did not meet specifications. Investigations. In addition to inspections, FDA conducted investigations at U.S. health care facilities and device firms, domestic drug firms, and a foreign drug firm. FDA data show that the agency conducted at least 37 domestic and 1 foreign investigations related to heparin between January 2008 and June 2009, with individual investigations sometimes consistin FDA visits to multiple facilities, such as a drug firm and a health care provider. The reasons for these investigations included, for example, obtaining heparin samples, collecting information on firms’ crude and heparin API suppliers, following up on patient adverse event reports and the status of product recalls, and witnessing the destruction of contaminated heparin. Monitoring imports. Beginning in February 2008, FDA began monitoring ning heparin products offered for import by physically examining and detai products to help ensure that additional contaminated heparin did not reach U.S. consumers. The agency initially issued an import bulletin in late February 2008 instructing FDA staff to assess the admissibility of hep products offered for import, and then replaced it with a plan in mi d- March 2008 to physically sample and test these products for OSC S contamination. This testing plan, which provided more detailed instructions than the import bulletin, required that FDA test all imported heparin API, and other imported heparin products, on a case-by-case ba for contamination upon arrival at the U.S. border unless U.S. firms had already committed to testing their imported heparin products using FDA’s sis, newly developed testing methods. According to FDA data, by the end of June 2010, FDA had collected 141 heparin samples. Three of these samples were contaminated with OSCS, including 1 detected after the crisis period ended in May 2008. During and after the crisis, FDA also added a total of seven heparin-related establishments associated with OSCS contamination to an existing import alert for drug manufacturers found to be in violation of GMPs, which enabled the agency to detain heparin imports from these establishments without physically examining them. FDA officials said that these heparin establishments appeared to stop shipping heparin to the United States after being added to this import alert. In some instances, FDA took further action as a result of its inspections and import testing. Between April 2008 and April 2009, the agency issued three warning letters and two untitled letters related to the heparin crisis to drug firms. The agency also added the seven heparin establishments to the import alert described previously as a direct result of various factors, including deficiencies observed during inspections, detection of contaminated heparin during import testing, and FDA’s determination that establishments were not adequately safeguarding their heparin supply chains. Additionally, FDA initiated a seizure of heparin products from one firm after the agency determined that the firm’s efforts to voluntarily recall contaminated heparin products identified during an inspection were inadequate. However, FDA officials believed that they had limited authority to take action when they encountered refusals, either by the firm or by the Chinese government, to permit a full inspection of some Chinese firms. In two instances, Chinese crude heparin consolidators refused to provide FDA full access during limited inspections—in particular, one consolidator refused to let FDA inspectors walk through its laboratory and refused FDA access to its records. FDA classified both limited inspections as “no action indicated” (NAI) and did not attempt to reinspect the facilities, document any objectionable conditions, or place the firms on import alert. FDA officials provided us with various reasons why FDA classified these limited inspections as NAI and did not pursue these firms further despite encountering refusals. FDA officials told us that the agency focused its efforts on the API manufacturers that these firms supplied. Officials also told us that at least one of these firms was not shipping crude heparin directly to the United States; however, FDA’s import data show that both firms shipped crude heparin directly to the United States in 2006, which, according to retrospective testing conducted in 2008 by SPL, Baxter’s API manufacturer, is when OSCS contamination of SPL’s heparin supply was first detected. Additionally, officials told us that no GMP violations were observed during these limited inspections, but acknowledged in congressional testimony that inspectors were not able to observe the laboratory of one of the firms. Overall, FDA officials told us that in both instances the agency did not have sufficient evidence to put the two consolidators on import alert and that, with some exceptions, a firm’s refusal to allow for a complete inspection is not itself one of the bases for product detention at the U.S. border. Additionally, FDA learned that China’s State Food and Drug Administration had sealed some firms’ heparin and had instructed the firms not to open these seals. This prevented at least one firm from conclusively determining which of its crude suppliers were associated with OSCS contamination, which FDA learned of during a preapproval inspection of this particular firm. According to FDA officials, FDA was concerned that this firm was unable to complete its investigation of suppliers and requested a reinspection of the firm. From the reinspection, which took place approximately 1 year later, the agency determined that the firm had implemented testing methods to detect OSCS contamination, communicated its expectations and requirements to its suppliers, and increased the frequency of its supplier audits. FDA also learned during the reinspection that the firm had completed its testing, which resulted in the permanent disqualification of two of its suppliers. FDA officials said that they are continuing to take steps to improve the quality of drugs manufactured outside of the United States. In addition to creating and staffing FDA posts overseas, FDA officials told us that the agency has established a cadre of FDA’s U.S.-based investigators to conduct foreign drug inspections throughout the world as needed. FDA is also increasing the size of its cadre of the highest-certified drug inspectors to assist with foreign inspections, and increasing the number of translators it brings on foreign inspections, especially to China. FDA officials told us that the agency continues to emphasize the responsibility of industry to ensure the safety and security of its supply chain, including placing emphasis on supply chain traceability during foreign drug inspections. In addition, according to officials, FDA also continues to revise its inspection and surveillance programs to focus on higher-risk facilities and products. For example, officials told us that in fiscal year 2010 the agency developed and used a risk-based model and other information to focus its annual surveillance sampling program—a long-standing FDA program to sample drug components offered for import, which changes focus annually—on APIs potentially susceptible to economically motivated adulteration. Beginning in January 2008 when the first recalls of contaminated products occurred, FDA worked with manufacturers to ensure an adequate supply of uncontaminated heparin for the U.S. market. Weeks after Baxter initiated a recall of specific heparin lots associated with adverse reactions in patients, the company told FDA it wanted to recall almost all of its heparin products because the number of adverse reactions associated with its heparin continued to increase. FDA officials said they recognized that a large-scale recall could pose risks to U.S. patients if the remaining supply was not adequate to meet facilities’ and providers’ needs for heparin. Consequently, FDA engaged in discussions with APP, the other main U.S. heparin manufacturer, to determine the amount of heparin it had available and to determine if and when it could increase its heparin production to supply almost the entire U.S. market. FDA and APP officials told us that APP’s ability to increase production was initially limited and that FDA and APP worked together to increase APP’s production capacity; for example, in July 2008, APP obtained permission from FDA to apply for an additional manufacturing facility—which FDA approved in October 2008—using a process that, according to APP officials, decreased FDA’s approval time by months and allowed APP to begin releasing heparin manufactured at the alternate site and subsequently list it as an approved facility with the agency. During this time, FDA worked with Baxter to manage the risks of the contaminated heparin that remained on the U.S. market and postpone the expanded recall of almost all Baxter heparin products until the agency was sure that APP could increase its heparin production to meet the needs of U.S. patients, thus avoiding a shortage of a medically necessary drug. According to FDA officials, FDA and Baxter worked together to develop a risk management plan, and FDA issued a public health advisory to inform the public of serious adverse events and recommend measures—such as using the lowest necessary dose, administering the heparin as slowly as acceptable, and monitoring patients closely for adverse events—to help minimize these risks in instances where Baxter heparin was the only product available. FDA continued monitoring for the possibility of a heparin shortage even after APP told FDA it could increase production. FDA continued to be concerned about the adequacy of the U.S. heparin supply in the summer of 2008 due to a shortage of raw materials in China and issues APP faced with its supply chain. The agency also continued to work with manufacturers on product recalls. Overall, FDA worked with 15 other drug and device firms to recall at least 11 drug products and 72 medical device products as a result of the heparin crisis. FDA reached out to its international regulatory partners during the crisis to exchange information about contaminated heparin, but was ultimately unable to identify the original source of contamination. In early February 2008, prior to FDA’s public announcement about the adverse events seen in the United States, FDA told its partners—which included regulatory agencies in 17 countries, the European Commission, and the European pharmaceutical regulatory agency—about these adverse events and asked them to share information on any similar events related to heparin. By March 2008, FDA was aware of at least 10 countries, including the United States, that had found OSCS contamination in their heparin supply. However, only 1 other country, Germany, also observed an increase in heparin-associated adverse events. Through its communications with other countries, FDA learned that some Chinese manufacturers associated with contamination in these countries also supplied heparin to the U.S. market. Notably, one of these manufacturers was the primary supplier for APP, the U.S. firm that supplied almost the entire U.S. heparin market after Baxter recalled its products. In this instance, FDA responded to this information by conducting an investigation of the manufacturer and as a result concluded that the heparin distributed by APP in the United States was not contaminated. FDA also collaborated with the Chinese government during the crisis, though FDA was ultimately unable to determine the original source of contamination. According to FDA officials, FDA’s preliminary investigation concluded that contamination did not take place in the United States. As a result, FDA requested jurisdiction from the Chinese government in order to conduct a criminal investigation in China to determine the source of contamination. However, Chinese officials would not grant this request and denied that contamination took place in China. Through retrospective testing of retained heparin samples conducted by firms in 2008, FDA learned that OSCS-contaminated crude heparin had been introduced into the global heparin supply as early as May 2006. FDA investigators believe that OSCS was increasingly added to heparin by Chinese establishments that manufacture crude heparin so that the establishments could cut costs. Although unable to collaborate with the Chinese government in a formal criminal investigation, FDA has continued to collaborate with its international partners to avoid similar crises in the future. For example, FDA organized an international conference in April 2008 during which regulators and academics from 10 additional countries around the world, including China, along with the standard-setting entities for pharmaceuticals in the United States and Europe, shared information on their experiences with contaminated heparin during the crisis and discussed potential steps to prevent future contamination incidents. The agency also participates in the API Pilot Program with the regulatory bodies of Europe and Australia. According to FDA officials, drug regulatory agencies in this program—which began after the heparin crisis—share and obtain information about API inspections they conduct around the world to better leverage their inspection resources. Officials said that FDA’s establishment of overseas offices will also help facilitate collaboration between FDA and foreign regulatory agencies. FDA coordinated internal and external resources to respond to the contaminated heparin crisis, but did not adequately address risks related to working with certain external entities with ties to heparin firms. Not adequately addressing these risks could have affected the public’s confidence in FDA’s response efforts and in its other activities related to the regulation of heparin products and also left FDA open to claims for payment for services that these external entities provided to FDA on a voluntary basis. In responding to the heparin crisis, FDA coordinated response efforts in accordance with its ERP and developed a new Emergency Operations Plan (EOP) to guide its response to future crises. According to FDA officials, OCM initially coordinated the agency’s response efforts, which included many of FDA’s offices and centers. FDA officials said the total number of centers, offices, and divisions within the agency that were involved in responding to the contaminated heparin crisis was over 40 (see app. II for a complete list of FDA centers, offices, and divisions that were involved in the heparin crisis). On February 8, 2008, CDC reported that the problem was with the heparin drug product and not with medical devices as was originally thought. Once this link was made, FDA officials determined that CDER would be best equipped to lead scientific efforts to identify the contaminant. According to FDA officials, there was no formal transition of leadership from OCM to CDER, but once the situation was discovered to be largely a drug issue, CDER increased its involvement and took over the role of lead coordinator from OCM. Once CDER assumed this responsibility, FDA no longer had an agency-level entity responsible for coordinating response efforts, and CDER coordinated the multiple centers and offices within the agency that continued to be involved in the crisis. CDER officials created a task force to coordinate the agency’s response efforts across multiple centers, offices, and divisions. CDER’s Heparin Task Force was initially composed of mostly CDER officials but expanded to involve some other FDA offices. The task force initially met daily and then weekly from February 25, 2008, through May 27, 2008. An FDA official said that information from the task force’s meetings was dispersed to relevant staff throughout FDA through CDER’s e-mail distribution list, which included over 200 FDA officials. OCM continued to be involved with CDER’s task force by participating in task force meetings, but it did not have a role in the ongoing coordination of the agency’s efforts to respond to the heparin crisis. After the crisis, FDA conducted some lessons-learned meetings to focus on difficulties that occurred during the agency’s response. Documentation from these meetings shows that agency officials believed that FDA staff showed remarkable dedication during the crisis and that the agency was successful in removing contaminated products from and preventing the introduction of further contaminated product into the market place. However, these documents also show that there were some areas in which the agency’s response could have been improved. Specifically, these documents indicate that the lack of details in the ERP and the absence of coordination at the agency level for the duration of the crisis may have led to some process delays and difficulty with internal and external communication. For example, CDER officials stated in a lessons-learned document that the agency’s response to future crises could benefit from guidance that clearly delineates who should lead the agency’s efforts during a crisis. According to this document, CDER officials said that it was not clear who, OCM or CDER, should lead the agency’s efforts, since the ERP was not specific about who should coordinate the agency’s response during a crisis. Additionally, when leadership transitioned to CDER, center officials had to spend time determining leadership roles within the center. In another lessons-learned document, CDRH officials said that external communication was sometimes complicated by CDER being the lead office. Specifically, issues related to heparin-containing medical devices were not always included in CDER-led task force discussions and were consequently often not addressed in CDER’s communications with the public, other countries, or industry. FDA officials told us that the agency has been working since October 2008 on the development of the new EOP, which is intended to address some of the difficulties encountered during previous crises, including lack of specific details on agency coordination. According to FDA officials, the new EOP was finalized in September 2010 and replaces the agency’s existing ERP. FDA officials also told us that the new EOP is based on guidance from the National Response Framework and will incorporate principles of emergency operation—including the National Incident Management System and the Incident Command Structure—that are designed to help agencies better coordinate efforts in the event of an emergency. According to these officials, the EOP will be more detailed in terms of coordination within the agency and clearer about roles and responsibilities of centers and offices in any emergency, large or small, that the agency may face. For example, the new EOP is to contain a section devoted to coordination at the agency level within FDA’s headquarters. This section will offer guidance and a specific coordination structure that agency officials can use during an incident to help ensure that response resources and capabilities from multiple centers and offices within the agency are well organized. The EOP is to also include two new coordinator positions—the Agency Incident Coordinator (AIC) and the Agency Executive Group (AEG)—to facilitate agency-level coordination of an incident. According to this official, the role of the AIC will be to manage an incident at the agency level and to serve as a communication bridge between the Commissioner’s Office and staff in the agency’s centers and offices responding to an emergency. The AEG will be a group of senior- level executives at FDA who will provide strategic policy direction and guidance for major emergency response activities. The AEG is expected to approve important policy decisions in consultation with the AIC and the Commissioner of FDA. FDA worked with several external scientists during the heparin crisis, but did not address certain risks that engaging two of these scientists, and additional external entities engaged by one of these scientists, posed to the agency. In February 2008, FDA officials contacted five external scientists, including one who was employed by the agency as a special consultant, for assistance with the heparin crisis, and FDA worked with these scientists for varying time periods. Agency officials told us that they sought the advice of these external scientists because the agency lacked the necessary instrumentation and expertise to identify and develop new testing methods to detect the specific contaminant. According to FDA officials, these external scientists were engaged to provide the agency with technical and factual scientific advice related to the identity of the unknown contaminant and tests to identify this contaminant, and all policy judgments and decisions related to this advice were made by CDER officials. FDA communicated with external scientists frequently during the height of the crisis period and told us that some of these scientists were brought together for at least two in-person meetings to share and discuss their individual findings. All five scientists worked directly with FDA, but they did not all have the same working arrangements with the agency. One of the scientists was a participant in FDA’s Science Advisor Program and was considered an FDA employee. Two of the scientists were employees of a university with which FDA contracted for testing of heparin samples; the university was selected in part because of its close proximity to FDA’s Division of Pharmaceutical Analysis and the availability of advanced instrumentation and staff expertise necessary for testing. The two remaining scientists that FDA contacted in late February were not employees of FDA or FDA contractors. The agency characterized these scientists as volunteers and told us that they had been informally identified by CDER staff as experts in heparin analysis. FDA officials said that these two scientists provided services on an uncompensated basis in response to the oral requests of CDER staff. With FDA’s knowledge, one of these two scientists obtained assistance in his work for FDA from external entities, including a drug development firm and an Italian research institute, also on an uncompensated basis. The two scientists characterized by FDA as volunteers had professional and financial ties to heparin firms. Both served as paid consultants to two of the primary firms associated with contaminated heparin. In addition, one of the scientists was a cofounder and member of the board of directors, as well as an equity interest holder, in a third firm, which, at the time of the crisis, had a pending application for a heparin product before FDA. The agency allowed this scientist to obtain assistance in conducting analytical work to identify the contaminant in heparin from this firm despite its pending application for a heparin product. This drug manufacturer dedicated approximately 30 staff members from its analytical and biology groups for periods ranging from a few weeks to 3 months to assist in the effort to identify the contaminant in heparin. FDA’s internal guidance, The Leveraging Handbook, addresses risks that may be presented in collaborative arrangements with external entities. The handbook cautions FDA employees to weigh certain legal and ethical considerations when entering into partnerships and references rules applicable to the behavior of individual employees, but also identifies other principles, which it characterizes as “institutional ethics.” These prudential considerations are designed to prevent public perception concerns and to demonstrate that the agency has established procedures designed to display that it is worthy of public trust. Among other things, the guidance cautions staff to consider the ethical implications of accepting gifts for the agency from external entities, stating that the agency should be judicious in accepting gifts to avoid the appearance that its programs or operations may be compromised. Specifically, staff are to balance the importance of a potential gift to the agency against the potential appearance problems that may be caused by acceptance of the gift. Steps to be considered in the balancing test include determining if accepting the gift would reflect unfavorably on the agency’s ability to carry out its responsibilities in a fair and objective manner and whether the acceptance of a gift would compromise the integrity of, or the appearance of the integrity of, a program or official. Staff are also asked to determine the value to the agency of accepting the gift and the extent to which it will enable the agency to accomplish its mission. Further, The Leveraging Handbook instructs staff to consider the nature and sensitivity of matters pending before the agency that would affect the interests of the gift donor and to weigh the agency’s interest in accepting the gift against any actual or apparent conflict of interest. Finally, the guidance provides for consideration of whether the gift would be from a prohibited source if the gift were made to an individual employee and calls for gifts from prohibited sources to be subject to higher scrutiny. FDA officials were aware of the scientists’ ties to heparin manufacturers, but did not take adequate steps to consider whether these relationships exposed the agency to the risks described in its guidance or to address these risks before engaging them. FDA officials told us that they believed that there was insufficient time to address these ties in the midst of the heparin crisis and that the CDER staff who identified these scientists were confident that they could independently assess the input from these scientists through robust, detailed, and transparent discussions; they said that this would address any appearance problems related to the scientists’ input. FDA officials also emphasized that the agency made all policy judgments and said that they disclosed the work of these scientists to the public through peer-reviewed journal articles in late April, after the specific contaminant in heparin was identified. However, FDA officials told us that they did not take steps before accepting voluntary services of these scientists to assess whether their ties to firms associated with contaminated heparin would compromise the integrity of FDA’s activities, or the appearance of integrity, so as to undermine the public perception of FDA’s management of the heparin crisis. Nor is there evidence that they considered whether the agency’s acceptance of voluntary services from a scientist with an interest in a firm with an application pending before FDA, along with employees of that firm, would compromise, or appear to compromise, the agency’s activities, including its activities related to the approval of heparin products. Moreover, FDA did not fully disclose the existence or extent of these scientists’ interests while they were providing assistance or afterwards. CDER staff did not consult with the Office of Chief Counsel or agency ethics officials about their working arrangements with these two scientists or seek advice as to whether the arrangements were consistent with the agency’s ethics standards. FDA’s acceptance of voluntary services in connection with the heparin crisis also exposed the agency to the risk of claims for payment for the services provided. Federal agencies are generally prohibited from accepting voluntary services because of the risk of claims associated with them. The statutory provision barring the acceptance of these services is best understood in the context of the preceding statutory provision, which prohibits agencies from incurring obligations in excess of their appropriations or before such appropriations are made. The fundamental purpose of the voluntary services prohibition is to preserve the integrity of the appropriations process by preventing agencies from effectively incurring obligations in excess of or in advance of appropriations by accepting voluntary services with the expectation that Congress will recognize a “moral obligation” to pay for the services rendered. Consistent with this underlying purpose, voluntary services have been defined as those that are not rendered under a prior contract or advance agreement that they will be gratuitous and are, therefore, likely to form the basis of future claims against the government. However, the acceptance of services that are offered as gratuitous—that is, with no expectation of payment—with a record made of that fact, does not violate the voluntary services prohibition. Such services do not give rise to any obligation or financial liability and therefore do not expose an agency to the risk of claims for payment. FDA officials told us that the agency was authorized to accept voluntary services during the heparin crisis under an emergency exception and therefore was not required to obtain a written agreement that the services were offered with no expectation of payment. The statute provides an exception for emergencies involving the safety of human life or the protection of property, which the statute defines as circumstances involving an imminent threat to the safety of human life or the protection of property. FDA officials explained that the sharp increase in reports of severe allergic reactions to heparin in late January 2008 signaled a public health emergency requiring the agency to quickly identify and assemble the scientific expertise of those who could help identify the source of the crisis in order to protect patients and ensure the safety of a medically necessary drug. By late February 2008, FDA had developed a screening method to distinguish contaminated heparin from uncontaminated heparin, but had not identified the precise contaminant or developed specific methods of testing for this specific contaminant, and obtained the voluntary services of additional scientists for this purpose. While the existence of an emergency would provide a legal basis for agencies to accept voluntary services, it would not protect them from subsequent claims for payment. To the contrary, the acceptance of services under the emergency exception would give rise to obligations— that is, financial liabilities—for which claims for payment could be made. As noted above, however, agencies accepting services in an emergency or otherwise may guard against claims for compensation by establishing that the services are gratuitous and, as such, do not give rise to any obligation or financial liability on the part of the government. This is accomplished by obtaining a written agreement from those providing services that they will receive no compensation and waive any future claims against the government for their services. FDA did not take steps to establish that the services provided by two of the external scientists, as well as the services obtained by one of those scientists from two other entities, imposed no obligation or financial liability and, in this respect, exposed the agency to the risk that claims for compensation would be made for which funds were not available. Regardless of whether the circumstances that existed when FDA contacted these scientists constituted an emergency, they did not preclude the agency from addressing this risk. To the extent that time was of the essence, a letter from those providing services to the agency would have been sufficient; there is no detailed or prescribed form for the provision of gratuitous services. In addition, the provision of services was not unexpected—the agency requested and discussed the services provided by the selected scientists as part of the ongoing process of resolving the heparin crisis. By late February 2008, the agency had overseen a recall of heparin products and determined how to distinguish contaminated heparin from uncontaminated heparin using a preliminary screening method. FDA requested the services of the two scientists to help it identify the specific contaminant and develop appropriate testing methodologies for its detection, and these scientists provided analyses and opinions to FDA over a period of several weeks. FDA officials told us that determining the precise identity of the contaminant and developing appropriate testing methodologies were necessary to resolve the crisis and that the services provided and arranged for by the two scientists were critical for doing so. However, those facts do not explain why FDA did not take appropriate steps to protect the agency from the financial exposure arising from services that it had both requested and accepted. Voluntary services may be accepted where otherwise authorized by law, and FDA also cited the agency’s authority to accept gifts as the basis for its acceptance of voluntary services without a written agreement in connection with the heparin crisis. A gift is generally understood to be a gratuitous conveyance without any consideration, the essential elements of which are acceptance, delivery, and the intent to make a gift. By definition, a gift does not give rise to any obligation or liability and poses no risk of subsequent claims for compensation. We do not address the scope of the provision cited by FDA, but note that it does not expressly authorize gifts of services and contemplates that gifts be made by means of some instrument. As discussed above, however, there is no evidence to establish that the external scientists intended to provide their services on a gratuitous basis—that is, to donate their services and the services of others to the agency—that would protect the agency from such claims. FDA increased its monitoring of adverse events, including deaths, associated with heparin and conducted analyses. FDA was unable to link any of the adverse events to contaminated heparin because it was unable to establish a causal relationship due to data limitations and confounding factors involving the individual patients. FDA increased its monitoring of adverse event reports by working with heparin drug and device manufacturers to expedite submission of these reports to FDA. According to FDA officials, FDA contacted Baxter in February 2008 to request early submission of its adverse event reports associated with heparin and requested reports from two other heparin manufacturers, APP and Hospira, later in March 2008. FDA officials said that these reports would otherwise have been due later in the year. A few weeks later, in April 2008, FDA sent a letter to almost 100 manufacturers and distributors of medical devices that contained or were coated with heparin. In this letter, FDA required these firms to submit all reports of heparin-related adverse events within 5 work days of the firm becoming aware of these events, in accordance with federal regulations. This requirement remained in effect for 120 days of the date of the letter from FDA. FDA also monitored trends in the number of reports of adverse events associated with heparin drug products and heparin-containing medical devices that FDA received before, during, and after the crisis. FDA dedicated staff to manage the increased number of heparin-specific reports that the agency received during the crisis and to conduct searches of its AERS and MAUDE databases to retrieve additional related reports that had already been submitted to FDA prior to the crisis. FDA officials said that retrieving and entering information from AERS and MAUDE reports was extremely time and resource intensive in that information had to be entered manually into spreadsheets and duplicate reports had to be removed before the data could be analyzed. FDA officials said that there was a certain baseline number of adverse event reports associated with heparin in 2007 prior to the heparin crisis and that the number of reports of adverse events associated with both heparin drug products and heparin- containing medical devices that FDA received decreased after the heparin crisis, returning to levels typically seen prior to the crisis. For example, FDA received reports of 176 adverse events associated with heparin drug products that took place in February 2008, compared with 13 events that took place in February 2007 and 7 events that took place in February 2009. Figure 3 shows a breakdown of AERS reports of adverse events that resulted in death and reports that did not have a fatal outcome (nondeaths) from January 2007 through June 2009. Regarding trends in adverse events in heparin-containing medical devices, during the crisis in March 2008, FDA conducted a search of the MAUDE database back to January 2005 through December 31, 2007. This search included all medical device products known to contain heparin using a search of terms in the report texts consistent with symptoms or signs with what was known about the contaminant, such as acute respiratory failure and nausea, and FDA identified 23 reports for that 3-year period. Using the same search term criteria, FDA identified 91 MAUDE reports from January 1, 2008, through August 31, 2008, and 16 reports from September 1, 2008, through September 1, 2009, indicating that the number of reports associated with heparin-containing medical devices had decreased since the crisis. FDA conducted analyses of adverse events, including deaths, associated with heparin drug products and heparin-containing medical devices. To analyze adverse events associated with heparin drugs, FDA reviewed a total of 701 AERS reports associated with heparin that the agency received from January 1, 2008, through March 31, 2008. Of the 701 reports, 675 were identified by searching AERS for allergic-type adverse events associated with heparin, such as a drop in blood pressure or acute respiratory failure, for both death and nondeath events. In its analysis of allergic-type adverse events associated with heparin, after excluding 101 allergic-type cases from this analysis, FDA included a total of 526 nondeath AERS reports and 48 death reports. FDA reported descriptive characteristics about this group of reports—for example, the average age of the patients; the manufacturer of the heparin drug product administered to the patients; if known, and the clinical setting where the heparin was administered. FDA also analyzed a total of 94 AERS reports of deaths associated with heparin, which included 68 allergic-type adverse events and an additional 26 death reports that were not identified as allergic-type adverse events. FDA conducted further analyses of these reports using specific assessment criteria to determine whether they were caused by heparin, and concluded that three of the deaths were “probable or likely” linked with heparin. However, FDA did not know whether or not the heparin these patients received was contaminated because the lot numbers of the heparin that these patients received were not reported in the AERS reports. To analyze adverse events associated with heparin-containing medical devices, FDA reviewed a total of 143 MAUDE reports that the agency received from January 1, 2008, through August 31, 2008. FDA reviewed all of the MAUDE reports that FDA received associated with heparin- containing medical devices with an event date occurring during that time period. Of the 143 reports, 128 were nondeath adverse events associated with heparin-containing medical devices, and the remaining 15 MAUDE reports had a death outcome. Three of these deaths were associated with medical devices known to contain contaminated heparin. FDA determined that these MAUDE reports of deaths were unlikely to have been caused by exposure to contaminated heparin, based on similar assessment criteria that FDA used with its analysis of the AERS death reports. (See app. III for FDA’s death assessment criteria, and details of its AERS and MAUDE analyses.) FDA’s analyses of adverse events associated with both heparin and heparin-containing medical devices were constrained by data limitations. For example, FDA officials told us that the agency does not necessarily receive a report for every adverse event that occurs. For drug-related adverse event reports submitted to AERS, manufacturers are required to submit adverse event reports to FDA, but health providers and consumers are not required to do so but may submit such reports on a voluntary basis. For device-related adverse event reports submitted to MAUDE, importers, manufacturers, and user facilities (such as hospitals and nursing homes) are required to report certain device-related adverse events to FDA; others, including health professionals and consumers, may submit such reports on a voluntary basis. In addition, many submitted reports do not include sufficient information to allow FDA to determine if a given report was associated with a contaminated product. FDA officials told us that they followed up on some of the reports of deaths included in the agency’s AERS and MAUDE analyses by contacting the facility or individual that had submitted the report in an attempt to obtain additional information. Further, in our review of the 94 AERS death reports that FDA had analyzed, we found that only 13 reports included information on heparin lot numbers and 28 of the 46 voluntary reports did not list the heparin manufacturer. Consequently, it was not possible for FDA to determine the heparin contamination status in the majority of these deaths. Further, even with complete information, it was difficult for FDA to link patient deaths to contaminated heparin because it was unable to establish a causal relationship due to the confounding factors of individual patients. For example, the FDA official who conducted FDA’s analyses on adverse events associated with heparin-containing medical devices told us that it was hard to separate problems caused by the heparin contained within the medical device from symptoms or events related to the natural course of the underlying disease or condition, concurrently administered medications, or concurrent procedures. In addition, according to FDA officials, many of the patients that died were very sick and had complicated conditions that could themselves have caused the reported events, making it difficult to conclusively link their deaths to contaminated heparin. FDA took various actions in response to the contaminated heparin crisis to help protect the public health. To help minimize the impact on U.S. consumers of heparin, the agency increased its oversight activities and monitoring of adverse events, worked with heparin manufacturers, and collaborated with its international partners. The agency increased its activities related to oversight of heparin firms by increasing the number of inspections and investigations and monitoring heparin imports, and worked with drug and device manufacturers to recall contaminated products while ensuring that an adequate supply of heparin was available. With the help of external entities, FDA identified the unknown contaminant and developed tests to screen heparin products. Agency officials also reached out to international regulatory partners during the crisis to exchange information about contaminated heparin and to help prevent future crises. Within a few months of the agency’s increased efforts and cooperation with other entities, adverse events returned to precrisis levels. While FDA took steps to protect the U.S. public from contaminated heparin, it did not take steps to consider and address risks associated with the way in which it engaged two external scientists and additional external entities engaged by one of these scientists. Although FDA has issued standards on collaboration with external entities in other contexts and governmentwide standards govern the acceptance of services free of charge, FDA did not take steps to ensure that these standards were considered and applied in connection with the heparin crisis. We believe that these standards can be applied in all situations in which the agency collaborates with external entities, including those situations in which time pressures exist. In accepting voluntary services from individuals with ties to heparin firms, including one that was affiliated with a company with a heparin drug product application before FDA for approval, agency officials ran the risk of undermining public confidence in the integrity of FDA’s operations and of subjecting the agency to future claims for payment. FDA is charged with protecting the health of the public from problems related to products that it regulates, and the agency works with external entities when necessary to ensure that it meets this goal. Because adulteration of FDA-regulated products could likely happen again, it is critical that the agency have clear and useful controls in place that it can apply in circumstances similar to those presented by the heparin crisis to help ensure that officials take appropriate steps to consider and address risks posed when engaging external entities. The Department of Health and Human Services (HHS) received a draft of this report and provided comments, which are reprinted in appendix IV. HHS also provided technical comments, which we incorporated as appropriate. In its comments, HHS described the challenges FDA faced when it first learned of severe allergic reactions suffered by dialysis patients during treatment. HHS described how FDA worked to protect the public from contaminated heparin while still ensuring that patients had access to a medically necessary drug. HHS said that FDA needed to identify and enlist the help of leading heparin experts to identify the contaminant in heparin. We agree that FDA faced numerous challenges in responding to the heparin crisis, including the need to obtain expert assistance. However, we also note the potential risks FDA faced in working with external scientists on a voluntary basis in the absence of appropriate controls—the risks of undermining public confidence in its efforts and of future claims for payment. Therefore, in our draft report, we recommended that FDA develop adequate controls to help avoid exposure to these risks when working with external entities in future situations similar to the heparin crisis. Specifically, we recommended that FDA develop a process for considering risks, including consulting with appropriate offices within the agency; develop a process for documenting the steps taken to address risks; and disseminate guidance on these processes for its employees. FDA addressed the draft recommendation by issuing guidance on October 15, 2010, for FDA staff to follow when working with external scientific and other experts in emergency situations when the services are provided on a gratuitous basis. The guidance includes a policy that is responsive to our recommendation, providing broadly for due consideration of risks that may be presented in collaborative arrangements with external entities, including conflicts of interest, as well as for documentation of decisions about addressing such risks. The guidance also includes specific procedures for the provision of gratuitous services, screening for conflicts of interest, and public disclosure. In its comments, HHS also noted that FDA has learned from the heparin crisis to improve its processes for responding to emergencies. Specifically, FDA finalized its new Emergency Operations Plan to respond to future crises. HHS described various actions FDA took to protect the public health during the crisis and steps the agency has taken to safeguard the nation’s heparin supply, including an increased number of inspections of heparin manufacturing and testing facilities related to the U.S. heparin supply. We had previously described these actions in the report. HHS also mentioned legislation currently under consideration by Congress that it believes will, if enacted, provide FDA with helpful tools to further secure the nation’s drug supply chain, and ensure that the agency can hold industry accountable for the security and integrity of its supply chains and the quality control systems it uses to produce drugs for the American people. 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 Commissioner of FDA and appropriate congressional committees. The report is also 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) 512-7114 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 made major contributions to this report are listed in appendix V. This appendix provides a brief review of the scientific research related to heparin contamination, focusing on peer-reviewed research articles published in January 2008 through January 2010. Heparin is an anticoagulant drug; that is, it prevents the formation of blood clots in the veins, arteries, and lungs. It is used before certain types of surgery, including coronary artery bypass graft surgery; in kidney patients before they undergo dialysis; and to prevent or treat other serious conditions, such as deep vein thrombosis and pulmonary emboli. Heparin is also used in medical devices—for example, blood oxygenators or catheters contain or are coated with heparin, and some diagnostic testing products, such as some capillary tubes, are manufactured using heparin. Heparin is a natural product derived from animal tissue. Specifically, most heparin used in the United States is derived from the intestines of pigs. Pig intestines are processed into crude heparin, which is further refined into heparin active pharmaceutical ingredient (API), the active ingredient used in heparin drug products and devices. More than half of the finished heparin products in the United States and globally are made from Chinese- sourced materials. The chemical makeup of heparin is complex. Because heparin is a drug derived from animal tissue, it is not a single chemical, but a mixture of many similar chemical chains of different sizes. Two types of heparin are used in clinical practice: unfractionated heparin (UFH) and low molecular weight heparin (LMWH). The two forms of heparin differ in their molecular size and the route of administration: UFH is comprised of larger molecules than LMWH and is usually administered intravenously, while LMWH is usually administered subcutaneously (that is, injected under the skin). UFH is used often in the United States, whereas in Europe the predominant heparin is LMWH. Researchers and officials we interviewed said that the number of adverse events related to contaminated heparin may have varied by country because of these differences in the type of heparin administered and methods of administration, as well as because of differences in countries’ adverse event reporting systems. In particular, one researcher explained that in the United States, physicians tend to administer a bolus dose of heparin, which is a faster method of administration but places patients at greater risk for a fatal drop in blood pressure. Food and Drug Administration (FDA) officials and their collaborators agreed that oversulfated chondroitin sulfate (OSCS) was a contaminant in the heparin that caused adverse events during the heparin crisis. FDA researchers and their collaborators showed that batches of heparin that had been associated with adverse events contained a contaminant. They identified that substance as OSCS. Chemically, OSCS is similar to heparin, but OSCS is probably not a naturally occurring chemical. The researchers confirmed their identification by matching the contaminant to synthetic OSCS created by chemical modification of chondroitin sulfate, an inexpensive natural product used for the self-treatment of arthritis. Other research articles have provided additional evidence that OSCS was present in contaminated heparin. For example, Clark et al. performed analysis on some contaminated heparin batches and concluded that the properties of the contaminant were consistent with those of OSCS. Viskov et al. showed that the chemical properties of OSCS isolated from a batch of contaminated heparin were similar to those of synthetic OSCS. Finally, Zhang et al. examined samples of heparin from as far back as 1941 and identified the presence of OSCS in a sample from the U.S. market that was produced in 2008. LMWH heparin was also affected by OSCS contamination. Zhang et al. evaluated the sensitivity of OSCS to five different processes similar to ones used in preparing LMWH, and found that these processes varied in the extent to which they affected OSCS. The source of the OSCS contamination is still unknown, and researchers have proposed various hypotheses about the source of the OSCS contamination. For example, Fareed et al. suggested that the contamination of heparin with OSCS was not accidental, but was based on a rational design and prior knowledge of the chemical’s molecular and anticoagulant profiles. Pan et al. conducted an analysis that detected additional under- and oversulfated contaminants in contaminated heparin and proposed that the OSCS present in the contaminated heparin batches could have come from an oversulfated form of a byproduct of the heparin production process, rather than derived from animal cartilage. Another study considered this hypothesis but concluded, based on analysis of oversulfated byproducts provided by Baxter (a major heparin manufacturer), that production byproducts were likely not the source of the OSCS found in contaminated heparin. CDC researchers found a link between adverse events and contaminated heparin. These researchers collected data related to the period November 2007 through January 2008 from 21 dialysis facilities that reported adverse events and 23 facilities that reported no adverse events. With these data, the researchers conducted a case-control study to test whether facility-level risk factors—such as the size of the facility, the type of heparin used at the facility, and the type of dialysis equipment used at the facility—were related to adverse events. They found a significant association between the number of adverse events reported by facilities and their use of Baxter heparin. They reported that the type of adverse reactions experienced by patients who received contaminated heparin varied, but often included low blood pressure and nausea. The researche could not estimate the percentage of patients who experienced adverse reactions after receiving contaminated heparin because the total number of patients in the United States who received heparin during this period is unknown. In other articles, researchers have proposed possible biological mechanisms by which OSCS could have caused the observed adverse events. Researchers have also suggested that exposure to OSCS cou have effects beyond the acute allergic reactions reported during the heparin crisis. For example, one article showed that patients who received dialysis at a university in the United States in 2008 had more of a specif type of antiheparin antibody in their blood than patients who received dialysis in 2006 and 2007, indicating that OSCS may cause an immun response not seen with uncontaminated heparin. Similarly, other researchers have presented data showing that the incidence of hep induced thrombocytopenia, a type of immune reaction to hepari n, increased in Germany during the contaminated heparin crisis. The standard for heparin testing now includes two tests for OSCS. In October 2009, the United States Pharmacopoeia heparin monograph— testing standard applied to all heparin reaching the U.S. market—was revised to specify that nuclear magnetic resonance spectroscopy and the chromatography be used both to positively identify heparin and to ensure the absence of OSCS in a sample. During and after the contaminated heparin crisis, researchers investigated other methods to detect contaminated heparin. For example, FDA researchers have studied a screening method that is capable of detecting oversulfated contaminants like OSCS and could be used to test heparin- coated devices as well as heparin drug products. In addition, researchers have proposed that it might be possible to screen or check heparin using a blood test. Other researchers have investigated the use of more advanced approaches capable of detecting OSCS and other potential contaminants. Diviion of Phrmceticl Anly (St. Loab) FDA reviewed its Adverse Event Reporting System (AERS) for adverse event reports associated with heparin drug products that the agency received from January 1, 2008, through March 31, 2008. FDA conducted two AERS analyses, including an analysis of allergic-type adverse events, including deaths, associated with heparin drug products, and an analysis of reports of deaths associated with heparin drug products that included allergic-type adverse events and reports that were not identified as allergic-type adverse events. To identify reports for its AERS analysis of allergic-type adverse events, including deaths, associated with heparin drug products, FDA used an expanded case definition from the Centers for Disease Control and Prevention’s (CDC) investigation of allergic-type events in hemodialysis patients. The CDC working case definition included confirmed and probable cases. A confirmed case, per the CDC case definition, was defined as an episode of anaphylactic or anaphylactoid reaction (severe hypersensitivity reactions) with angioedema (swelling) or urticaria (hives). A probable case was defined as an episode that included at least two of the following signs and symptoms: (1) generalized or localized sensations of warmth; (2) numbness or tingling of the extremities; (3) difficulty swallowing; (4) shortness of breath, wheezing, or chest tightness; (5) low blood pressure/tachycardia; or (6) nausea or vomiting. Each report in FDA’s AERS analyses of allergic-type adverse events also included at least one Medical Dictionary for Regulatory Activities (MedDRA) preferred term (PT) found under the Standardized MedDRA Query Plus (SMQ+) “anaphylactic reaction” as well as additional non-SMQ preferred terms of interest. MedDRA is clinically validated international medical terminology used by regulatory authorities (see table 1 for a list of FDA’s search term criteria). In addition, AERS cases meeting at least one of the following seven criteria were excluded from further analysis of allergic-types adverse events associated with heparin drug products: 1. cases judged to have a clearly identifiable alternative clinical explanation for the events, 2. cases in which the event reportedly occurred prior to the year 2007, 3. cases that could not be clinically interpreted, 4. cases of heparin-induced thrombocytopenia with or without 5. cases where it was uncertain if the patient was treated with heparin, 6. cases from literature reports that described unrelated issues, and 7. cases reported in error and retracted by the reporter. In its analysis of AERS reports of deaths associated with heparin drug products, FDA included reports of both allergic-type adverse events as well as reports that were not identified as allergic-type adverse events since these cases had a fatal outcome. Table 2 shows the specific assessment criteria that FDA used in its analyses of AERS reports of deaths associated with heparin drug products to determine whether or not there was an association between the event of death and heparin. FDA did not apply these criteria to its analysis of allergic-types adverse events associated with heparin drug products. See figure 4 for details of FDA’s AERS analyses. In its Manufacturer and User Facility Device Experience (MAUDE) analysis of adverse events, including deaths, associated with heparin- containing medical devices, FDA included all MAUDE reports that it received with an event date from January 1, 2008, through August 31, 2008. However, if a MAUDE report did not specifically have an event date listed, but was received by FDA during the specified time period, it was conservatively assumed to have occurred during that time frame and included in its MAUDE analysis. For each MAUDE report of death, FDA considered the patient’s underlying condition, including the severity of the patient’s condition, medications the patient was taking, and concomitant procedures or surgeries being undertaken to determine if there was a plausible explanation for the death. The presence of symptoms using the SMQ+ search terms as noted in table 1 were also taken into account as well as the timing of the event relative to the use of the heparin-containing medical device. In this analysis, FDA used assessment criteria similar to those in table 2 to classify the deaths associated with heparin-containing medical devices that were known to contain contaminated heparin as unlikely. FDA used a time criterion of 3 hours for the occurrence of the event for its MAUDE analysis compared with 1 hour for the AERS analyses because, according to an FDA official, adverse reactions to a heparin- containing medical device could potentially take longer to occur than when a patient receives a heparin drug product intravenously (see fig. 5 for details of FDA’s MAUDE analysis). In addition to the contact named above, key contributors to this report were Tom Conahan, Assistant Director; Susannah Bloch; Helen Desaulniers; Linda Galib; Julian Klazkin; Lisa A. Lusk; and Samantha Poppe.

In early 2008, the Food and Drug Administration (FDA) responded to a crisis involving the contamination of heparin, a medication used to prevent and treat blood clots, when the agency received multiple reports of adverse events involving severe allergic reactions. The crisis took place from January 2008 through May 2008, during which time FDA took several actions in its response to the crisis. GAO was asked to review FDA's management of the heparin crisis. This report examines (1) how FDA prevented additional contaminated heparin from reaching U.S. consumers, (2) how FDA coordinated its response to the contaminated heparin crisis, and (3) FDA's monitoring and analysis of adverse events associated with heparin. To conduct this review, GAO reviewed relevant FDA documents, regulations, and guidance; analyzed FDA data; and interviewed FDA officials and other experts involved in the crisis and knowledgeable about drug quality standards. In its response to the heparin crisis, FDA took several actions related to its responsibility to protect the public health by ensuring the safety and security of the nation's drug and medical device supplies. FDA increased its activities related to oversight of heparin firms by conducting inspections and investigations and monitoring heparin imports, and worked with drug and device manufacturers to recall contaminated products while ensuring that an adequate supply of uncontaminated heparin was available. With the help of external entities, FDA identified the unknown contaminant and developed tests to screen all heparin products. Additionally, the agency reached out to its international regulatory partners during the crisis. However, FDA faced some limitations in its efforts to inspect heparin firms in China and collaborate internationally, and the agency was unable to determine the original source of contamination. FDA coordinated internal and external resources to respond to the contaminated heparin crisis, but did not address risks related to working with certain external entities with ties to heparin firms. The agency has issued standards of ethics regarding collaboration with external entities and governmentwide standards apply to the acceptance of services provided free of charge. Despite these existing standards, FDA did not have processes in place to ensure that it considered or applied them when it accepted assistance from external entities with ties to heparin firms on a voluntary basis during the heparin crisis. Not adequately addressing these risks could have affected the public's confidence in FDA's response efforts and in its other activities related to the regulation of heparin products and also left FDA open to claims for payment for services that these external entities provided to FDA. FDA monitored trends in the number of reports of adverse events associated with heparin drug products and heparin-containing medical devices that it received before, during, and after the crisis. FDA also conducted analyses of adverse events, including deaths, associated with heparin drug products and heparin-containing medical devices. However, FDA was unable to determine if any of the adverse events or deaths were linked to contaminated heparin because of data limitations and confounding factors regarding the individual patients, such as the natural course of the underlying disease or condition. In the draft report we provided to the Department of Health and Human Services for comment, we recommended that FDA develop adequate controls to help avoid exposure to risks when working with external entities in future situations similar to the heparin crisis. In response, FDA issued guidance on October 15, 2010, for FDA staff to follow when working with external scientific and other experts in emergency situations when the services are provided on a gratuitous basis. FDA also stressed the unprecedented nature of the heparin crisis and noted various actions it took in response to the crisis.

You are an expert at summarizing long articles. Proceed to summarize the following text: In the late 1980s, the Marine Corps began efforts to improve its chemical and biological protective suits because the ones used by U.S. armed forces at the time were bulky and heavy and could not be reused after laundering. Starting in 1989, the Marine Corps’ exploratory development efforts and subsequent MCLIST Advanced Technology Transition Demonstration program identified, evaluated, and field tested a number of chemical defense materials. During the same time period, the Army began an exploratory development effort to evaluate materials that offered less weight and bulk and enhanced protection, and the Air Force and the Navy began pursuing improved materials for their chemical protective uniforms. Separate from the MCLIST program, the Marine Corps fielded the Saratoga chemical and biological protective overgarment in 1991. The Saratoga garment, made from materials manufactured by Blucher, a German company, had an inner liner made with activated carbon spheres rather than the carbon-impregnated foam used by the military services at the time. All of the military services eventually combined their chemical defense material improvement efforts. Marine Corps, Army, Air Force, and Navy officials signed a memorandum of agreement, effective in November 1993, that defined the new JSLIST program and set forth the services’ respective responsibilities for the development, production, and deployment of the next-generation chemical and biological protective suits. The Marine Corps Nuclear, Biological, and Chemical Defense Office was designated as the lead agency for the JSLIST program. The MCLIST and Army programs, which ultimately became JSLIST, were research and development activities. Research and development activities are generally conducted in a more flexible environment than acquisition programs and often involve informal communications with prospective participants. DOD used market research to seek out existing foreign and domestic technologies for testing. The minimum requirements that applied to DOD’s efforts to identify improved chemical defense materials were published in a series of annual Broad Agency Announcements. These announcements described various areas of scientific or technical interest, provided specific points of contact, and included a statement that proposals would be evaluated based on merit and responsiveness to a government requirement. According to Marine Corps officials, the JSLIST program evaluated 57 material combinations (including liners, outershells, and combinations of both). The program evaluation was conducted in two phases. At the completion of phase I, 5 of the 57 material combinations were qualified to enter phase II for developmental and operational testing. At the completion of phase II in April 1997, only one of the five material combinations tested was determined to be acceptable for use in protective suits—Blucher’s Saratoga liner with a nylon and cotton outershell. (See app. I for further information on the JSLIST test program phases.) DOD is contracting for the suits through the National Industries for the Severely Handicapped and a company under section 8(a) of the Small Business Act. The contracts require that the suits be made from the Blucher material combination. Appendix II contains additional information on the JSLIST contracts. The JSLIST acquisition strategy includes a pre-planned product improvement program. DOD announced this new competition in the Commerce Business Daily in June 1997. DOD is seeking additional materials to address JSLIST objectives that were not met in the initial evaluation, such as a chemical protective garment that lasts for 60 days and improved chemical protective gloves and socks. Production is scheduled to begin in fiscal year 2000. Appendix III shows a timeline of key events in the MCLIST and JSLIST programs. Congress has raised concerns about the fact that the JSLIST material is produced by a sole-source company. The National Defense Authorization Act for Fiscal Year 1998 conference report noted that DOD should consider taking actions necessary to qualify additional sources of supply for chemical protective garment materials. Congress directed the Secretary of Defense to address this issue in DOD’s next Nuclear, Biological, and Chemical Defense Annual Report to Congress. Because the MCLIST and Army demonstrations were research and development activities, they were not subject to the formal notification requirements that apply to acquisitions. However, DOD provided adequate notice of its interest in identifying improved chemical protective materials through three different mechanisms. First, DOD conducted informal market research efforts and contacted industry directly to identify materials to include in the research and development programs. These efforts involved foreign as well as domestic suppliers. Officials from the Army’s Natick Research, Development, and Engineering Center, which managed MCLIST for the Marine Corps, told us that they traveled worldwide to locate promising technologies. Second, ongoing exploratory development projects at Natick identified technologies that were subsequently included in the demonstration programs. Marine Corps officials told us that they directed certain new and promising materials from these projects into the MCLIST demonstration program. Last, notice of three Broad Agency Announcements, published in the Commerce Business Daily, alerted industry of the government’s interest in developing new technologies for chemical defense materials. The dates of the announcements are shown in table 1. Although these announcements did not specifically cite the MCLIST program or the Army’s exploratory development effort, points of contact were named so that industry representatives could obtain further information concerning DOD’s research and development efforts. Participation in the JSLIST program was limited only to those materials submitted under the MCLIST or Army’s demonstrations; new companies or materials were excluded from entering JSLIST. DOD tested 57 material combinations, submitted by 13 companies, in the JSLIST program. However, reliance on informal communications—common in a research and development environment—resulted in some companies getting different information about deadlines for material submissions. Outside of the research and development programs, a company submitted an unsolicited proposal to the Marine Corps for an improved chemical defense material. The Marine Corps’ subsequent rejection of the proposal was consistent with the Federal Acquisition Regulation. However, the Marine Corps could have referred the company to the Army’s exploratory development program so that the material could have been considered for inclusion in JSLIST. Industry learned of the opportunity to participate in the MCLIST and Army research and development programs through informal discussions with DOD officials or by calling the points of contact listed in the Broad Agency Announcements. Participation in these programs resulted in 57 material combinations, submitted by 13 companies, being tested in JSLIST. However, because the MCLIST and Army programs operated separately, each had different timeframes and cutoff dates for submitting materials. For example, materials for the MCLIST program had to be submitted to Natick in time to make garments before field testing, which took place from April to June 1992. According to Marine Corps officials, industry was required to submit garments by September 30, 1992, for participation in the Army’s demonstration, which was held in March 1993. If industry was submitting materials rather than fully constructed garments, the deadline was June 1992. The Army’s program was industry’s final opportunity to have materials entered in JSLIST. MCLIST participants were advised informally of the final date to submit materials to the Marine Corps program, but not all companies learned of the opportunity to submit materials to the Army program. For example, officials from the complainant company said that they were not told of the Army program’s deadline for submission of materials until September 30, 1992, the last day submissions were allowed. Therefore, the company did not submit an improved material to Natick that could have been included in the Army’s demonstration and JSLIST program. Officials from this company did not call the points of contact listed in the Broad Agency Announcement. Rather, they contacted a Natick official who had been involved with MCLIST but was not directly involved with JSLIST. In contrast, a company that fared poorly in MCLIST was advised by a Natick official who was also not named in the Broad Agency Announcements of its opportunity to submit an improved material for evaluation in the upcoming Army program. Because contacts between DOD officials and industry were informal and largely undocumented, we could not determine whether all companies that contacted the Natick officials named in the Broad Agency Announcements were told of the opportunity to participate in the Army’s demonstration program. According to Marine Corps officials, the closing date of each Broad Agency Announcement represented the cutoff dates for material submissions to the demonstration programs. For example, the officials said that the closing date of the final announcement—September 30, 1992—was the deadline for entering materials in the Army’s demonstration program. However, Natick officials told us that the Broad Agency Announcements were not connected to cutoff dates for material submissions to the demonstration programs. For example, the officials noted that the cutoff date for the MCLIST demonstration was simply tied to their need to receive materials and make garments in time for field testing. The three Broad Agency Announcements did not cite particular programs—such as MCLIST or JSLIST—or cutoff dates for material submissions and thus were not explicitly tied to the deadline for material submissions. Nothing in the third announcement sets it apart from the two previous announcements to indicate that September 30, 1992, was industry’s last opportunity to submit a material to JSLIST via the Army’s demonstration program. Furthermore, a fiscal year 1993 Broad Agency Announcement, issued a year after entry to JSLIST was closed, is nearly identical to the three previous announcements. In June 1992, 3 months before the closing date of the fiscal year 1992 Broad Agency Announcement, the complainant company submitted an unsolicited proposal to the Marine Corps for an improved chemical defense material. The company had developed this improved material after its initial submission to the MCLIST program. The proposal—submitted outside of the Advanced Technology Transition Demonstration process—was for a competitive alternative to the Saratoga suits that the Marine Corps had begun to field in 1991. The company offered to absorb a substantial share of the testing costs if its product did not meet the Marine Corps’ requirements. In April 1993, more than 6 months after the deadline for submissions to the Army’s demonstration program, the Marine Corps rejected the unsolicited proposal, stating that it was duplicative in nature to an existing Marine Corps effort. The rejection letter noted that the Marine Corps had already initiated a research and development effort based on the carbon sphere technology identified in the proposal. The Federal Acquisition Regulation provided that an unsolicited proposal be rejected when it resembled an ongoing acquisition or did not demonstrate an innovative and unique concept. The Marine Corps’ actions in rejecting the proposal were therefore consistent with the Federal Acquisition Regulation. However, we believe the Marine Corps missed an opportunity to refer the firm to the Army’s demonstration program, which ultimately became part of JSLIST, before it was too late for entry. Because a joint program was already planned at that time, the Marine Corps could have informed the company that the Broad Agency Announcement was still open, thus allowing the firm’s potential entry into the Army’s demonstration program. We could not determine whether the outcome of the JSLIST program would have differed if the firm’s material had been assessed. The complainant company asserted that the transition to JSLIST had caused a significant change in requirements. The company was primarily concerned that the requirement for a single-use garment in MCLIST had changed to one that was launderable in JSLIST. Officials from the company stated that the changed requirements placed it at a disadvantage relative to the competition because it was not allowed to submit a different material under JSLIST. However, the basic requirements for a lightweight, launderable, chemical protective overgarment did not change during the transition. The requirements for MCLIST and JSLIST were based on assessments of the services’ missions and the threat. DOD’s basic requirement for both programs was to develop a lightweight, launderable, durable material that protected against chemical agent penetration and reduced heat stress. These fundamental requirements were reflected in the three Broad Agency Announcements issued from fiscal years 1990 to 1992. The latter two announcements added a requirement for protection from toxic aerosols. MCLIST and JSLIST both sought improved materials that could be laundered multiple times and reused, unlike the single-use garment that the Army, Air Force, and Navy were using at the time, which could not be laundered. Although the fundamental requirements did not change, each service added various service-unique requirements to the JSLIST program. For example, the Army required, in addition to the standard 30-day garment, a single-use, 7-day garment that would weigh less than the 30-day garment and provide the same level of chemical protection. In addition, the Air Force required chemical protection for liquid dispersed by air burst munitions or spray tanks. Although materials were tested that would accommodate these variations, the basic requirements for the overgarment did not change. The National Defense Authorization Act for Fiscal Year 1998 conference report urged DOD to consider taking actions necessary to qualify additional sources of supply for its chemical protective garment materials. The conferees directed the Secretary of the Army, as executive agent for the chemical-biological defense program, to report to the congressional defense committees on any plans to qualify such sources. The conferees also directed the Secretary of Defense to address the issue as a special area of interest in DOD’s next annual report to Congress on the Nuclear, Biological, and Chemical Defense program. However, the subsequent annual report to Congress, issued in February 1998, did not address the issue of qualifying additional sources of supply. A DOD official told us that the reporting requirement had been overlooked. In May 1998, DOD issued an addendum to its February 1998 report to address the congressional reporting requirement. The addendum cited DOD’s ongoing pre-planned product improvement program as a potential mechanism for identifying additional sources of supply for the requirements that were not achieved in the JSLIST program. The report emphasizes, however, that DOD’s primary goal remains to provide the U.S. armed forces with the best chemical protective ensemble available. Because the MCLIST program and the Army’s exploratory development efforts—which ultimately became the JSLIST program—were research and development activities, they were not subject to the same procedural requirements that apply to acquisition programs. In this context, we believe that the MCLIST and JSLIST programs were conducted fairly. DOD provided industry adequate notice of the government’s interest in improved chemical defense garment materials and sufficient opportunity to participate in the programs. The basic requirement for a lightweight, less bulky overgarment that could be reused after laundering did not change in the transition from MCLIST to JSLIST, although each service added certain unique requirements. Although the informal nature of communications that characterizes the research and development environment may have contributed to a missed opportunity for DOD to evaluate the complainant’s improved chemical defense garment material, the Marine Corps’ rejection of the unsolicited proposal was consistent with the Federal Acquisition Regulation governing such proposals. DOD reviewed a draft of this report and fully concurred with the information as presented. To determine whether DOD provided sufficient notice to industry of its interest in new chemical defense materials and industry had sufficient opportunity to participate in the MCLIST demonstration, the Army’s exploratory development effort, and the JSLIST program, we obtained and analyzed Broad Agency Announcements and information about DOD’s formal and informal communications with industry regarding the programs. We gathered and analyzed information pertaining to the intent, timeframes, and participants in the MCLIST and Army’s demonstration programs, which afforded industry entry to JSLIST. We discussed these programs with officials from the Office of the Secretary of Defense, Director of Defense Procurement; the Marine Corps Systems Command; the Army’s Natick Research, Development, and Engineering Center; and selected contractor locations. We also reviewed the unsolicited proposal a company sent to the Marine Corps in June 1992 and the Marine Corps’ response to the company. We determined whether the Marine Corps’ rejection of the proposal was done in accordance with the Federal Acquisition Regulation. To determine whether basic requirements that materially affected the competition changed in the transition from MCLIST to JSLIST, we obtained and analyzed requirements documents, such as the Marine Corps’ 1986 Required Operational Capability statement and the 1995 Joint Operational Requirements Document for JSLIST, as well as test plans for JSLIST. We discussed MCLIST and JSLIST requirements with officials from the Marine Corps Systems Command and industry officials. We also analyzed the requirements as stated in the Broad Agency Announcements. To report on DOD’s response to the congressional reporting requirement in the Fiscal Year 1998 National Defense Authorization Act conference report, we interviewed officials at the Office of the Assistant to the Secretary of Defense for Nuclear, Chemical, and Biological Defense Programs and the Marine Corps Systems Command. We also reviewed DOD’s February 1998 Nuclear, Chemical, and Biological Defense Annual Report to Congress and the May 1998 addendum to that report. We did not attempt to assess the accuracy of the JSLIST test results or determine whether the outcome of the JSLIST program would have differed if additional chemical defense materials had been evaluated. We conducted our review from February to June 1998 in accordance with generally accepted government auditing standards. We are sending copies of this report to appropriate congressional committees, the Secretary of Defense, and the Commandant of the Marine Corps. We will also provide copies to other interested parties on request. Please contact me at (202) 512-4841 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix IV. Because the Joint Service Lightweight Integrated Suit Technology (JSLIST) program was a joint effort, standardized test methods and procedures had to be developed that would be acceptable to all the services and recognize service-unique requirements. Testing occurred during two phases. Phase I began in October 1993; phase II began in August 1995 and resulted in the selection of the only material combination that was determined to be acceptable for use in the Department of Defense’s chemical defense garments. During phase I, 600 suits made from 57 candidate material combinations (outershells, liners, or both) were tested. Phase I testing involved chemical agent penetration, aerosol penetration, heat stress, laundry tests, wear tests, suit design evaluation, physical properties and flame resistance tests, and user size and fit tests. Wear tests were conducted over 14 days at Camp Pendleton, California, and Camp Lejeune, North Carolina. Suit design evaluations took place at Camp Pendleton, California; Camp Lejeune, North Carolina; Brooks Air Force Base, Texas; U.S. Army Natick Research, Development, and Engineering Center, Massachusetts; Fort Rucker, Alabama; Norfolk Naval Station, Virginia; and Fort Bragg, North Carolina. To pass the tests, candidate materials had to equal or exceed the performance of the Battledress Overgarment, which was the suit used by the Army at that time, or the Saratoga, which was replacing the Battledress Overgarment in the Marine Corps. Those materials that did not pass chemical agent penetration and laundry tests were disqualified. Test garments and individual swatch samples were coded to ensure unbiased testing. Phase I culminated in a decision by the Marine Corps Systems Command to proceed to the engineering and manufacturing development phase, or phase II. Of the 57 material candidates, 5 were selected for phase II testing. During phase II, more than 3,000 suits (330 suits per candidate material plus the Battledress Overgarment and Saratoga control garments) were tested at 10 worldwide field locations using mission-oriented scenarios and individual user tasks. The purpose of these tests was to collect operational and technical data to assess the performance of each material configuration during mission-oriented activities and provide worn suits for follow-on laboratory tests. The coding procedure used in phase I was also used in phase II to continue unbiased testing. Arctic, tropic, and desert environmental conditions were represented during the tests. The wear periods were 7, 15, 30, and 45 days, and suits were laundered up to 6 times. Laboratory tests included chemical agent, flame resistance, aerosol penetration, and heat stress. As with phase I, the Army’s Battledress Overgarment and the Marine Corps’ Saratoga garment were the established baselines. Only one material combination was found to meet all program requirements—the nylon/cotton outershell over the Blucher Saratoga liner. Because Blucher’s Saratoga liner with a nylon/cotton outer shell was the only material combination to pass the JSLIST phase II tests, the JSLIST production material is sole source. The Department of Defense is contracting for the JSLIST suits through the National Industries for the Severely Handicapped and another contractor under section 8(a) of the Small Business Act. Tex-Shield, Inc., Blucher’s American distributor, is a directed sole source for the material from which the suits are to be fabricated. The contracts are not awarded competitively. Suit fabrication services are on the procurement list developed under the provisions of the Javits-Wagner-O’Day Act. Under the act, once a commodity or service has been added to the list by the Committee for Purchase from the Blind and Other Severely Handicapped, contracting agencies are required to procure the commodity or service directly from the workshops for blind or other severely handicapped individuals affiliated with the National Industries for the Severely Handicapped. For the JSLIST suits, the Marine Corps offered the requirement to the National Industries for the Severely Handicapped, which accepted as much of the work as it could, and the Marine Corps contracted for the balance of work with another contractor under section 8(a) of the Small Business Act. Neither contracting through the National Industries for the Severely Handicapped nor the contract with the section 8(a) contractor required publication of a notice in the Commerce Business Daily or the use of competitive procedures. MCLIST program began. First Broad Agency Announcement was released in Commerce Business Daily. Marine Corps fielded Saratoga suits. Second Broad Agency Announcement was released in Commerce Business Daily. Third Broad Agency Announcement was released in Commerce Business Daily. First MCLIST wear test was conducted at Camp Lejeune (hot/humid climate testing). A company submitted an unsolicited proposal to the Marine Corps. Second MCLIST wear test was conducted at Camp Pendleton (hot/dry climate testing). Deadline for submissions to Army demonstration program. According to Marine Corps, no additional materials were accepted after this time. Army wear test was conducted at Camp Pendleton. Marine Corps rejected the unsolicited proposal. JSLIST phase I testing began with 57 material combinations. JSLIST memorandum of agreement became effective. JSLIST phase II testing began. Phase II testing was completed, and Saratoga material was selected. JSLIST contracts were awarded. Preplanned Product Improvement Program was announced in Commerce Business Daily. John A. Carter William T. Woods 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 examined the Department of Defense's (DOD) research and development programs for improved chemical defense garment materials for U.S. armed forces, focusing on whether DOD: (1) provided sufficient notice to industry of the government's interest in identifying improved chemical defense materials; (2) provided industry sufficient opportunity to participate in the programs; (3) changed requirements in the transition of the Marine Corps Lightweight Integrated Suit Technology (MCLIST) program to the Joint Service Lightweight Integrated Suit Technology (JSLIST) program; and (4) responded to a congressional reporting requirement concerning sources of supply for the military's chemical defense materials. GAO noted that: (1) because the MCLIST program and the Army's exploratory development efforts--which ultimately became the JSLIST program--were research and development activities, they were not subject to the same procedural requirements that apply to acquisition programs; (2) in this research and development context, DOD provided sufficient notice to industry of its interest in improved chemical defense materials through market research, direct industry contacts, ongoing exploratory development projects, and Broad Agency Announcement notices published in the Commerce Business Daily; (3) DOD provided industry an adequate opportunity to participate in the research and development programs; (4) on the basis of the notice DOD provided to industry, a total of 57 material combinations, submitted by 13 companies, were evaluated in JSLIST after initial testing in MCLIST and the Army demonstration; (5) however, reliance on informal communications resulted in companies receiving different information about submission deadlines to MCLIST and the Army programs; (6) due in part to the lack of formal communications regarding deadlines of material submissions, the complainant company did not get an improved material into JSLIST for evaluation; (7) the complainant company, which already had one material in the MCLIST demonstration, submitted an unsolicited proposal to the Marine Corps for an improved chemical defense material after entry into MCLIST was closed; (8) the Marine Corps rejected the proposal in accordance with the Federal Acquisition Regulation because the material duplicated an existing Marine Corps effort; (9) GAO could not determine whether the outcome of JSLIST would have differed if this material had been assessed; (10) the basic requirements for a lightweight, launderable, chemical protective garment did not change in the transition from MCLIST to JSLIST; (11) however, the individual military services added certain mission-specific requirements under JSLIST; (12) DOD overlooked the congressional reporting requirement in the National Defense Authorization Act for Fiscal Year 1998 conference report; and (13) a May 1998 addendum to DOD's February 1998 Nuclear, Biological, and Chemical Defense Annual report to Congress stated that the preplanned product improvement program might identify additional sources of supply to meet those requirements that were not achieved in the JSLIST program.

You are an expert at summarizing long articles. Proceed to summarize the following text: DHS has begun to take action to work with other agencies to identify facilities that are required to report their chemical holdings to DHS but may not have done so. The first step of the CFATS process is focused on identifying facilities that might be required to participate in the program. The CFATS rule was published in April 2007, and appendix A to the rule, published in November 2007, listed 322 chemicals of interest and the screening threshold quantities for each. As a result of the CFATS rule, about 40,000 chemical facilities reported their chemical holdings and their quantities to DHS’s ISCD. In August 2013, we testified about the ammonium nitrate explosion at the chemical facility in West, Texas, in the context of our past CFATS work. Among other things, the hearing focused on whether the West, Texas, facility should have reported its holdings to ISCD given the amount of ammonium nitrate at the facility. During this hearing, the Director of the CFATS program remarked that throughout the existence of CFATS, DHS had undertaken and continued to support outreach and industry engagement to ensure that facilities comply with their reporting requirements. However, the Director stated that the CFATS regulated community is large and always changing and DHS relies on facilities to meet their reporting obligations under CFATS. At the same hearing, a representative of the American Chemistry Council testified that the West, Texas, facility could be considered an “outlier” chemical facility, that is, a facility that stores or distributes chemical-related products, but is not part of the established chemical industry. Preliminary findings of the CSB investigation of the West, Texas, incident showed that although certain federal agencies that regulate chemical facilities may have interacted with the facility, the ammonium nitrate at the West, Texas, facility was not covered by these programs. For example, according to the findings, the Environmental Protection Agency’s (EPA) Risk Management Program, which deals with the accidental release of hazardous substances, covers the accidental release of ammonia, but not ammonium nitrate. As a result, the facility’s consequence analysis considered only the possibility of an ammonia leak and not an explosion of ammonium nitrate. On August 1, 2013, the same day as the hearing, the President issued Executive Order 13650–Improving Chemical Facility Safety and Security, which was intended to improve chemical facility safety and security in coordination with owners and operators.established a Chemical Facility Safety and Security Working Group, composed of representatives from DHS; EPA; and the Departments of Justice, Agriculture, Labor, and Transportation, and directed the working group to identify ways to improve coordination with state and local partners; enhance federal agency coordination and information sharing; modernize policies, regulations and standards; and work with stakeholders to identify best practices. In February 2014, DHS officials told us that the working group has taken actions in the areas described in the executive order. For example, according to DHS officials, the working group has held listening sessions and webinars to increase stakeholder input, explored ways to share CFATS data with state and local partners to increase coordination, and launched a pilot program in New York and New Jersey aimed at increasing federal coordination and information sharing. DHS officials also said that the working group is exploring ways The executive order to better share information so that federal and state agencies can identify non-compliant chemical facilities and identify options to improve chemical facility risk management. This would include considering options to improve the safe and secure storage, handling, and sale of ammonium nitrate. DHS has also begun to take actions to enhance its ability to assess risk and prioritize facilities covered by the program. For the second step of the CFATS process, facilities that possess any of the 322 chemicals of interest at levels at or above the screening threshold quantity must first submit data to ISCD via an online tool called a Top- Screen. ISCD uses the data submitted in facilities’ Top Screens to make an assessment as to whether facilities are covered under the program. If DHS determines that they are covered by CFATS, facilities are to then submit data via another online tool, called a security vulnerability assessment, so that ISCD can further assess their risk and prioritize the covered facilities. ISCD uses a risk assessment approach to develop risk scores to assign chemical facilities to one of four final tiers. Facilities placed in one of these tiers (tier 1, 2, 3, or 4) are considered to be high risk, with tier 1 facilities considered to be the highest risk. The risk score is intended to be derived from estimates of consequence (the adverse effects of a successful attack), threat (the likelihood of an attack), and vulnerability (the likelihood of a successful attack, given an attempt). ISCD’s risk assessment approach is composed of three models, each based on a particular security issue: (1) release, (2) theft or diversion, and (3) sabotage, depending on the type of risk associated with the 322 chemicals. Once ISCD estimates a risk score based on these models, it assigns the facility to a final tier. Our prior work showed that the CFATS program was using an incomplete risk assessment approach to assign chemical facilities to a final tier. Specifically, in April 2013, we reported that the approach ISCD used to assess risk and make decisions to place facilities in final tiers did not consider all of the elements of consequence, threat, and vulnerability associated with a terrorist attack involving certain chemicals. For example, the risk assessment approach was based primarily on consequences arising from human casualties, but did not consider economic criticality consequences, as called for by the 2009 National Infrastructure Protection Plan (NIPP) and the CFATS regulation. In April 2013, we reported that ISCD officials told us that, at the inception of the CFATS program, they did not have the capability to collect or process all of the economic data needed to calculate the associated risks and they were not positioned to gather all of the data needed. They said that they collected basic economic data as part of the initial screening process; however, they would need to modify the current tool to collect more sufficient data. We also found that the risk assessment approach did not consider threat for approximately 90 percent of tiered facilities. Moreover, for the facilities that were tiered using threat considerations, ISCD was using 5-year-old data. We also found that ISCD’s risk assessment approach was not consistent with the NIPP because it did not consider vulnerability when developing risk scores. When assessing facility risk, ISCD’s risk assessment approach treated every facility as equally vulnerable to a terrorist attack regardless of location and on-site security. As a result, in April 2013 we recommended that ISCD enhance its risk assessment approach to incorporate all elements of risk and conduct a peer review after doing so. ISCD agreed with our recommendations, and in February 2014, ISCD officials told us that they were taking steps to address them and recommendations of a recently released Homeland Security Studies and Analysis Institute (HSSAI) report that examined the CFATS risk assessment model.among other things, that the CFATS risk assessment model inconsistently considers risks across different scenarios and that the model does not adequately treat facility vulnerability. Overall, HSSAI recommended that ISCD revise the current risk-tiering model and create a standing advisory committee—with membership drawn from government, expert communities, and stakeholder groups—to advise DHS on significant changes to the methodology. As with the findings in our report, HSSAI found, In February 2014, senior ISCD officials told us that they have developed an implementation plan that outlines how they plan to modify the risk assessment approach to better include all elements of risk while incorporating our findings and recommendations and those of HSSAI. Moreover, these officials stated that they have completed significant work with Sandia National Laboratory with the goal of including economic consequences into their risk tiering approach. They said that the final results of this effort to include economic consequences will be available in the summer of 2014. With regard to threat and vulnerability, ISCD officials said that they have been working with multiple DHS components and agencies, including the Transportation Security Administration and the Coast Guard, to see how they consider threat and vulnerability in their risk assessment models. ISCD officials said that they anticipate that the changes to the risk tiering approach should be completed within the next 12 to 18 months. We plan to verify this information as part of our recommendation follow-up process. DHS has begun to take action to lessen the time it takes to review site security plans which could help DHS reduce the backlog of plans awaiting review. For the third step of the CFATS process, ISCD is to review facility security plans and their procedures for securing these facilities. Under the CFATS rule, once a facility is assigned a final tier, it is to submit a site security plan or participate in an alternative security program in lieu of a site security plan. The security plan is to describe security measures to be taken and how such measures are to address applicable risk-based performance standards. After ISCD receives the site security plan, the plan is reviewed using teams of ISCD employees (i.e., physical, cyber, chemical, and policy specialists), contractors, and ISCD inspectors. If ISCD finds that the requirements are satisfied, ISCD issues a letter of authorization to the facility. After ISCD issues a letter of authorization to the facility, ISCD is to then inspect the facility to determine if the security measures implemented at the site comply with the facility’s authorized plan. If ISCD determines that the site security plan is in compliance with the CFATS regulation, ISCD approves the site security plan, and issues a letter of approval to the facility, and the facility is to implement the approved site security plan. In April 2013, we reported that it could take another 7 to 9 years before ISCD would be able to complete reviews of the approximately 3,120 plans in its queue at that time. As a result, we estimated that the CFATS regulatory regime, including compliance inspections (discussed in the next section), would likely not be implemented for 8 to 10 years. We also noted in April 2013 that ISCD had revised its process for reviewing facilities’ site security plans. ISCD officials stated that they viewed ISCD’s revised process to be an improvement because, among other things, teams of experts reviewed parts of the plans simultaneously rather than sequentially, as had occurred in the past. In April 2013, ISCD officials said that they were exploring ways to expedite the process, such as streamlining inspection requirements. In February 2014, ISCD officials told us that they are taking a number of actions intended to lessen the time it takes to complete reviews of remaining plans including the following: providing updated internal guidance to inspectors and ISCD updating the internal case management system; providing updated external guidance to facilities to help them better prepare their site security plans; conducting inspections using one or two inspectors at a time over the course of 1 day, rather than multiple inspectors over the course of several days; conducting pre-inspection calls to the facility to help resolve technical issues beforehand; creating and leveraging the use of corporate inspection documents (i.e., documents for companies that have over seven regulated facilities in the CFATS program); supporting the use of alternative security programs to help clear the backlog of security plans because, according to DHS officials, alternative security plans are easier for some facilities to prepare and use; and taking steps to streamline and revise some of the on-line data collection tools such as the site security plan to make the process faster. It is too soon to tell whether DHS’s actions will significantly reduce the amount of time needed to resolve the backlog of site security plans because these actions have not yet been fully implemented. In April 2013, we also reported that DHS had not finalized the personnel surety aspect of the CFATS program. The CFATS rule includes a risk- based performance standard for personnel surety, which is intended to provide assurance that facility employees and other individuals with access to the facility are properly vetted and cleared for access to the facility. In implementing this provision, we reported that DHS intended to (1) require facilities to perform background checks on and ensure appropriate credentials for facility personnel and, as appropriate, visitors with unescorted access to restricted areas or critical assets, and (2) check for terrorist ties by comparing certain employee information with its terrorist screening database. However, as of February 2014, DHS had not finalized its information collection request that defines how the personal surety aspect of the performance standards will be implemented. Thus, DHS is currently approving facility security plans conditionally whereby plans are not to be finally approved until the personnel surety aspect of the program is finalized. According to ISCD officials, once the personal surety performance standard is finalized, they plan to reexamine each conditionally approved plan. They would then make final approval as long as ISCD had assurance that the facility was in compliance with the personnel surety performance standard. As an interim step, in February 2014, DHS published a notice about its Information Collection Request (ICR) for personnel surety to gather information and comments prior to submitting the ICR to the Office of Management and Budget (OMB) for review and clearance. According to ISCD officials, it is unclear when the personnel surety aspect of the CFATS program will be finalized. A biometric access control system consists of technology that determines an individual’s identity by detecting and matching unique physical or behavioral characteristics, such as fingerprint or voice patterns, as a means of verifying personal identity. its usefulness with regard to the CFATS program. We recommended that DHS take steps to resolve these issues, including completing a security assessment that includes addressing internal controls weaknesses, among other things. The explanatory statement accompanying the Consolidated Appropriations Act, 2014, directed DHS to complete the recommended security assessment.February 2014, DHS had not yet done the assessment, and although DHS had taken some steps to conduct an internal control review, it had not corrected all the control deficiencies identified in our report. DHS reports that it has begun to perform compliance inspections at regulated facilities. The fourth step in the CFATS process is compliance inspections by which ISCD determines if facilities are employing the measures described in their site security plans. During the August 1, 2013, hearing on the West, Texas, explosion, the Director of the CFATS program stated that ISCD planned to begin conducting compliance inspections in September 2013 for facilities with approved site security plans. The Director further noted that the inspections would generally be conducted approximately 1 year after plan approval. According to ISCD, as of February 24, 2014, ISCD had conducted 12 compliance inspections. ISCD officials stated that they have considered using third-party non- governmental inspectors to conduct inspections but thus far do not have any plans to do so. In closing, we anticipate providing oversight over the issues outlined above and look forward to helping this and other committees of Congress continue to oversee the CFATS program and DHS’s progress in implementing this program. Currently, the explanatory statement accompanying the Consolidated and Further Continuing Appropriations Act, 2013, requires GAO to continue its ongoing effort to examine the extent to which DHS has made progress and encountered challenges in developing CFATS. Additionally, once the CFATS program begins performing and completing a sufficient number of compliance inspections, we are mandated review those inspections along with various aspects of them. Moreover, Ranking Member Thompson of the Committee on Homeland Security has requested that we examine among other things, DHS efforts to assess information on facilities that submit data, but that DHS ultimately decides are not to be covered by the program. Chairman Meehan, Ranking Member Clarke, and members of the subcommittee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time. For information 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. Other individuals making key contributions to this and our prior work included John F. Mortin, Assistant Director; Jose Cardenas, Analyst-in-Charge; Chuck Bausell; Michele Fejfar; Jeff Jensen; Tracey King; Marvin McGill; Jessica Orr; Hugh Paquette, and Ellen Wolfe. 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. 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Facilities that produce, store, or use hazardous chemicals could be of interest to terrorists intent on using toxic chemicals to inflict mass casualties in the United States. As required by statute, DHS issued regulations establishing standards for the security of these facilities. DHS established the CFATS program to assess risk at facilities covered by the regulations and inspect them to ensure compliance. In February 2014, legislation was introduced related to several aspects of the program. This statement provides observations on DHS efforts related to the CFATS program. It is based on the results of previous GAO reports in July 2012 and April 2013, with selected updates conducted in February 2014. In conducting the earlier work, GAO reviewed DHS reports and plans on the program and interviewed DHS officials. In addition, GAO interviewed DHS officials to update information. In managing its Chemical Facility Anti-Terrorism Standards (CFATS) program, the Department of Homeland Security (DHS) has a number of efforts underway to identify facilities that are covered by the program, assess risk and prioritize facilities, review and approve facility security plans, and inspect facilities to ensure compliance with security regulations. Identifying facilities. DHS has begun to work with other agencies to identify facilities that should have reported their chemical holdings to CFATS, but may not have done so. DHS initially identified about 40,000 facilities by publishing a CFATS rule requiring that facilities with certain types of chemicals report the types and quantities of these chemicals. However, a chemical explosion in West, Texas last year demonstrated the risk posed by chemicals covered by CFATS. Subsequent to this incident, the President issued Executive Order 13650 which was intended to improve chemical facility safety and security in coordination with owners and operators. Under the executive order, a federal working group is sharing information to identify additional facilities that are to be regulated under CFATS, among other things. Assessing risk and prioritizing facilities. DHS has begun to enhance its ability to assess risks and prioritize facilities. DHS assessed the risks of facilities that reported their chemical holdings in order to determine which ones would be required to participate in the program and subsequently develop site security plans. GAO's April 2013 report found weaknesses in multiple aspects of the risk assessment and prioritization approach and made recommendations to review and improve this process. In February 2014, DHS officials told us they had begun to take action to revise the process for assessing risk and prioritizing facilities. Reviewing security plans . DHS has also begun to take action to speed up its reviews of facility security plans. Per the CFATS regulation, DHS was to review security plans and visit the facilities to make sure their security measures met the risk-based performance standards. GAO's April 2013 report found a 7- to 9-year backlog for these reviews and visits, and DHS has begun to take action to expedite these activities. As a separate matter, one of the performance standards—personnel surety, under which facilities are to perform background checks and ensure appropriate credentials for personnel and visitors as appropriate—is being developed. As of February 2014, DHS has reviewed and conditionally approved facility plans pending final development of the personal surety performance standard. Inspecting to verify compliance . In February 2014, DHS reported it had begun to perform inspections at facilities to ensure compliance with their site security plans. According to DHS, these inspections are to occur about 1 year after facility site security plan approval. Given the backlog in plan approvals, this process has started recently and GAO has not yet reviewed this aspect of the program. In a July 2012 report, GAO recommended that DHS measure its performance implementing actions to improve its management of CFATS. In an April 2013 report, GAO recommended that DHS enhance its risk assessment approach to incorporate all elements of risk, conduct a peer review, and gather feedback on its outreach to facilities. DHS concurred with these recommendations and has taken actions or has actions underway to address them. GAO provided a draft of the updated information to DHS for review, and DHS confirmed its accuracy.

You are an expert at summarizing long articles. Proceed to summarize the following text: In our recent legal opinion, we reviewed the statutory provisions governing the disposition of the proceeds from the sale or lease of real property acquired with federal highway grant funds and FHWA’s interpretation of that provision. FHWA issued regulations in 1999 implementing real property management policies in conjunction with the federal-aid highway program, which we reviewed. We disagreed with FHWA’s interpretation of the law. We concluded that Congress did not intend for states to convert federal money to state money by buying and selling property and/or use the federal share of recaptured funds to reduce or avoid their obligation to provide matching funds. DOT’s Inspector General raised similar concerns about FHWA’s interpretation of the federal law governing the proceeds from the sale or lease of real property in its report regarding the finance plan for the Central Artery Tunnel Project in Massachusetts. In its report, the DOT Inspector General questioned whether the proceeds derived from the sale of excess properties purchased with federal-aid highway funds should be counted against the $8.549 billion cap imposed by Congress on federal contributions to the Central Artery Tunnel Project. Further, the DOT Inspector General found that Massachusetts intended to sell land, originally purchased with federal aid, on which it had temporarily located its project headquarters, reinvesting the money in the project as “state funds.” The sale of the project headquarters is expected to generate about $100 million. All 51 of the state DOTs we surveyed, including the District of Columbia, reported selling, leasing, or disposing of real property purchased with federal-aid funds (see app. IV for responses from state DOTs). We found that from June 1998 through May 2002, 37 states reported they sold, leased, or disposed of at least 5,636 properties that generated about $148 million (2001 dollars) in revenue for the states. We excluded eight states from our calculations of the total number of properties sold, leased, or disposed of because these states either did not distinguish sold, leased, or disposed of properties originally acquired with federal funds from those properties that were acquired without federal funds and/or identify the amount of proceeds generated. We excluded another six states from our calculations for various reasons. In all, we excluded 14 states from our calculations because of these variances. For example, California has an agreement with FHWA that recognizes that the amount of revenue generated from the sales or leases of land purchased with federal-aid funds is substantially less than the state’s expenditures on highways; therefore, the state is not required to track and report the proceeds from the sales. Also, Louisiana state officials reported that they do not track and report federal dollars because their real estate property management database is not designed to distinguish sales of property acquired with federal-aid funds. Nevertheless, these states reported that they sold, leased, or disposed of some real properties originally purchased with federal funds. States also vary in their policies for retaining the net proceeds they receive from the sale or lease of real property because they have different views of the federal requirements. Most states that we surveyed deposit the proceeds into state transportation accounts to be used at a later date. However, three states reported that they do not follow that procedure but credit an existing federal-aid project within the state. For example, Maryland DOT officials told us that they credit an ongoing federal-aid project within their state. In their opinion, retaining the federal share would require the state to establish special tracking accounts to trace each dollar of revenue from affected property sales or leases from its receipt to its expenditure on a specific eligible federal-aid project which would not be cost effective. The cost to establish these accounts would exceed its current annual state revenue from these properties. Nevada and Texas DOTs also credit existing federal-aid projects within their states because, in their view, it is more efficient not to track the federal share of the proceeds. FHWA officials told us that, in their view, when states credit the federal share of the net proceeds to an existing federal-aid project, they lose the opportunity provided by TEA-21 to use the proceeds for other state highway projects. For states that retain the federal share of the net proceeds, five state officials that we contacted said they view the current regulations that allow them to retain the federal share of the proceeds generated from the sale or lease of real property as positive because it gives the states greater flexibility to sell or lease real property to support the states’ transportation programs. For example, officials in California and Virginia told us that selling or leasing surplus property and retaining the proceeds provide additional funds to complete more state highway projects. State DOTs and FHWA officials in Illinois, Virginia, and California also told us that the current regulations eliminate the administrative burden of tracking and returning the federal share of the funds to the federal government. The proceeds generated from the state DOTs’ sales or leases of real property do not currently appear to be a major source of revenue for the states’ transportation programs. We compared the proceeds generated, as reported to us in our survey, with the states’ revenues available for highway projects. The ratio between the proceeds generated by the states and the states’ receipts represented less than 1 percent of the states’ revenues in 1999 and 2000 (see apps. V and VI). Figures 1 and 2 show the states with the highest ratio between the proceeds from property sales or leases with the states’ revenues for 1999 and 2000, respectively. We calculated that in 1999, the total ratio of the federal share of proceeds from property sales and leases in comparison with the state revenues was 0.075 percent. Of the 35 states for which we calculated ratios, 8 states had ratios that were greater than or equal to 0.1 percent, and 27 states had ratios that were less than 0.1 percent. We calculated that in 2000, the total ratio of the federal share of proceeds from property sales and leases in comparison with the state revenues was 0.069 percent. Of the 35 states for which we calculated ratios, 10 states had ratios that were greater than or equal to 0.1 percent, and 25 states had ratios that were less than 0.1 percent. We noted no particular trend in the amount of proceeds from these types of property sales or leases over the period of our survey. Therefore, it is possible that the proceeds from property sales or leases could increase or decrease in the future. One likely sale of property in the near future by the Massachusetts Highway Department would have a large effect on the total proceeds from the sale or lease of properties purchased using federal highway aid in that state. The Department used federal aid to purchase a substantial amount of property for rights-of-way associated with the Central Artery Tunnel Project. Sale or lease of property associated with this project has already generated nearly $9 million in revenue for the state during the period of our survey (see app. IV for state responses). In addition, the state plans to sell the project’s headquarters building. The federal government contributed 90 percent of the original cost to acquire the building, and federal officials estimate that the sale of the building will generate about $100 million for the state’s transportation program. In 2000, Massachusetts received about $490 million in federal highway aid. States reported using the proceeds generated from the sale or lease of real property in different ways; and their survey responses indicated that some uses of the proceeds may not comply with specific statutory requirements of only using the proceeds on projects eligible for funding under federal-aid highway and related programs. This use of the proceeds conflicts with FHWA’s interpretation of the statute. For the 51 states we surveyed, 42 states reported that they deposited the proceeds from sales of property originally purchased with federal funds in accounts established to fund state highway projects. Officials from 47 state DOTs reported using the proceeds to fund other state transportation projects eligible for federal aid, and at least four states use the proceeds as their match for projects receiving federal contributions. For example, state DOT officials in Illinois, Louisiana, Nebraska, and North Carolina told us, in our visits or through their survey responses, that they use the proceeds generated from the sale or lease of property for matching purposes. Our legal opinion concluded that the states could not use the proceeds to match contributions, stating that the intent of Congress was not to allow states to “use the proceeds of such transactions to reduce or avoid their matching fund obligations.” FHWA has interpreted the statute as allowing for such use. In eight states, we could not determine from the survey responses how the states were using the proceeds because they do not (1) track property purchased with federal-aid funds separately from other property or (2) separate federal and state proceeds generated from the sale and lease of real property. In these cases, the federal share is commingled with state funds and cannot be accounted for separately. TEA-21 stated that proceeds must be used for projects eligible for federal aid; and, according to their survey responses, most states have placed such restrictions on the accounts into which the proceeds were placed. FHWA officials said that, in their view, states would be in compliance with TEA-21 if they placed proceeds in accounts restricted for use on projects eligible for funding under federal-aid highway and related programs. However, officials in two states told us that their accounts do not have this type of restriction. Therefore, in at least two cases, it is possible that states have used the proceeds on projects that are not eligible for federal aid. For example, a state DOT official in Indiana told us that the state uses the proceeds to fund state highway projects but does not track whether these projects are eligible federal-aid projects. New Mexico DOT officials reported that the proceeds are not restricted to funding eligible federal-aid projects; therefore, the funds could be used for other transportation projects not eligible for federal aid. FHWA officials said that they may issue additional guidance in 2003 to clarify how states should implement the TEA-21 language regarding property sales and FHWA’s subsequent regulations. They acknowledged that they were not aware of (1) the possibility that states were not complying with the explicit statutory requirements that the federal share of proceeds from property sales or leases be used only on projects eligible for funding under federal-aid highway and related programs and (2) the amount of variation in how states tracked these types of property transactions and the federal share of the proceeds. They also said that FHWA has issued some guidance to the states regarding the proceeds generated from the disposal of properties purchased with federal aid. For example, in meetings with state officials, FHWA officials explained that as a practical matter states should have an accounting system in place that documents (1) the amount of the federal share of the proceeds deposited in the state transportation fund during the fiscal year and (2) the amount of the federal share of net proceeds expended on eligible federal-aid projects during the fiscal year. However, they also noted that TEA-21 does not require states to track and report the federal share. FHWA officials told us they are considering additional guidance to help ensure that states are using the federal share of these proceeds only on projects eligible for funding under federal-aid highway and related programs. As of October 2002, FHWA had not decided on the details of what material to include in the guidance or when to issue it. FHWA officials told us it is likely to focus on how states can demonstrate that they are ensuring that the applicable federal share of proceeds from property sales or leases is being allocated to eligible federal-aid projects. Most states have taken advantage of the greater flexibility for managing and disposing of real property provided under TEA-21 because it streamlines the process for their highway programs. However, in accordance with our recent legal opinion, those states that used the proceeds from these property sales or leases to match federal-aid highway projects were not complying with the statute governing the sale or lease of real property. In addition, two states did not restrict the use of the proceeds to projects eligible for funding under federal-aid highway and related programs, as explicitly required by the statute. FHWA has an excellent opportunity to clarify its interpretation of TEA-21; and, after considering all relevant factors, provide additional guidance to states regarding how they should cost-effectively treat the proceeds from sales or leases of property originally purchased with federal aid. To help ensure that states act in accordance with TEA-21 in disposing of real property originally purchased with federal aid, we are recommending that the Secretary of Transportation direct the FHWA Administrator to develop and report on a strategy regarding how FHWA plans to comply with GAO’s legal opinion concerning the statute governing the sale or lease of real property; and provide additional guidance to the state DOTs that will help ensure that states use the proceeds of property sales or leases as required by TEA- 21, including the types of documentation or tracking that would be cost effective and appropriate to demonstrate compliance. We obtained comments on a draft of this report from DOT officials, including the FHWA Director of the Office of Program Administration and the Division Administrator, FHWA Massachusetts Division Office. They agreed with the facts presented in the draft report regarding states’ sale, lease, and disposal of real property originally purchased with federal funds and with the states’ use of the proceeds. The DOT’s General Counsel is considering GAO’s legal opinion on how the federal share of the proceeds should be used, so the officials did not comment on those sections of the draft report. For the same reason, the officials did not comment on our recommendation that the DOT develop and report on a strategy regarding how it plans to comply with GAO’s legal opinion. The FHWA commented that the report should recognize first, that FHWA’s interpretation of the relevant provisions of TEA-21 was based on a regulation issued in 1999 and secondly, that FHWA has provided extensive guidance on the implementation of these provisions. We made several changes to the report based on these comments. However, we continue to believe that the potential noncompliance with TEA-21 we observed in two states, which FHWA acknowledges conflicts with its interpretation of the statute, and the varying practices we observed in other states suggest the need for clarifying existing guidance or issuing additional guidance, as indicated in our recommendations. Regarding the recommendation to issue additional guidance to help ensure that states use the proceeds from the sale or lease of real property originally purchased with federal funds as required by TEA-21, FHWA officials said they would consider providing additional guidance pending the outcome of the Department’s review of GAO’s legal opinion. The FHWA officials also provided technical comments, which we have incorporated into this report as appropriate. 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 of this report to the cognizant congressional committees, the Secretary of Transportation, and the Administrator, Federal Highway Administration. In addition, this report will also be available on GAO’s Web site for no charge at http://www.gao.gov. If you or your staff have any questions about this report, please call me at (202) 512-2834. Key contributors to this report were Sally Gilley, Octavia Parks, and Jobenia Odum. The Committee on Commerce, Science, and Transportation requested that we determine (1) the extent to which states are selling, leasing, or disposing of real property purchased with federal-aid funds and (2) how the proceeds generated from the sale or lease of real property are being used in accordance with the intent of TEA-21. We drew from our legal opinion regarding FHWA’s interpretation of the federal law governing the sale or lease of real property. To determine the extent to which the states are selling, leasing, or disposing of real property purchased with federal-aid funds, we obtained information from FHWA officials and surveyed 51 state DOTs, including the District of Columbia, to identify the number of properties and value of real properties that were sold, leased, or otherwise disposed of from June 1998 to May 2002. Before we submitted the survey to the 51 state DOTs, we obtained input from FHWA officials in developing our survey because they recently attempted to collect the same type of information from the state DOTs. We pretested the survey with Georgia DOT. We obtained and analyzed responses from all 51 states, including the District of Columbia, and conducted follow-up interviews as necessary. We compared each state’s 1999 and 2000 total proceeds generated from the sale or lease of real property with the states’ total receipts obtained for highway projects reported by DOT. We did not independently verify the data provided by the state DOTs or assess the reliability of the data reported by DOT. We obtained preliminary data regarding real property sales and leases from FHWA and selected five states (California, Georgia, Illinois, Texas, and Virginia), based primarily on—among other reasons—high property sales and leases and how these states’ were dispersed throughout the United States. We selected California and Texas because they had the highest income from property sales; Illinois was selected because of its geographic location, and it was one of the states that had a high number of property sales and income. Georgia was selected because FHWA’s preliminary data of states property sales indicated that Georgia had not taken advantage of the provisions of title 23, section 156 of U.S.C. Finally, Virginia was selected because FHWA’s preliminary data indicated total income from property sales or leases, but the number of properties was not reported. We interviewed state and federal officials at these states, regarding their opinions about the benefits of the current regulations relative to the states’ transportation programs among other reasons. To determine how the proceeds generated from the sale or lease of real property are used, we contacted states DOT officials responsible for the right-of-way programs and obtained information regarding (1) how they use proceeds generated from the sale or lease of real property, (2) any restrictions on the use of the proceeds, and (3) the states’ sources for matching federal contributions. We also obtained and reviewed state right- of-way disposal procedures and other documentation related to the sale or lease of real property. We obtained and reviewed documentation regarding FHWA’s division office and headquarters oversight roles related to the sale or lease of real property. We also interviewed officials of the U.S. DOT Inspector General’s office and reviewed documentation regarding their review of the Massachusetts’ Central Artery Tunnel Project that had initially raised concerns about FHWA’s interpretation of TEA-21 changes related to sales and leases of real property. To analyze the significance of the proceeds from the sale or lease of real property purchased with federal-aid funds with other states’ revenues available for highway purposes, we compared states’ property proceeds with states’ total receipts. Table 4 shows the result of our analysis. To analyze the significance of the proceeds from the sale or lease of real property purchased with federal-aid funds with other states’ revenues available for highway purposes, we compared states’ property proceeds with states’ total receipts. Table 5 shows the result of our analysis. 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. 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. 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In 1998, the Transportation Equity Act for the 21st Century (TEA-21), authorized the states to retain the federal share of proceeds from the sale or lease of real property that had been purchased with federal-aid funds. It also required the states to use the federal share on other highway projects eligible for funding under the federal-aid highway program. GAO determined (1) the extent to which states are selling, leasing, or disposing of real property purchased with federal-aid funds and (2) how the proceeds generated from the sale or lease of real property are being used, including whether they are being used in accordance with TEA-21. GAO issued a related legal opinion in September 2002. All of the 51 state Departments of Transportation GAO surveyed, including the District of Columbia, reported selling, leasing, or disposing of real property, such as unused land purchased with federal-aid funds. From June 1998 through May 2002, 37 states sold, leased, or disposed of at least 5,636 properties that generated about $148 million in proceeds for the states. States varied on whether they tracked and reported this information to DOT; therefore, GAO did not report this information for the other 14 states. State DOT officials view the policy that allowed them to retain the federal share of the proceeds as being positive because it provided states greater flexibility for financing their transportation programs. However, proceeds generated from the sale or lease of property are not currently a major source of revenue for states' transportation programs. GAO determined that the proceeds generated from the sale, lease, or disposal of real property were less than 1 percent of states' transportation revenue from other sources, including federal aid, in 1999 and 2000. States reported using the proceeds generated from the sale or lease of property in different ways; and at least 2 states may have used the proceeds in ways that do not comply with the specific statutory requirements to use the proceeds on projects eligible for federal-aid highway funding. Forty-seven states reported using the proceeds to fund other state transportation projects, and at least 4 states use the proceeds as their match for projects receiving federal funds. GAO issued a legal opinion in September 2002, concluding that Congress did not intend for states to use such proceeds as their match. DOT has interpreted TEA-21 as allowing for the use of the federal share as a state's match. GAO also found that 2 states did not have restrictions on how the federal share of the proceeds should be used; therefore, the proceeds may have been used on projects not eligible for federal-aid. DOT issued some guidance but is considering issuing more guidance to states to ensure proceeds are used for eligible projects under the federal-aid highway program.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Congress established the Empowerment Zone (EZ) and Enterprise Community program in the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66, Aug. 10, 1993). The act also amended title XX of the Social Security Act to authorize the special use of Social Services Block Grant (SSBG) funds for the program. In addition, the act allows businesses located within the EZs to (1) receive tax credits on the wages paid to employees who live and work in the zones; (2) deduct higher levels of depreciation expenses than other businesses; and (3) borrow, at low interest rates, funds raised from the sale of tax-exempt bonds issued by the state or local government to be used for facilities and/or land. Finally, the act specifies that the Secretaries of Housing and Urban Development and Agriculture will designate the communities that are to participate in the program and have the authority to revoke a designation if the boundaries of an empowerment zone or enterprise community are modified, if a designated area is not complying with the program’s requirements, or if a designated area is not making significant progress in implementing the program. Communities that participate in the 10-year EZ program had to (1) meet specific criteria for characteristics such as geographic size and poverty rate and (2) prepare a strategic plan for implementing the program’s four key principles—creating economic opportunity, creating sustainable community development, building broad participation among community-based partners, and describing a strategic vision for change in the community. Each EZ must spend its SSBG funds in accordance with its strategic plan, which includes goals and measures, called performance benchmarks. The progress of each EZ in achieving its goals is to be based on the extent to which it accomplishes its performance benchmarks, not on how much federal money it spends. The benchmarks are set forth in a benchmark document that describes the activities that the EZ plans to implement and includes time lines for their implementation. The document can be modified to accommodate changes in the EZ’s needs or scheduling problems. The benchmark document is to serve the EZ, as well as HUD or USDA, as an important management tool and constitutes the primary basis for evaluating the progress being made. HUD and USDA have each issued regulations and guidance for implementing the EZ program. In addition, they have commissioned studies to help them evaluate the program and have required the EZs to report on their progress in implementation. HUD requires the urban EZs to submit periodic progress reports to its EZ program office. The program office sends these reports to the HUD field offices for assessment. These reports were submitted in the summer of 1996 and the summer of 1997, and the next reports are due by December 31, 1998, according to the coordinator for the EZ program. USDA requires the rural EZs to submit weekly progress reports to the field offices and semiannual progress reports to the headquarters Office of Community Development, which is responsible for the rural program’s overall implementation. Under the Taxpayer Relief Act of 1997 (P.L. 105-34), the Congress authorized a second round of EZs. This act provides for two urban EZs that are to operate under the same rules as the EZs authorized in 1993. In January 1998, the administration selected Los Angeles and Cleveland as the two new EZs. The act also provides for 20 new EZs—15 in urban areas and 5 in rural areas—that are to operate under slightly revised rules set forth in the act. Communities across the nation—including the existing enterprise communities and tribal areas—are eligible to apply for the new EZ designations. In October 1998, the Congress provided $55 million for fiscal year 1999 for the 20 new EZs—$45 million for the 15 new urban EZs and $10 million for the 5 new rural EZs. The six EZs that we visited—Atlanta, Baltimore, the Kentucky Highlands, the Mississippi Mid-Delta, New York City, and the Rio Grande Valley—have reported on their progress in implementing a variety of activities involving economic development, housing, public safety, health care, public transportation, education, and family self-sufficiency. For five of the six EZs, economic development activities (creating jobs, training workers, and providing access to capital) accounted for a larger portion of the planned first-phase expenditures than other activities. All six EZs reported that they are making progress in implementing their economic development activities; however, the extent of their progress varies. Generally, progress was greater in EZs where stakeholders had experience in implementation and could agree on their roles and responsibilities. Each of the six EZs has reported to either HUD or USDA on its progress in implementing the first phase of its planned activities. The reports prepared by the EZs that we visited often emphasized economic development activities (creating jobs and training workers) but usually included activities in other areas, such as housing and public safety. For example, as table 1 shows, the activities in the New York and Kentucky Highlands EZs were classified almost exclusively as related to economic development, while those in the other EZs were classified as both related and not related to economic development. Whereas the New York and Kentucky Highlands EZs focused on creating jobs, developing businesses, training workers, and providing access to capital, the Atlanta, Baltimore, and Rio Grande Valley EZs included activities that provided health care, housing, public transportation, education, family self-sufficiency services, and services for the elderly. The Mississippi Mid-Delta EZ included activities such as community beautification, housing, health care, public safety, and infrastructure improvement; however, almost all of its initial SSBG allocation supported economic development activities. (See apps. I through VI for details on each EZ’s activities as reported in 1997). Activities classified as related to economic development also generally accounted for a larger portion of the EZs’ reported SSBG allocations than other activities. As table 2 shows, the EZs allocated from 31 to 97 percent of their grant funds for economic development activities. The six EZs reported that they are making progress in implementing their economic development activities. However, the extent of their progress varies. Four of the EZs—Baltimore, the Kentucky Highlands, New York, and the Rio Grande Valley—have reported that they have initiated or completed many of their economic development activities. The two remaining EZs—Atlanta and the Mississippi Mid-Delta—have established one-stop capital shops, which are designed to provide comprehensive technical and financial assistance in a single location to small businesses. They also have made several loans and one grant to businesses but have made little progress on other economic development activities. In its performance review, the Baltimore EZ reported completing or initiating action on 17 of its 19 economic development activities. Officials from the EZ governing body confirmed this progress during our visit. Specifically, the officials said that, as of May 1998, they (1) had provided training that contributed to the placement of 100 residents in jobs, (2) had completed the privatization of neighborhood food markets that provide business opportunities within the zone, and (3) will continue their efforts to attract businesses and create or expand job opportunities. They also said that they had worked with Employ Baltimore—a city government employment development initiative—to place more than 1,100 of the zone’s residents in jobs throughout the city. Although the Baltimore EZ has begun to implement its system for getting zone residents into jobs, it is behind schedule largely because the establishment of a community-based structure for identifying potential community employees and offering career counseling, training, and placement services has taken longer than anticipated. The EZ has not yet established a community development bank, which, according to the EZ’s plans, will lend funds for business and residential development within the eastern side of the zone. The Kentucky Highlands EZ reported completing or initiating action on 18 of 20 economic development activities. During our visit, officials from the EZ said that the 1997 performance review generally reflected its progress. They noted that one loan fund had provided loans to businesses, resulting in the creation of 644 jobs as of March 31, 1998. Other activities that had been initiated included developing industrial parks, training workers for jobs in the manufacturing industry, and providing downtown revitalization loans to businesses. Of the two actions that had not been initiated, one was classified as uncertain and the other was found to be infeasible. Specifically, the EZ had not begun developing an airport that would accommodate larger airplanes because, according to EZ officials, funding was hard to obtain and a court ruling found that the airport’s board was improperly organized. The EZ’s efforts to establish a waste recycling plant were terminated after a feasibility study determined that there would not be enough waste available to make the plant cost-effective. Officials from the EZ said that the funds for this activity would be reallocated to other activities. According to its 1997 performance review, the New York EZ has initiated action on 20 of its 38 economic development activities, including (1) establishing a business resource and service center, which, according to the report, has held 26 business seminars and facilitated 27 loans; (2) establishing a credit union for use by the zone’s residents; and (3) revitalizing commercial facilities. Funding has been approved for the 18 activities on which action had not begun at the time the progress report was prepared. EZ officials told us that they had subsequently canceled their plans for an apprenticeship preparation program and had initiated actions on five other activities, including enrolling 233 residents in workforce preparation activities. The remaining economic development activities included efforts to increase tourism and expand workforce preparation initiatives. The Rio Grande Valley EZ reported taking action on all 10 of its economic development activities. These activities included developing training for nursing assistants; training welders to work in the local manufacturing industry; and extending small loans, as part of a one-stop capital shop, to EZ residents to start small businesses. The EZ had also completed a facility, called a business incubator, for fostering new businesses within the zone by providing them with administrative support and work space at a minimal cost. At the time of our visit in March 1998, the Rio Grande EZ had planned 10 additional economic development activities, of which 6 were ongoing. All of the additional activities related to business development and workforce training. Although the Atlanta EZ reported to HUD in its 1997 performance review that it had completed or begun implementing 22 of its 23 economic development activities, EZ officials gave us a March 1998 internal status report showing that action had begun on only 4 out of 7 economic development activities. Specifically, the status report showed that actions were initiated to set up a one-stop capital shop, establish a revolving loan fund, provide funds to develop employment strategies for women, and renovate a vacant building. The report also showed that actions had not yet been initiated to redevelop the Centennial Olympic Business Park, establish another revolving loan fund, or market the EZ’s tax credits. The differences in the progress reported in the 1997 performance review and in the 1998 status report are due to several factors. First, the performance review lists a revolving loan fund as one activity and individual loans issued from that fund as other, separate activities, while the status report lists all of these as a single activity. Similarly, the performance review lists a project related to vacant property and a specific entity that received funds under that project as separate activities, while the status report lists both as a single activity. The performance review also includes activities, such as reconstructing a sports arena and tracking job applicants, that were not included in the status report. In addition, the status report includes only activities that had been approved by the board at the time the report was issued. Finally, the performance review indicates that actions have been initiated on three activities for which the status report shows that no actions have been initiated. The acting executive director of the EZ at the time of our visit told us that he was not involved with the EZ when the performance review was prepared and, consequently, could not explain the differences. The Mississippi Mid-Delta EZ reported starting five of eight economic development activities. For example, the EZ said it had initiated actions to attract and maintain jobs and to strengthen and maintain businesses and industries. The EZ board had approved three other activities—to promote and attract industrial and manufacturing jobs, to help businesses expand within the zone, and to expand and improve training programs for workers. At the time of our visit in April 1998, the EZ said it had added a one-stop capital shop to its list of activities. Officials noted that actions had been initiated on a total of seven activities—the five reported in 1997, the one-stop capital shop, and an activity to attract and maintain jobs at Dollar General Corporation. However, no action had been taken on the other two funded activities at the time of our visit. Officials involved in implementing the EZs told us that two factors facilitated their progress—obtaining agreement among stakeholders and experience in implementing similar economic development activities. For example, officials from the Kentucky Highlands and Rio Grande Valley EZs attributed much of their progress to their multilevel project approval processes, which were established early in the program. Their processes allowed stakeholders to participate at the local level as well as at the zonewide level. Once decisions were approved at the local level, they were then submitted for approval to a zonewide board. Members of this board also made decisions on projects affecting the entire EZ. Conversely, disagreement among stakeholders delayed activities. For example, the New York EZ said that its progress was inhibited until its three major stakeholders (the federal, state, and city governments, each of which contributed $100 million to the EZ) clarified their roles and responsibilities. The EZ has since made steady progress. Similarly, the Atlanta EZ has had difficulty implementing activities because of disagreements among the EZ advisory board, board of directors, and staff over their roles and responsibilities. The Mississippi Mid-Delta EZ also ascribed delays to disagreements over the state government’s role in making SSBG funds available to the EZ. In the absence of written operating policies and procedures, several disagreements have also arisen among this EZ’s executive director, board members, and community representatives. Another factor affecting the progress of the EZs was the extent to which their management organizations had prior experience in implementing similar activities. Officials from the Kentucky Highlands EZ said that the organization managing its EZ has existed for 26 years and had prior experience implementing economic development programs, such as those funded through the Department of Commerce’s Economic Development Administration. Consequently, the people involved were knowledgeable about other federal, state, and local economic development programs and regulations. The Kentucky Highlands executive director attributed his EZ’s progress in implementing the program to this experience. On the other hand, officials in the Baltimore EZ said that they had difficulty locating experienced organizations to implement career centers, which would identify residents’ needs for jobs and provide training to those residents. EZ officials in New York also mentioned that it took longer than expected to involve residents in the implementation process because the residents lacked experience in evaluating proposals to implement projects. Both HUD and USDA said that they use progress reports from the EZs, together with visits by their own field office staff, to monitor the performance of the EZs and evaluate their fitness to continue in the EZ program. In addition, both agencies have sponsored studies, which were performed by organizations that were not involved in implementing the program, to help them monitor implementation efforts. HUD’s coordinator for the EZ program told us that HUD uses the reports from the EZs to help monitor the progress that is being made. The reports are reviewed in headquarters and by field office representatives. For instance, in March 1997, HUD issued reports on each of the communities involved in the program and identified implementation problems at five locations, including one EZ—the Camden portion of the Philadelphia/Camden EZ. On the basis of subsequent reports, HUD determined that improvements were made in all five communities. The official added that HUD would consider revoking a designation, as allowed by the program’s authorizing legislation, if progress was not being made. HUD field staff said that although the EZ program is primarily run by HUD headquarters, they have provided assistance when asked by the EZs and have reviewed progress reports at the request of headquarters. HUD field and headquarters staff told us that under HUD’s management reform initiative, the field offices will have an increased role in assisting the EZs and monitoring their activities. Specifically, the field offices will have (1) community builders, who will be responsible for assisting several HUD programs, including the EZ program, and (2) public trust officers, who will be responsible for monitoring HUD programs, including the EZ program. According to the EZ program’s coordinator, training for the community builders is under way and training for the public trust officers is being developed. In addition, the EZ office in HUD headquarters plans to conduct its own training sessions on the EZ program for community builders and public trust officers. According to USDA officials involved in implementing the EZ program, representatives from the Department’s field offices conduct periodic site visits to rural EZs and are expected to attend EZ board or committee meetings, as well as keep abreast of the zones’ progress in implementing the program. Accordingly, the cognizant USDA rural development field office staff member prepares a weekly report to the headquarters Office of Community Development outlining the EZ’s overall performance. USDA officials told us that they have also brought in a technical expert when (1) they have identified a specific problem or (2) an EZ has requested technical assistance on a particular project. In addition, USDA plans to conduct a comprehensive review of the EZ program about once every 3 years and/or when field office reports identify problems or show that a particular EZ is falling behind in its benchmarks. In May 1998, for example, USDA conducted such a review of the Mid-Delta Mississippi EZ to obtain an overall view of its performance. The review involved meeting with state officials, board members, and the executive director, as well as examining the EZ’s files and planned activities. The results of this review were not available when we were conducting our work. Finally, USDA’s Office of Community Development prepares weekly reports to the Under Secretary for Rural Development that include information on the EZs’ progress and any changes or significant problems. In April 1998, HUD and USDA published notices inviting communities to apply for the new EZ designations by October 9, 1998. They also issued regulations covering the program. HUD and USDA have jointly prepared program and application guides and have each held workshops throughout the country for communities interested in applying for a designation. Specifically, HUD conducted 10 workshops nationwide between April and May 1998, while USDA conducted 14 workshops nationwide between May and June. Workshop topics included how to apply for the program, develop a strategic plan, develop a governance structure, design a performance management system, understand and market EZ tax incentives, develop programs and projects to promote business development, and use job training and job placement services to help residents get jobs. In October 1998, the Congress provided $45 million for the 15 new urban EZs ($3 million for each one) and $10 million for the 5 new rural EZs. USDA officials told us that they will allocate $2 million to each new rural EZ.Both agencies are evaluating communities’ applications for designation. HUD received about 120 applications, while USDA received 169 applications, of which 160 were complete. Program officials from both agencies told us that they expect the designations to be made no later than January 1, 1999, the statutory deadline. We provided a draft of this report to HUD and USDA for review and comment. In addition, we sent the relevant sections of the report to each EZ for its review. HUD generally agreed with the information in the report. However, HUD suggested that the report’s title be revised to reflect its focus on economic development activities. We revised the title of the report as suggested. HUD also said that it planned to increase its monitoring of the EZs and to implement an Internet-based performance measurement system. HUD’s comments are reproduced in appendix VII of this report. USDA generally agreed with the information presented in the report and provided editorial and technical corrections, which we incorporated where appropriate. In general, the EZs provided updated information or clarification on the status of their activities, which we incorporated where appropriate. In addition, the New York EZ provided current information on the funding of its projects. We did not incorporate this information because we did not receive similar information from the other EZs. To determine the progress that the Atlanta, Baltimore, New York, Kentucky Highlands, Mississippi Mid-Delta, and Rio Grande Valley EZs made in implementing their economic development activities and the causes for any delays, we reviewed documents prepared by the EZs, including memorandums of agreement, benchmark documents, and performance reports submitted to HUD and USDA. We did not review the accuracy of the information reported by the EZs in these reports; however, we did review HUD’s and USDA’s methods for ensuring the reports’ accuracy. We also reviewed HUD’s and USDA’s field evaluations for all of the EZs visited, interviewed HUD and USDA headquarters officials and field staff, and reviewed reports from entities that were under contract with HUD and USDA to evaluate the EZ program. During our visits to the EZs, we interviewed their executive directors and toured locations where economic development activities were being implemented. In addition, we interviewed residents and business representatives in the Baltimore, New York, Kentucky Highlands, Mississippi Mid-Delta, and Rio Grande Valley EZs. We also attended meetings of the advisory board or board of directors in the Atlanta, Baltimore, Kentucky Highlands, and Rio Grande Valley EZs. To determine monitoring and evaluation efforts, we interviewed HUD and USDA officials in headquarters and in the field offices we visited, reviewed reports prepared by field office staff, and reviewed training documents provided to HUD’s community builders. To describe the efforts to implement the second round of EZs, we compared the 1993 legislation authorizing the first EZs to the 1997 legislation authorizing the new EZ designations. We also obtained and reviewed HUD and USDA documents on the new EZ designations. In addition, we reviewed other information relevant to the EZs, including the President’s fiscal year 1999 budget request. We conducted our work from December 1997 through November 1998 in accordance with generally accepted government auditing standards. We are sending copies of this report to the appropriate congressional committees and to the Secretaries of Housing and Urban Development, Agriculture, and Health and Human Services. We will also make copies available to others on 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 VIII. The Atlanta empowerment zone’s (EZ) implementation process involves a sequence of steps that include proposing an activity, obtaining approval from the EZ board to proceed with that activity, obtaining approval for funding the activity from the appropriate local and state entities, initiating actions to implement the activity, and completing actions associated with the activity. These steps are referred to as “proposed,” “board approved,” “funding approved,” “ongoing,” and “completed,” respectively. Table I.1 shows each planned economic development activity, its status as reported by the EZ in its 1997 performance review, and the amount of Social Services Block Grant (SSBG) funds allocated to the activity. A March 1998 status report provided by Atlanta EZ officials showed seven activities as planned and indicated that progress was ongoing for four of the activities—the vacant property strategy, the female power demonstration, the one-stop capital shop, and the Atlanta Empowerment Zone Corporation revolving loan fund. The EZ had not yet initiated action on the three remaining activities. (See note in table I.1 for the activities that were included in the status report). The differences in the progress reported in the 1997 performance review and in the 1998 status report are due to several factors: (1) the performance review lists a revolving loan fund as one activity and individual loans issued from that fund as other, separate activities, while the status report lists all of these as a single activity; (2) the performance review lists a project related to vacant property and a specific entity that received funds under that project as separate activities, while the status report lists both as a single activity; (3) the performance review includes activities, such as reconstructing a sports arena and tracking job applicants, that are not included in the status report; (4) the status report includes only activities that had been approved by the board at the time the report was issued; and (5) the performance review indicates that actions have been initiated on three activities for which the status report shows that no actions have been initiated. Table I.1: Atlanta EZ’s Economic Development Activities—Status and SSBG Allocation Marketing Business Incentives—to market EZ business incentives to existing and prospective zone businesses Vacant Property Strategy—to identify and redevelop vacant EZ buildings Old Fourth Ward Commercial Property Redevelopment—to redevelop a building located at 551 Ralph McGill Boulevard Manufactured Housing Study—to assess the use of manufactured housing in the zone Female Power Demonstration—to educate and empower female zone residents to move them toward self-sufficiency through employment Atlanta One-Stop Capital Shop—to provide comprehensive technical and financial assistance in a single location to the area’s small businesses Community Empowerment Advisory Board Revolving Loan Fund—to provide loans of up to $50,000 to home, community-based, and start-up businesses Atlanta Empowerment Zone Corporation Revolving Loan Fund—to provide loans in excess of $50,000 to businesses that locate or expand in the zone Autocraft Body and Paint Shop—to renovate and expand a business in its current location Corporate Courier—to finance businesses that expand in or relocate to the zone Creative Fine Arts—to finance businesses that expand in or relocate to the zone Fulton Cotton Bag Mill—to renovate a vacant property for commercial, retail, and residential use Miss Piggy’s Southern Cuisine—to create a new business in the zone Sweet Auburn Curb Market—to renovate an historic food market Leveraged Loan Fund—to provide loans to existing small businesses that have little or no collateral and are service-oriented Job Training-Career Day—to provide job information and solicit job interests Job Training-Computer Jobs Bank—to identify all jobs available in the state of Georgia Job Training-Renewal Atlanta—to recruit, train, and track applicants for jobs in EZ businesses Ongoing Atlanta Hawks/Atlanta Thrashers Arena—to reconstruct a sports arena Centennial Olympic Park Area Business Park—to redevelop a 1-million-square-foot office park MLK and Ashby Shopping Center—to develop vacant land into a shopping center Turner Field—to renovate the Olympic stadium for use as a baseball field (Table notes on next page) This activity, which is part of the Vacant Property Strategy, is listed as a separate activity in the Atlanta EZ’s 1997 performance review but has no additional funds associated with it. This activity, which is part of the Atlanta Empowerment Zone Corporation Revolving Loan Fund, is listed as a separate activity in the Atlanta EZ’s 1997 performance review but has no additional funds associated with it. Table I.2 lists categories that include the Atlanta EZ’s planned activities that are not related to economic development and shows the amount of SSBG funds allocated to each category. Each category contains multiple planned activities. The Baltimore EZ’s implementation process involves a sequence of steps that include researching and reviewing the activities in the EZ’s original application to develop the program’s design and obtain review and input from an advisory council whose members represent the EZ’s various constituencies, obtaining approval from the EZ board to proceed with an activity, presenting that activity to the state and federal governments for review and acceptance, initiating actions to implement the activity, and completing actions associated with the activity. These steps are referred to as “proposed,” “board approved,” “state and federal government approved,” “ongoing,” and “completed,” respectively. Table II.1 shows each planned economic development activity, its status as reported by the EZ in 1997, and the amount of SSBG funds allocated to the activity. The Baltimore EZ also had planned activities related to improving the quality of life and building community capacity that were allocated $12,423,800 and $7,500,000 in SSBG funds, respectively. The New York EZ’s implementation process involves a sequence of steps that include proposing an activity, obtaining approval from the EZ board to proceed with that activity, obtaining approval for funding the activity from the appropriate local and state entities, initiating actions to implement the activity, and completing actions associated with the activity. These steps are referred to as “proposed,” “board approved,” “funding approved,” “ongoing,” and “completed,” respectively. Table III.1 shows each planned economic development activity, its status as reported by the EZ in 1997, and the amount of SSBG funds allocated to the activity. Table III.1: New York EZ’s Economic Development Activities—Status and SSBG Allocation Neighborhood Trust Federal Credit Union—to create a credit union in the area Harlem USA Operating Company—to build a retail and entertainment center Minton’s Playhouse and Restaurant—to renovate and reopen this restaurant and jazz club Isabella Geriatric Center Nursing Assistant Training—to expose students to health care careers through a school-to-work program Washington Heights/Inwood Development Corporation—to provide capital to small business owners and entrepreneurs Business Resource and Investment Service Center—to establish a one-stop capital shop and technical assistance center Black United Fund of New York—to offer copying, computer, and communications services to individuals and businesses Broadway Video Incorporated—to expand the company’s duplication services division by developing a mass video production facility Alexander Doll Company—to provide training and factory renovation East Harlem Microloan Program—to market small business loans to local businesses that do not qualify for traditional loans Institute for Youth Entrepreneurship—to expose youth to entrepreneurial career paths The Studio Museum in Harlem Store—to expand the museum store’s capacity to increase revenues from tourism Small Business Assistance Initiative—to help businesses construct and maintain proper financial records Central Harlem Commercial Revitalization Program—to provide technical assistance for EZ businesses East Harlem Commercial Revitalization Program—to provide technical assistance for EZ businesses Washington Heights/Inwood Commercial Revitalization Program—to provide technical assistance for EZ businesses Washington Heights Business Improvement District Management Association—to provide technical assistance for EZ businesses (continued) The New York EZ also had planned activities related to child care that were allocated $333,334 in SSBG funds. The Kentucky Highlands EZ’s implementation process involves a sequence of steps that include proposing an activity, obtaining approval from the EZ board to proceed with that activity, obtaining approval for funding the activity from the appropriate local and state entities, initiating actions to implement the activity, and completing actions associated with the activity. These steps are referred to as “proposed,” “board approved,” “funding approved,” “ongoing,” and “completed,” respectively. Table IV.1 shows each planned economic development activity, its status as reported by the EZ in 1997, and the amount of SSBG funds allocated to the activity. The Kentucky Highlands EZ also had planned activities related to community development and project administration that were allocated $7,825,000 and $4,350,000 in SSBG funds, respectively. The Mississippi Mid-Delta EZ’s implementation process involves a sequence of steps that include proposing an activity, obtaining approval from the EZ board to proceed with that activity, obtaining approval for funding the activity from the appropriate local and state entities, initiating actions to implement the activity, and completing actions associated with the activity. These steps are referred to as “proposed,” “board approved,” “funding approved,” “ongoing,” and “completed,” respectively. Table V.1 shows each planned economic development activity, its status as reported by the EZ in 1997, and the amount of SSBG funds allocated to the activity. Table V.2 lists categories that include the Mississippi Mid-Delta EZ’s planned activities that are not related to economic development and shows the amount of SSBG funds allocated to each category. Each category contains multiple planned activities. For the Rio Grande Valley EZ, table VI.1 shows each planned economic development activity, its status as reported by the EZ in 1997, and the amount of SSBG funds allocated to the activity. The status was reported as “ongoing” if actions had been initiated beyond obtaining approvals and funding for the activity. Table VI.2 lists categories that include the Rio Grande Valley EZ’s planned activities that are not related to economic development and shows the amount of SSBG funds allocated to each category. Each category contains multiple planned activities. Kathy R. Alexander Johnnie E. Barnes Nancy A. Boardman Elizabeth R. Eisenstadt Nancy A. Simmons Marc A. Wallace 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. 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Pursuant to a congressional request, GAO reviewed the Empowerment Zone and Enterprise Community program, focusing on the: (1) progress made by the federal empowerment zones in implementing the program; (2) steps taken by the two responsible federal agencies--the Department of Housing and Urban Development (HUD) and the Department of Agriculture (USDA)--to monitor and evaluate the existing zones' progress; and (3) status of steps to designate the second group of empowerment zones. GAO noted that: (1) the six empowerment zones that GAO visited have reported on their implementation of a variety of planned activities in the areas of economic development, housing, public safety, health care, public transportation, education, and family self-sufficiency; (2) while the mix of activities varies among the zones, economic development activities generally account for the largest portion of their planned expenditures; (3) the six zones reported that they are making progress in implementing their economic development activities; however, the extent of their progress varies; (4) four of the zones have initiated or completed many of their economic development activities and two zones have established organizations that provide comprehensive technical and financial assistance in a single location to small businesses; (5) officials involved in implementing the empowerment zone program told GAO that two factors facilitated their progress--experience in implementing activities and agreement among stakeholders; (6) both HUD and USDA have sponsored studies of the empowerment zone program to help them monitor implementation efforts; (7) both agencies use progress reports from the zones, together with visits by their own field office staff, to monitor the performance of the zones and evaluate their fitness to continue in the program; (8) HUD required reports from the urban zones in the summers of 1996 and 1997, while USDA has generally required semiannual reports from the rural zones; (9) both agencies perform field reviews and site visits to check the accuracy of the progress reports; (10) while field staff from both agencies said they provide assistance upon request, the extent of their involvement in monitoring and evaluation has varied; (11) HUD field staff told GAO they have not had a routine role in monitoring and evaluating the program; (12) under HUD's management reform initiative, the field offices will have a greater role in assisting the zones and monitoring their activities; (13) USDA involved its field office representatives in monitoring and evaluating the program by requiring the rural zones to submit weekly progress reports to field office representatives for their review; (14) HUD and USDA subsequently issued regulations covering the program, provided guidance to potential applicants, and conducted informational workshops across the country; and (15) both agencies are currently evaluating communities' applications for designation, and expect them to be made by January 1, 1999.

You are an expert at summarizing long articles. Proceed to summarize the following text: The President’s Budget for Fiscal Year 2006 included 1,087 IT projects, totaling about $65 billion. The planned expenditures at the civilian agencies comprised about $35 billion of that total cost. In particular, the five departments in our review made up about one-third of the civilian planned expenditures (see fig. 1). OMB plays a key role in overseeing these IT investments and how they are managed, stemming from its predominant mission: to assist the President in overseeing the preparation of the federal budget and to supervise budget administration in executive branch agencies. In helping to formulate the President’s spending plans, OMB is responsible for evaluating the effectiveness of agency programs, policies, and procedures; assessing competing funding demands among agencies; and setting funding priorities. To carry out these responsibilities, OMB depends on agencies to collect and report accurate and complete information; these activities depend in turn on agencies having effective IT management practices. To drive improvement in the implementation and management of IT projects, the Congress enacted the Clinger-Cohen Act in 1996, which expanded the responsibilities of OMB and the agencies that had been set under the Paperwork Reduction Act. The Clinger-Cohen Act requires that agencies engage in capital planning and performance- and results-based management. The act also requires OMB to establish processes to analyze, track, and evaluate the risks and results of major capital investments in information systems made by executive agencies. OMB is also required to report to the Congress on the net program performance benefits achieved as a result of major capital investments in information systems that are made by executive agencies. With regard to OMB’s responsibilities in this area, we recently issued a report that provided recommendations to improve OMB’s processes for monitoring high-risk IT investments. Since that report was released, OMB has issued additional guidance outlining steps that agencies must take for all high-risk projects to better ensure improved execution and performance as well as promote more effective oversight. In response to the Clinger-Cohen Act and other statutes, OMB developed policy for planning, budgeting, acquisition, and management of federal capital assets. This policy is set forth in OMB Circular A-11 (section 300) and in OMB’s Capital Programming Guide (supplement to Part 7 of Circular A-11), which directs agencies to develop, implement, and use a capital programming process to build their capital asset portfolios. Among other things, OMB’s Capital Programming Guide directs agencies to evaluate and select capital asset investments that will support core mission functions that must be performed by the federal government and demonstrate projected returns on investment that are clearly equal to or better than alternative uses of available public resources; institute performance measures and management processes that monitor actual performance and compare to planned results; and establish oversight mechanisms that require periodic review of operational capital assets to determine how mission requirements might have changed and whether the asset continues to fulfill mission requirements and deliver intended benefits to the agency and customers. Among OMB’s goals in requiring the use of a capital programming process is to assist agencies in complying with a number of results-oriented requirements. Key requirements include those set by the Federal Acquisition Streamlining Act of 1994, which (1) requires agencies to establish cost, schedule, and measurable performance goals for all major acquisition programs and (2) establishes that agencies should achieve on average 90 percent of those goals; the Government Performance and Results Act of 1993, which establishes the foundation for budget decision making to achieve strategic goals in order to meet agency mission objectives; and the Federal Information Security Management Act of 2002, which requires agencies to integrate IT security into their strategic and operational planning processes, such as the capital planning and enterprise architecture processes at the agency. OMB is aided in its responsibilities by the Chief Information Officers (CIO) Council as described by the E-Government Act of 2002. The council is designated the principal interagency forum for improving agency practices related to the design, acquisition, development, modernization, use, operation, sharing, and performance of federal government information resources. Among the specific functions of the CIO Council are the development of recommendations for the Director of OMB on government information resources management policies and requirements and the sharing of experiences, ideas, best practices, and innovative approaches related to information resources management. The CIO Council has issued several guides on capital planning and investment management over the past several years. To further support the implementation of IT capital planning practices, we have developed an IT investment management (ITIM) framework that agencies can use in developing a stable and effective capital planning process, as required by statute and directed in OMB’s Capital Programming Guide. Consistent with the statutory focus on selecting, controlling, and evaluating investments, this framework focuses on these processes in relation to IT investments specifically. It is a tool that can be used to determine both the status of an agency’s current IT investment management capabilities and the additional steps that are needed to establish more effective processes. Mature and effective management of IT investments can vastly improve government performance and accountability. Without good management, such investments can result in wasteful spending and lost opportunities for improving delivery of services to the public. The ITIM framework lays out a coherent collection of key practices that, when implemented in a coordinated manner, can lead an agency through a robust set of analyses and decision points that support effective IT investment management. The framework explicitly calls for consideration of cost, schedule, benefit, and risk objectives, including the development of analyses such as return on investment and a risk management plan. The framework also describes the criticality of tracking progress using valid and complete data. The guidance laid out in the ITIM framework is consistent with the requirements of OMB’s Circular A-11 and matches it in many instances. For example, among the requirements on the exhibit 300 is that agencies indicate that the investment has been reviewed and approved by the responsible oversight entity. The agency investment review board is a critical element of the ITIM framework, and the expectation for the board to select and oversee IT investments is explicit. In previous work using our IT investment management framework, we reported that the use of IT investment management practices by agencies was mixed. For example, a few agencies that have followed the ITIM framework in implementing capital planning processes have made significant improvements. In contrast, however, we and others have continued to identify weaknesses at agencies in many areas, including immature management processes to support both the selection and oversight of major IT investments and the measurement of actual versus expected performance in meeting established IT performance measures. For example: We recently reported that the HHS senior investment board does not regularly review component agencies’ IT investments, leaving close to 90 percent of its discretionary investments without an appropriate level of executive oversight. To remedy this weakness, we recommended that the department (1) establish a process for the investment board to regularly review and track the performance of a defined set of component agency IT systems against expectations and (2) take corrective actions when these expectations are not being met. At DHS, we determined that the department’s draft information resources management strategic plan did not include fully defined goals and performance measures. To address this weakness, we recommended that the department establish IT goals and performance measures that, at a minimum, address how information and technology management contributes to program productivity, the efficiency and effectiveness of agency operations, and service to the public. A recent review by the DOD Inspector General determined that over 90 percent of the business cases submitted to OMB in support of the DOD fiscal year 2006 budget request did not completely respond to one or more data elements addressing security funding, certification and accreditation, training and security plans, and enterprise architecture. The DOD Inspector General concluded that, as a result, these submissions continued to have limited value and did not demonstrate that the department was effectively managing its proposed IT investments for fiscal year 2006. Besides providing policy for planning, budgeting, acquisition, and management of federal capital assets, section 300 of OMB’s Circular A-11 instructs agencies on budget justification and reporting requirements for major IT investments. Section 300 defines the budget exhibit 300, also called the Capital Asset Plan and Business Case, as a document that agencies submit to OMB to justify resource requests for major IT investments. According to OMB, only priority capital asset investments that comply with the policies for good capital programming, as described in the Capital Programming Guide, will be recommended for funding in the President’s Budget. The exhibit 300 was established as a source of information on which to base both quantitative decisions about budgetary resources consistent with the Administration’s program priorities and qualitative assessments about whether the agency’s planning, acquisition, management, and use of capital assets (investments) are consistent with OMB policy and guidance. The types of information included in the exhibit 300 are intended, among other things, to help OMB and the agencies identify and correct poorly planned or performing investments (i.e., investments that are behind schedule, over budget, or not delivering expected results) and real or potential systemic weaknesses in federal information resource management (such as a shortage of sufficiently qualified project managers). According to Circular A-11, the information in the exhibit 300 allows the agency and OMB to review and evaluate each agency’s IT spending and to compare IT spending across the federal government. Further, the information helps the agency and OMB to provide a full and accurate accounting of IT investments for the agency, as required by the Paperwork Reduction Act and the Clinger-Cohen Act. The exhibit 300 is required for all assets, though certain sections apply only to information technology. Table 1 provides a description of the key sections of the exhibit 300, as well as examples of the types of documentation that provide support for the data summarized in the exhibit 300 (although the supporting documentation may take other forms). This support may be derived from a variety of sources, including financial management systems and management processes that agencies carry out to comply with federal requirements and guidelines (such as the Federal Information Security Management Act of 2002 and the Federal Enterprise Architecture), as well as from analyses carried out specifically in support of the management of the investment. According to OMB guidance, the life-cycle stage of the asset affects what is reported on the exhibit 300: New investments (i.e., proposed for budget year or later, or in development) must be justified based on the need to fill a gap in the agency’s ability to meet strategic goals and objectives with the lowest life-cycle costs of all possible alternatives and provide risk-adjusted cost and schedule goals and measurable performance benefits. Mixed life-cycle investments (i.e., investments that are operational but include some developmental effort, such as a technology refresh) must demonstrate satisfactory progress toward achieving baseline cost, schedule, and performance goals using an EVM system. Operational investments (i.e., steady state) must demonstrate, among other things, how close actual annual operating and maintenance costs are to the original life-cycle cost estimates; whether the technical merits of the investment continue to meet the needs of the agency and customers; and that an analysis of alternatives was performed with a future focus. OMB requires agencies to transmit exhibit 300s electronically, using a predefined format. To meet this requirement and facilitate the aggregation of elements of the exhibits from various sources throughout the organization, many agencies use software applications to compile their exhibits 300s. Besides aggregating portions of the exhibit 300, these tools are designed to also perform certain calculations, such as return on investment and those required for earned value analysis. Although the agencies reported that all 29 exhibit 300s had been approved by their investment review boards (as required), in many instances, support for the information provided was not adequate. (Details on the 29 investment projects described in the exhibit 300s that we reviewed are provided in app. III.) Three types of problems were evident. First, all exhibit 300s had documentation weaknesses. For example, each investment lacked documentary support for one or more of the following: Analysis of Alternatives, Risk Inventory and Assessment, and Performance Measures and Goals. In other cases, the supporting material that was provided to us did not match the information in the exhibit 300. Second, agencies did not always demonstrate (for example, in the Security and Privacy and the Project and Funding Plan sections) that they complied with federal requirements or policies with regard to management and reporting processes. Finally, information in some sections (such as the Summary of Spending table and the Project and Funding Plan) could not be relied upon because the numbers were not derived using repeatable processes or reliable systems. Agency officials attributed the absence of adequate support for their exhibit 300s to lack of understanding of the requirements or of how to respond to them. Agency officials mentioned in particular insufficient guidance or training, as well as lack of familiarity with particular requirements, such as the EVM process. If underlying support is inadequate in key areas, OMB and agency executives are depending on unreliable information to monitor the management of major IT projects and to make critical decisions on their funding, thus putting at risk millions of dollars in investments. OMB Circular A-11 states that agencies must justify funding requests for major acquisitions by demonstrating, among other things, measurable performance benefits, comprehensive risk mitigation and management planning, and positive return on investment for the planned investment. Agencies are instructed to establish performance metrics (including baselines from which progress can be measured) to ensure that project managers are accountable in meeting expected performance goals and that projects are aligned with the agencies’ strategic goals. Agencies are also expected to manage investment risk through a robust risk management program; according to OMB’s guidance, agencies need to actively manage risks from initial concept throughout the life cycle of each investment. To demonstrate a positive return on investment for the selected alternative and identify a project’s total lifetime cost, OMB requires agencies to compare alternatives and report summary cost information for investments (including calculations for payback period and net present value). Documents produced in the performance of these activities provide evidence that they were carried out as required. Performance measures. The investments did not usually demonstrate the basis for the performance measure information provided in the exhibit 300. Only 6 of the 29 investments had documentation to support how agencies initially measured their baseline levels of performance, from which they measured progress toward the agency’s strategic goals. In most cases, the investments lacked documentation describing the levels of performance that had been achieved or how these results actually helped meet agency strategic needs. The absence of documentation in these cases could indicate a systemic weakness in agency performance management practices, since well-developed practices should provide the expected support. This finding is consistent with our prior work where we determined that agencies were generally not measuring actual versus expected performance in meeting IT performance goals. Weak performance management practices reduce the ability of agency executives to track investment performance in meeting performance objectives and raise the risk that investments will not be well aligned with agency strategic objectives. Risk management. About 75 percent of the investments were unable to demonstrate that they were actively addressing the risk elements that OMB specifies in Circular A-11, or how they had determined that any of those risks were not applicable. In addition, documentation of risk management that was provided had significant weaknesses. In one case, a risk management plan was approximately 9 years old and had not been updated, and for three investments, the risk documentation addressed only the project development phase, even though the systems had exited that phase and were in full operation. Analysis of alternatives. All 29 investments reported cost information in the analysis of alternatives section of the exhibit 300. However, in about 72 percent of the exhibit 300s reviewed, either supporting documentation was missing for this cost information, or information in the documentation did not agree with that in the exhibit 300. In cases where investments lacked documentation to support information reported in the performance and risk areas, project officials frequently told us that they had filled out these sections of the exhibit 300 to satisfy the reporting requirement, relying on their own knowledge of the investment rather than any project documentation. However, such an approach is not consistent with the requirement for providing accurate information in compliance with OMB capital programming and capital planning and investment control policies. In addition, several project officials told us that they believed some of the 19 risk management areas required in the exhibit 300 were not applicable to their investment, but they reported on those categories nonetheless to fulfill the requirement. Although the guidance instructs agencies to indicate whether the risk category was not applicable, officials stated that their impression is that “not applicable” responses might lower the evaluation of their investments and reduce or eliminate their funding. Further, agency officials generally responded that the training they received for preparing the exhibit 300 was not sufficient. For example, one agency commented that agencies would benefit from targeted OMB training that would address agency-specific questions. Several agencies stressed that OMB training should occur earlier in the budget cycle. In addition, one agency said that it needed OMB training on preparing each section of the exhibit 300. Overall, the lack of documentation supporting the exhibit 300s raises questions regarding the sufficiency of the business case for the investment and the quality of the projects’ management. Compliance with OMB and other federal guidance and related federal laws helps ensure that agency investments are managed in a manner consistent with the intent of the Congress and that key information is available to OMB and agency managers on which they can base informed decisions. The security section of the exhibit 300 requires that agencies demonstrate that they have developed information security plans in accordance with the Federal Information Security Management Act of 2002 (FISMA); according to FISMA, these plans must include rules of behavior for system use, technical security controls, and procedures for incident handling—that is, how to respond to system security breaches. In addition, agencies ensure that employees and contractors receive security awareness training. Guidance from the National Institute of Standards and Technology (NIST) supports FISMA by outlining the necessary components of key security documentation, including security plans, certification and accreditation packages, and security controls testing. For the analysis of alternatives section, OMB’s instructions for the exhibit 300 cite the Clinger-Cohen Act, which requires agencies to complete a cost-benefit analysis for new IT investments, and OMB Circular A-94, which outlines requirements for completing cost-benefit and cost-effectiveness analyses, including the comparison of at least three alternatives, a discussion of assumptions for each alternative, and an analysis of uncertainty (a sensitivity assessment to raise awareness of the potential for unforeseen impacts on the investment). For the project and funding plan section, OMB Circular A-11 provides guidance that requires an agency to have in place a process for monitoring the investment’s status in accomplishing baseline cost and schedule goals. For the 29 investments, agency compliance with the FISMA and NIST requirements described above was mixed. For example, about 86 percent of all investments could demonstrate, based on documentation, that security awareness training had been conducted for employees and contractors and that a mechanism for tracking completion of security awareness training had been established. In addition, 21 of the 22 operational investments (for which information security plans are required) had security plans that addressed areas such as the rules of behavior for system use and technical security controls. In contrast, about 77 percent of these 22 investments did not provide support describing how incident handling activities would be performed at a system level, such as detecting, reporting, and mitigating risks associated with security incidents. While the compliance of security documentation with federal requirements was mixed, the documented support for the analysis of alternatives and the project and funding plan areas of the exhibit 300 provided little assurance that investments complied with applicable guidance and laws. None of the investments had cost analysis documentation that fully complied with Circulars A-94 and A-11 criteria (lacking, for example, a comparison of at least three alternatives, a discussion of assumptions for each alternative, or an analysis of uncertainty). Project officials attributed deficiencies in the analysis of alternatives to, among other things, a lack of understanding of what was expected for reporting in the exhibit 300. In a few instances, officials noted that they believed that their investments were excluded from meeting the federal requirements because the investments were near the end of their operational or, in some cases, useful life cycles. OMB guidance on analysis of alternatives does not differentiate between operational and developmental investments; nonetheless, one agency’s internal guidance explicitly states that no analysis of alternatives is necessary for investments in the steady state (that is, operational). However, a forward-looking analysis of alternatives for operational investments can help agencies recognize when an alternative solution may be more efficient or effective than the current investment, thereby freeing scarce resources to be reallocated. The agencies’ lack of compliance with OMB guidelines for analysis of alternatives, including the cost-benefit analysis, leaves senior executive managers at risk of making poor investment management decisions on incomplete and sometimes inaccurate information. For the project and funding plan section of the exhibit 300, OMB Circular A-11 provides guidance on the information to be provided, which depends upon the state of the investment (i.e., new, mixed life cycle, or steady state). According to this guidance, information presented in the project and funding plan is to be derived from one of two types of analysis: for steady state investments, an operational analysis, and for new and mixed life-cycle investments, an analysis based on an EVM process that is compliant with ANSI/EIA-748-A. Operational analysis is a method for assessing the technical merits of an existing investment in meeting user needs, while EVM is a method for assessing the value of work performed compared to its actual cost during development of an investment. Of the eight steady state investments we reviewed, only two had conducted an operational analysis. Furthermore, only one of those had documented procedures that were in accordance with OMB’s Capital Programming Guide criteria, such as addressing user needs and technical performance. In most cases for which no operational analyses were in place, agency officials commented that OMB guidance describing how to perform an operational analysis was at such a high level of generality that they found it difficult to follow. Instead of attempting to devise and perform an operational analysis, therefore, they implemented variations on an EVM process. However, these implementations of EVM did not address topics required for the operational analysis, such as user needs and technical performance. Unless they address these topics, agencies may not have the information they need to determine, among other things, whether investments are performing as intended and meeting user needs. Similarly, of the 21 new and mixed life-cycle investments required to use EVM, only 6 used an EVM process that generally followed the ANSI standard. Since fiscal year 2002, OMB has required the use of EVM as a project management tool. The ANSI standard is intended to ensure that data produced by an EVM process are reliable so as to allow objective reports of project status, produce early warning signs of impending schedule delays and cost overruns, and ultimately provide unbiased estimates of anticipated costs at completion. If agencies do not implement EVM processes that follow the ANSI standard, they have reduced assurance that the information used for tracking the cost, schedule, and performance of the investment is reliable. For the remaining 15 investments that did not have EVM processes following the required standard, project officials commented that EVM was relatively new to them and that they did not understand how to implement an ANSI-compliant process at the time of the fiscal year 2006 submission. At the time of our review, all five departments stated that they were working toward implementing compliant processes. To OMB’s credit, it recognized the need for improvement in the execution of agencies’ IT projects and has issued clarifying guidance on the implementation of EVM. This guidance, issued in August 2005, could be expected to have an impact on the exhibit 300s prepared for fiscal year 2008. Under this guidance, agencies are instructed, among other things, to develop comprehensive agency policies for using EVM to plan and manage development activities for major IT investments no later than December 31, 2005; include a provision and clause in major acquisition contracts or agency in-house project charters directing the use of an EVM system compliant with the required standard; and provide documentation demonstrating that the contractor’s or agency’s in-house EVM system complies with the required standard and conduct periodic surveillance reviews. Additionally, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council published in the Federal Register a proposed amendment to the Federal Acquisition Regulation (FAR Case 2004-019) to standardize EVM contract policy across the government. In previous work, we have reported that EVM can have a significant impact on the success of an IT acquisition because it heightens visibility into whether a program is on target with respect to cost, schedule, and technical performance. Therefore, it is important that the process is implemented properly to maximize its value as a project management tool. If it is not implemented effectively, agency executives and OMB risk making poor investment decisions based on inaccurate and potentially misleading EVM information. Accurate and timely cost management information is critical for federal managers to understand the progress of major projects and vital in developing meaningful links among budget, accounting, and performance. The Federal Financial Management Improvement Act of 1996 emphasizes the need for agencies to have systems that are able to generate reliable, useful, and timely information for decision-making purposes and to ensure accountability on an ongoing basis. In previous work, we have reported on the lack of adherence to federal accounting standards throughout the federal government and have made recommendations that agencies improve cost-accounting systems. At every agency, cost information reported in the 29 exhibit 300s was derived from ad hoc processes rather than from cost-accounting systems with adequate controls to ensure accountability. This condition had impact in two particular areas of the exhibit 300—the summary of spending table and the project and funding plan section: Figures for dollars expended for the prior year (in this case, fiscal year 2004) were not reliable. In all cases, documentation provided to support prior year cost figures in the summary of spending table showed that the information was derived from ad hoc sources, such as spreadsheet estimates, handwritten figures, or e-mails. Therefore, the cost data reported in the exhibit 300 are not verifiable. Information in the project and funding plans was also unreliable for the 21 new and mixed life-cycle investments required to use EVM. As discussed earlier, 15 of these investments reported cost figures based on EVM processes that did not follow the ANSI standard; because the standard was not followed, these processes did not have the controls necessary to ensure that the data they produced were reliable. The other 6 investments had ANSI-compliant EVM processes in place for the contractor component of the investment costs, but the government component of the investment costs was derived from ad hoc systems (such as tracking government costs in spreadsheets based on project managers’ own records); thus, that portion of the data was not reliable, lending a degree of unreliability to the overall EVM reports. The lack of accurate cost figures limits decision makers’ ability to determine the actual resources expended on an investment, and therefore inhibits their ability to make fully informed decisions on whether to proceed. Without reliable systems that meet federal standards, government agencies cannot produce reliable cost-based performance information. The usefulness of the exhibit 300 business case as a mechanism to support the selection and oversight of federal IT investments is undercut by the kinds of weaknesses displayed in the 29 business cases that we reviewed. Although we cannot directly project these examples to the more than one thousand business cases developed each year across the federal government, our results suggest that the issues raised need attention. The shortcomings in guidance and training are likely to be widespread, and so the weaknesses may extend beyond the specific examples identified here. The kinds of weaknesses displayed and the causes behind them are consistent with the pervasive problems with project and investment management that we have documented in numerous prior reports. The absence of documentary support in the cases reviewed raises questions regarding the sufficiency of the justification provided for the investment and undermines the management decisions being made based on it. More troubling, it may indicate an underlying weakness in the management of the investment, particularly since several sections of the exhibit are specifically designed to capture information from systems used in project management, such as those that support EVM and financial management. In many cases, inadequate support raises questions regarding the adequacy of an agency’s management processes and internal controls, which strongly affect the reliability of the information presented to decision makers. Further, in view of the inaccuracies in the cases reviewed, it is evident that agencies are not taking sufficient actions to ensure the accuracy of the information in the exhibit 300s. To make reasonable decisions, management needs to be aware of limitations in the data on which they rely and thus be able to take steps to mitigate the risks involved. Collectively, our findings raise questions on whether fundamental project management processes are in place, whether project managers are adequately trained in these processes, and whether they receive sufficient guidance on these processes and on preparing all areas of the exhibit 300. At a minimum, this situation undermines the usefulness of the exhibit 300 as a mechanism to communicate to OMB and agency executives that the project team has employed the disciplines of good project management. By reporting information that is not supported by documentation, the exhibit 300 can create the misleading appearance that investments are being managed properly, when in fact they are not. In addition, OMB has relied on these exhibits to identify and oversee high-risk projects; thus, our finding that the data being presented to OMB may not be reliable or accurate further complicates its oversight. While OMB is applying more rigor to its oversight processes through such processes as its tracking of high-risk investments, these advances may be undermined by inaccurate or unreliable data used in decision making. Unless these weaknesses are addressed, OMB, agency executives, and Congress will not have assurance that key decisions to pursue and oversee the $65 billion in IT investments are being made based on accurate and reliable information. To improve the accuracy and validity of exhibit 300s for major IT investments and to increase the value of using the information they provide in selection, oversight, and resource allocation decisions, we are making three recommendations. 1. Because decision makers should be aware of any weaknesses in the processes used to develop the information in the exhibit 300s, we are recommending that the Director of OMB direct agencies to determine the extent to which the information contained in each exhibit 300 is accurate and reliable. Where weaknesses in accuracy and reliability are identified, the agency should be required to disclose them and explain the agency’s approach to mitigating them. In addition, to help ensure that agency personnel completing exhibit 300s better understand their responsibilities, we recommend that the Director of OMB take the following additional actions: 2. In advance of OMB’s next issuance of the Circular A-11 update, develop and promulgate clearer and more explicit guidance for sections of the exhibit 300 business case that cause confusion, including addressing weaknesses identified in this report (as indicated below) and consulting with agency personnel having responsibility for completing exhibit 300s across government to identify other areas of confusion. At a minimum, the guidance should do the following: Provide a more detailed description of the requirements for completing an operational analysis, as referred to in the supplement to Part 7 of Circular A-11, the Capital Programming Guide. Address or clarify possible flexibilities and alternative approaches available to agencies in completing their exhibit 300s: for example, whether the analysis of alternatives section of the exhibit 300 needs to be updated every year for steady state investments and whether all risk areas are relevant for all investments. 3. Provide for training of agency personnel responsible for completing exhibit 300s. This training should go beyond a description of changes from prior years’ guidance and include working through examples for a variety of investments. In developing the training, OMB should consult with agencies to identify deficiencies that the training should address. In implementing these recommendations, OMB should work with the CIO Council to develop the necessary guidance and implement an effective training program to ensure governmentwide acceptance of these changes. Because we have outstanding recommendations aimed at enhancing OMB’s audit guidance related to federal cost-accounting systems, we are not making any new recommendations in this report regarding federal cost accounting. We provided a draft of this report to OMB and the five agencies whose exhibit 300s we reviewed. In written comments received on December 23, 2005, the Administrator of OMB’s Office for E-Government and Information Technology accepted the findings of the draft report. OMB described two of our three recommendations and expressed three concerns: first, that our report does not address the need for agencies to ensure the accuracy of their IT investment requests; second, that the report focuses on the way agency employees fill out OMB’s exhibit 300s and not on the underlying management responsibilities; and third, that by directing our recommendations to OMB rather than to the agencies, we could be seen as suggesting that OMB and not the agencies are responsible for data accuracy and employee training. OMB’s concern regarding data accuracy is addressed by our first recommendation: that the Director of OMB instruct agencies to determine the extent to which the information contained in each exhibit 300 is accurate and reliable, to disclose weaknesses, and to describe the agency’s approach to mitigating these weaknesses. This recommendation clearly places responsibility on the agencies for assessing the quality of their budget information and the processes that produced this information. With respect to OMB’s concern that the recommendations do not focus on how well agencies fulfill their underlying information resources management responsibilities, our view is that our recommendation on disclosing and mitigating weaknesses does address these underlying responsibilities. The report specifically addresses the exhibit 300s and the reliability of these documents when used as support in the agencies’ and OMB’s decision-making processes. As our report clearly states, the lack of documentation may indicate an underlying weakness in the management of the investment. In many cases inadequate support raises questions about the investments’ program management and internal controls. Requiring agencies to disclose and mitigate associated weaknesses presupposes that agencies examine and address their approach to fulfilling information resources management responsibilities. Regarding OMB’s third concern, we do not intend to suggest that agencies are not responsible and accountable for the weaknesses we describe. We place significant responsibility on agencies to manage their information assets effectively, as reflected in our first recommendation and in the large number of evaluations that we have previously conducted at individual agencies and the recommendations resulting, some of which are still outstanding. In this report, however, our recommendations are directed to OMB because they address findings relating to OMB-required budget documents, and OMB has statutory responsibility for providing information resources management guidance governmentwide. Regarding OMB’s comment that agencies be held responsible for employee training in information resources management, we agree that agencies are responsible for such training. However, as agencies indicated during the review, additional training by OMB would be helpful, especially in the understanding of OMB’s requirements for the exhibit 300. This is also consistent with OMB’s responsibility under the E-Government Act of 2002 to identify where current training does not satisfy the personnel needs related to information technology and information resource management. The Deputy Associate Chief Information Officer for Information Technology Reform of the Department of Energy provided largely technical comments, which we incorporated as appropriate. The Director of Audit Relations of the Department of Transportation also provided technical comments that were incorporated as appropriate. The Departments of Agriculture, Commerce, and the Treasury provided no comments. The written comments from OMB are reproduced in appendix II. 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 Secretaries of the Departments of Agriculture, Commerce, Energy, Transportation, and the Treasury and the Director of Office of Management and Budget. We will also make copies available to others upon 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 on matters discussed in this report, please contact me at (202) 512-9286. I can also be reached 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. Other contacts and key contributors to this report are listed in appendix IV. Our objective was to ascertain the extent to which selected agencies have underlying support for the information described in their fiscal year 2006 exhibit 300s as submitted to the Office of Management and Budget (OMB) in September 2004. To address our objective, we reviewed the supporting documentation for 29 exhibit 300s from agencies and components from the Departments of Agriculture, Commerce, Energy, Transportation, and the Treasury. We selected the five departments for our review on the basis of two criteria. First, to ensure that we examined significant investments, we selected departments that expected to spend $1 billion or more on information technology (IT) investments in fiscal year 2006. Second, of those agencies with significant investments, we further narrowed our selection of agencies to those with the first and second largest number of IT investments in each of three categories of the federal government’s Business Reference Model (BRM): Services for Citizens, Support Delivery of Services, and Management of Government Resources. We did this to ensure that the agencies under review reflect the primary business operations performed by the federal government. We excluded the Mode of Delivery Business Area because we found investments in this area to be largely from one agency, the Department of Defense (DOD). (In general, Mode of Delivery describes the mechanisms the government uses to achieve its purposes: Services for Citizens.) (We excluded DOD and the Department of Homeland Security (DHS) from our selection, because the Defense Inspector General recently performed an extensive review of exhibit 300s, and we have both completed and ongoing work on several major IT investments at DHS). This process resulted in the selection of the five departments mentioned above. To make our selection of IT investments from the five departments, we used OMB capital planning and budget documentation to identify a mix of investments. Specifically, we chose IT investments that (1) supported government operations across each of the three BRM business areas identified above and (2) reflected different stages of investment (e.g., new, mixed life cycle, and steady state). Initially, we selected a total of 30 investments (i.e., 6 investments from each department). However, one IT investment was dropped from our total of 30 selected investments because we determined during our review that OMB and the agency had cancelled its funding. To determine the extent of each investment’s underlying support, we developed a set of questions regarding the types of analysis and documentation that were associated with the information provided in each of the major sections of OMB’s exhibit 300. Using our set of questions, we met with agency officials for each selected investment to collect and analyze investment documentation associated with each exhibit 300 area in our evaluation. We further compared the documentation against the exhibit 300 to ascertain whether the documentation agreed with what the investment reported in the exhibit 300. Where federal requirements, laws, and other guidelines were cited in Circular A-11, we also used these to assess the extent to which agencies and components had complied with specific documentation requirements as prescribed in these sources (including National Institute of Standards and Technology (NIST) guidance, OMB circulars, and OMB memorandums). In areas where federal directives were cited in the exhibit 300, we conducted limited reliability testing; these areas included security, analysis of alternatives, and the project and funding plan. In our evaluation of security documentation, we used criteria set forth in NIST guidance to assess whether the major components were present in key documents, which included the security plan and system-level incident handling procedures. For security awareness training, we identified whether training was conducted and tracked but did not assess its content. In our evaluation of the analysis of alternatives, we used criteria from OMB Circular A-94 to assess whether the major components were present in the cost-benefit or cost-effectiveness analysis. In cases where investment managers told us that their earned value management (EVM) processes were in conformance with ANSI/EIA-748-A (for our evaluation of the project and funding plan sections), we used criteria from ANSI/EIA-748-A to assess whether key EVM processes were in place. We did not test the quality of the documentation in these areas of evaluation. Regarding the reliability of cost data, we did not test the adequacy of agency or contractor cost-accounting systems. Our evaluation was based on what we were told by the agencies and the information they could provide (to the extent to which they had information). We performed our work at the agencies’ offices in the Washington, D.C., metropolitan area. We conducted our review between March and November 2005 in accordance with generally accepted government auditing standards. The following provides additional detail on the agencies and investments that we reviewed as part of this audit. We reviewed a total of 29 investments at five departments: Agriculture, Commerce, Energy, Transportation, and the Treasury. The selected departments account for the first and second largest number of IT investments in each of three categories of the federal government’s Business Reference Model: Services for Citizens, Support Delivery of Services, and Management of Government Resources. According to OMB guidance, the life-cycle stage of the asset affects what is reported on the exhibit 300: New investments (i.e., proposed for budget year or later, or in development) must be justified based on the need to fill a gap in the agency’s ability to meet strategic goals and objectives with the lowest life-cycle costs of all possible alternatives and must provide risk- adjusted cost and schedule goals and measurable performance benefits. Mixed life-cycle investments (i.e., investments that are operational but include some developmental effort, such as a technology refresh) must demonstrate satisfactory progress toward achieving baseline cost, schedule, and performance goals using an EVM system. Operational investments (i.e., steady state) must demonstrate, among other things, how close actual annual operating and maintenance costs are to the original life-cycle cost estimates, whether the technical merits of the investment continue to meet the needs of the agency and customers, and that an analysis of alternatives was performed with a future focus. Brief description: This system is expected to automate processes to allow the Department of Agriculture to issue, track, and rapidly verify the validity of a federal permit allowing the importation of plants and animals. It is also expected to assist the public by allowing applicants to apply for permits, check the status of permit applications, and receive permits online. Brief description: This investment is designed to represent the entire portfolio of current corporate financial management and administrative payment systems for the department. It is a corporatewide solution for financial management reform and systems integration that provides tools for program and financial managers to manage and evaluate federal programs. Brief description: This system is intended to be a single enterprisewide acquisition management system to support a strategic and more standardized acquisition management process for Agriculture. It is expected to provide a real-time interface to the department’s core financial system, reliable data, and a shortened time for acquiring goods and services. Brief description: This system is expected to establish a new process to collect and track phytosanitary certificates issued by the department, which attest to compliance with import regulations of importing countries. It is also intended to provide better service to users by reducing the need for repetitive data entry from applicants and enabling certifying officials to deliver certificates in a timelier manner. Brief description: This system is designed to support the annual acquisition, tracking, and distribution of commodities acquired by Agriculture for domestic and foreign food assistance programs by providing financial and program management, reporting, and control to track commodity requests against purchases and distributions from inventory. Brief description: This system is intended to support the department’s Food-Stamp program mission by tracking and monitoring food coupon/electronic benefit redemption activities and regulatory violations by businesses and associated administrative actions related to enforcement of penalties, among other things. This initiative is expected to replace the current legacy system, which has been in place since 1993. Brief description: This system is designed to be an interactive computer system that integrates all meteorological and hydrological data and all satellite and radar data to enable the forecaster to prepare and issue more accurate and timely forecasts and warnings. Brief description: This system is expected to provide an integrated solution to weather and water data archive and access, including an access portal with search, browse, and geospatial capabilities for users to obtain environmental data, contributing to improvements in prediction capabilities. Brief description: This investment is designed to provide statistical programs that count and profile U.S. businesses and government organizations through the gathering of surveys and principal economic indicators in order to conduct research and technical studies. Brief description: The current system is designed to expedite monthly statistics on international trade, remedy shortcomings in export statistics, and help to control the export of weapons or other hazardous items that could be a threat to U.S. national security or public welfare. The proposed initiative is designed to improve the current system to handle electronic filing of all export transactions, incorporate an electronic manifest system, and provide for verification of export information reported on export transactions. Brief description: The current system is designed to collect and distribute raw and processed hydrometeorological data and products, disseminating weather observations and guidance to a national and international community of customers. Improvements to current system are expected to provide sufficient performance, capacity, and catastrophic backup capability to meet current and future demands for data. Brief description: This system is designed to command and control Commerce’s operational environmental satellites and to acquire and manage the weather and water data the satellites collect, in order to provide support functions that are not available commercially, such as real- time hurricane support. Brief description: This project is designed to support scientific research by providing an interoperable, effective, and reliable communications infrastructure and network services to the Department of Energy research facilities. Brief description: This system is expected to be an enterprisewide, integrated document and records management system that will include portal accessibility and integration with knowledge management tools in order to improve decision and service delivery quality and serve as a resource for operations management. Brief description: This system is designed to support the routine collection and reporting needs of Energy for life-cycle planning, budget formulation, and project and budget execution. Brief description: This is a Web-based system that is intended to make relevant documentary material supporting the Nuclear Regulatory License Application available to users, as part of the requirements of the Nuclear Waste Policy Act. Brief description: This investment is intended to identify, design, and implement the systems, processes, and controls related to financial management, human resources, supply chain management, facilities maintenance, information management, project management, and manufacturing in order to lower costs and provide more efficient operations and improved management. Brief description: This investment is intended to provide the Department of Transportation (DOT) with asset management and supply chain management information systems to track and manage over $21 billion in federal government assets. Reducing the number of information systems, optimizing supply chain operations, and streamlining business operations of employees are expected to result in reduced costs to the agency. Brief description: This program is expected to consolidate several major and nonmajor DOT financial systems to interface or integrate all related systems in order to eliminate redundant data and processes. Brief description: This system is designed to collect performance data from over 640 local transit agencies for the purpose of reporting statistical data on the U.S. transit industry. Brief description: This system is intended to provide air pilot/controller voice and data communications by utilizing a digital-based air/ground communication system. Brief description: This system is expected to consolidate the agency’s 28 oversight systems on aviation regulatory compliance into 5 integrated aviation safety risk management systems. Its intended purpose is to allow applicable government agencies and the aviation industry to use common system safety applications and databases for managing and overseeing flight safety. Brief description: This is a navigation system that is designed to provide navigation across the entire United States for all classes of aircraft in all flight operations, including en-route navigation, airport departures, and airport arrivals including precision landing approaches in all weather conditions. Brief description: This system is part of a modernization program that is expected to provide the Department of the Treasury with the capability to manage its tax accounts utilizing new technology, applications, and databases. This system is designed to create applications for daily posting, settlement, maintenance, refund processing, and issue detection for taxpayer tax account and return data to improve customer service and compliance. Brief description: This system is designed to be a financial accounting system for activities associated with Treasury’s debt collection program to track funds recovered by the agency, post these funds to the proper account in an accurate and timely manner, and transfer moneys due to the appropriate government agencies. The system is also designed to record the general ledger activity and produce operational, management, and standard external reports. Brief description: This system is designed to be a front-end processing system that receives, validates, stores, forwards to mainframe electronic filing systems, and acknowledges electronic files containing tax documents. The system is intended to receive returns from third parties, acknowledge the receipt of information, format the information for mainframe processing, provide acknowledgements to the third parties, and send state return data to participating states. Brief description: This system is designed to produce accurate, accessible, and timely governmentwide financial information through the streamlining of reports and the reduction of the reconciliation burden on government agencies in order to minimize the amount of labor necessary to transfer financial information. Brief description: This system is intended to be a data capture, management, and storage system used to process tax documents automatically in order to meet mandated timelines and processing requirements for various tax forms and the Federal Tax Deposits, which directly impacts revenue brought into the federal treasury. Brief description: This system is designed to be a browser-based Internet version of the current Electronic Certification System, which will allow federal program agencies to submit certified requests for payment disbursement online. It is intended to provide a more secure payment process, increase the ability to protect sensitive financial and privacy data, and improve the financial performance of federal program agencies by providing program agencies a method of providing financial data to Treasury. David A. Powner, (202) 512-9286, [email protected]. In addition to the contact named above, the following people made key contributions to this report: Carol Cha, Barbara Collier, Joseph Cruz, Lester Diamond, Valerie Hopkins, Sandra Kerr, Linda Lambert, Tammi Nguyen, Chris Owens, Mark Shaw, Kevin Walsh, and Martin Yeung.

Each year, agencies submit to the Office of Management and Budget (OMB) a Capital Asset Plan and Business Case--the exhibit 300--to justify each request for a major information technology (IT) investment. The exhibit's content should reflect controls that agencies have established to ensure good project management, as well as showing that they have defined cost, schedule, and performance goals. It is thus a tool to help OMB and agencies identify and correct poorly planned or performing investments. In its budget and oversight role, OMB relies on the accuracy and completeness of this information. GAO was asked to determine the extent to which selected agencies have underlying support for the information in their fiscal year 2006 exhibit 300s. From five major departments having over $1 billion in IT expenditures in that year, GAO chose for analysis 29 exhibits for projects that supported a cross section of federal activities. Underlying support was often inadequate for information provided in the exhibit 300s reviewed. Three general types of weaknesses were evident. All exhibit 300s had documentation weaknesses. Documentation either did not exist or did not fully agree with specific areas of the exhibit 300. For example, both these problems occurred in relation to calculations of financial benefits for most investments. In addition, for 23 of the 29 investments, information on performance goals and measures was not supported by explanations of how agencies had initially measured their baseline levels of performance (from which they determine progress) or how they determined the actual progress reported in the exhibit 300. Agencies did not always demonstrate that they complied with federal or departmental requirements or policies with regard to management and reporting processes. For example, 21 investments were required to use a specific management system as the basis for the cost, schedule, and performance information in the exhibit 300, but only 6 did so following OMB-required standards. Also, none had cost analyses that fully complied with OMB requirements for cost-benefit and cost-effectiveness analyses. In contrast, most investments did demonstrate compliance with information security planning and training requirements. In sections that required actual cost data, these data were unreliable because they were not derived from cost-accounting systems with adequate controls. In the absence of such systems, agencies generally derived cost information from ad hoc processes. Officials from the five agencies (the Departments of Agriculture, Commerce, Energy, Transportation, and the Treasury) attributed these shortcomings in support to lack of understanding of a requirement or how to respond to it. Agency officials mentioned in particular insufficient guidance or training, as well as lack of familiarity with particular requirements. The weaknesses in the 29 exhibit 300s raise questions regarding the sufficiency of the business cases for these major investments and the quality of the projects' management. Without adequate support in key areas, OMB and agency executives may be depending on unreliable information to make critical decisions on IT projects, thus putting at risk millions of dollars. Further, although the 29 examples cannot be directly projected to the over one thousand business cases developed each year across the federal government, the results suggest that the underlying causes for the weaknesses identified need attention. These weaknesses and their causes are also consistent with problems in project and investment management that are pervasive governmentwide, including at such agencies as the Departments of Defense, Health and Human Services, and Homeland Security, as documented in reports by GAO and others.

You are an expert at summarizing long articles. Proceed to summarize the following text: This section discusses EPA’s risk assessment and risk management practices and the May 2009 IRIS process. EPA’s IRIS Program is an important source of information on health effects that may result from exposure to chemicals in the environment. As figure 1 shows, the toxicity assessments in the IRIS database fulfill the first two critical steps of the risk assessment process—providing qualitative hazard identification and dose-response assessment (see definitions below). IRIS information can then be used with the results of exposure assessments (typically conducted by EPA’s program or regional offices) to provide an overall characterization of the public health risks for a given chemical in a given situation. EPA defines a risk assessment, in the context of human health, as the evaluation of scientific information on the hazardous properties of environmental agents (hazard characterization), the dose-response relationship (dose-response assessment), and the extent of human exposure to those agents (exposure assessment). In final form, a risk assessment is a statement regarding the probability that populations or individuals so exposed will be harmed and to what degree (risk characterization). The development of risk assessments is directly dependent on the development of toxicity assessments such as those developed by the IRIS Program. A typical IRIS toxicity assessment is based on two sequential analyses: qualitative hazard identification and quantitative dose-response assessment. Among other things, a hazard identification identifies health hazards that may be caused by a given chemical at environmentally relevant concentrations; this identification describes the potential noncancer and cancer health effects of exposure to a chemical that research studies have suggested or determined. For cancer effects, EPA describes the carcinogenic potential of a chemical in a narrative which includes one of five weight-of-the-scientific-evidence descriptors, ranging from “carcinogenic to humans” to “not likely to be carcinogenic to humans.” The second analysis is the dose-response assessment, which characterizes the quantitative relationship between the exposure to a chemical and the resultant health effects; this assessment describes the magnitude of hazard for potential noncancer effects and increased cancer risk resulting from specific exposure levels to a chemical or substance. The quantitative dose-response analysis relies upon credible research data, primarily from either animal (toxicity) or human (epidemiology) studies. The noncancer dose-response assessments may include  an oral reference dose (RfD)—an estimate of the daily oral exposure to a chemical that is likely to be without an appreciable risk of deleterious effects during a person’s lifetime—expressed in terms of milligrams per kilogram per day and  an inhalation reference concentration (RfC)—an estimate of the daily inhalation exposure to a chemical that is likely to be without an appreciable risk of deleterious effects during a person’s lifetime— expressed in terms of milligrams per cubic meter. The focus of IRIS toxicity assessments has been on the potential health effects of long-term (chronic) exposure to chemicals. According to OMB, EPA is the only federal agency that develops qualitative and quantitative assessments of both cancer and noncancer risks of exposure to chemicals, and EPA does so largely under the IRIS Program. The risk characterization information, which is derived from toxicity and exposure assessments—exposure assessments identify the extent to which exposure actually occurs—can be used to make risk management decisions designed to protect public health. For example, IRIS assessments support scientifically sound decisions, policies, and regulations under such key statutes as the Clean Air Act, the Safe Drinking Water Act, and the Clean Water Act, as well as for setting Superfund cleanup standards of hazardous waste sites. Risk management, as opposed to risk assessment, involves integrating the risk characterization information with other information—such as economic information on the costs and benefits of mitigating the risk, technological information on the feasibility of managing the risk, and the concerns of various stakeholders—to decide when actions to protect public health are warranted. More specifically, an initial risk management decision would be to determine whether the health risks identified in a chemical risk assessment warrant regulatory or other actions. As a result, the development of IRIS assessments is of key interest to stakeholders, such as other federal agencies and their contractors, chemical companies, and others who could be affected if regulatory actions were taken. That is, stakeholders could face increased cleanup costs and other legal liabilities if EPA issued an IRIS assessment for a chemical that resulted in a risk management decision to regulate the chemical to protect the public. EPA’s process for developing IRIS assessments—established in May 2009—consists of seven steps. In announcing its revised process in May 2009, EPA noted that the new process would ensure that the majority of assessments would be completed within 2 years (23 months)—a significantly shorter time than the estimated completion time frame of about 6 to 8 years under the previous process. We note that the seven steps are preceded by a literature search and data call-in, which is not included as part of the process or its time frames. Results of the literature search are posted on the IRIS website and announced in the Federal Register, along with a request for information—the data call-in—about any pertinent studies not listed. According to EPA officials, the literature search and data call-in are not part of the process because the agency does not dedicate full-time staff to them. EPA officials told us that after the literature search, they place IRIS assessments in one of three categories—standard, moderately complex, or exceptionally complex— on the basis of such factors as the number of available scientific studies on the chemical, the number of potential health effects identified in these studies, the staff resources required to complete the assessment, and the level of stakeholder interest. However, this process, as written, does not distinguish among different types of assessments with varying complexity. Table 1 outlines the steps in the IRIS assessment process, along with the planned time frames established by EPA. All IRIS assessments undergo external peer review, but exceptionally complex assessments are generally peer reviewed by EPA’s Science Advisory Board panels and in some cases by National Academies panels. These peer reviews typically require more planning and take longer than the reviews for less complicated assessments. Peer reviews for all other assessments are typically conducted by expert panels that are independently assembled by an EPA contractor. All panel members, including Science Advisory Board and National Academies panels, are composed of individuals with expertise in various scientific and technical disciplines who retain their primary involvement in academia, industry, state government, and environmental organizations. As we reported in 2008, an overarching factor that can affect EPA’s ability to complete IRIS assessments in a timely manner is the compounding effects of delays. Once a delay in the assessment process occurs—for example, suspending work on an assessment to wait for additional studies—work that has been completed can become outdated, necessitating rework of some or all of the steps in the assessment process. Even a single delay can have far-reaching, time-consuming consequences, in some cases requiring that the assessment process essentially start over. EPA’s May 2009 IRIS assessment process addresses some of the problems we identified in our March 2008 report. However, progress in other areas has been limited. EPA’s initial gains in productivity under the revised process have not been sustained. EPA has not significantly reduced its workload of ongoing assessments, which would enable the agency to routinely start new assessments and keep existing assessments current. EPA has not met established time frames for IRIS assessment process steps. EPA has addressed concerns we raised in our March 2008 report regarding the transparency of the IRIS process. Since May 2009, all federal agency and White House office comments from both the interagency science consultation and discussion (steps 3 and 6b of the IRIS process) are available to the public on EPA’s IRIS website. In addition, EPA has made publicly available documents that show EPA’s responses to selected “major” interagency comments for all draft IRIS assessments that have completed an interagency review step since June 2011. As we have previously reported, we believe that interagency coordination can enhance the quality of EPA’s IRIS assessments. Previously, OMB considered its comments and changes, and those of other federal agencies, to be “deliberative”—that is, they were not part of the public record. We believe the input from other federal agencies is now obtained in a manner that better ensures that EPA’s scientific analysis is given appropriate weight. As a result, stakeholders, including EPA regional and program offices, the public, and industry, can now see which other federal agencies comment and the nature of their comments, making IRIS assessments more transparent. Transparency is especially important because agencies providing input, such as DOD and NASA, may have a vested interest in the outcome of the assessment should it lead to regulatory or other actions. For example, these agencies may be affected by the potential for increased environmental cleanup costs and other legal liability if EPA issued an IRIS assessment that resulted in a decision to regulate a chemical to protect the public. Officials we spoke with from other federal agencies—including DOD, NASA, and the Department of Health and Human Services (HHS)—all agreed that making their comments publicly available was a good practice. In addition, EPA now manages the interagency science consultation and discussion (steps 3 and 6b of the IRIS process, formerly OMB-managed interagency reviews). As we recommended in 2008, the process now includes time limits for all parties, including OMB and other federal agencies, to provide comments to EPA on draft assessments. Prior to May 2009, OMB managed these steps, and EPA was not allowed to proceed with assessments until OMB notified EPA that it had sufficiently responded to comments from OMB and other federal agencies. EPA has also streamlined its IRIS process, as we recommended in our 2008 report, by consolidating some process steps and eliminating others that had provided opportunities for other federal agencies to suspend IRIS assessments to conduct additional research. Shortly after it implemented its revised IRIS assessment process in May 2009, EPA experienced a surge of productivity in terms of the number of IRIS assessments it issued. Specifically, from May 2009 through September 30, 2011, EPA completed 20 IRIS assessments—more than doubling the total productivity it achieved during fiscal years 2007 and 2008. However, 16 of these were completed in the first year and a half of implementing the revised process, and productivity fell sharply during fiscal year 2011, with EPA issuing 4 IRIS assessments (see fig. 2). In completing 4 IRIS assessments in fiscal year 2011, EPA fell significantly short of its original plan to complete 20 assessments—a goal that it had revised to 9 as of August 2011. In addition, EPA is unlikely to meet its fiscal year 2012 goal of completing 40 assessments. As of September 30, 2011, 12 of the 40 assessments that EPA plans to complete in fiscal year 2012 are still being drafted (step 1 of the IRIS process). See appendix II for the status of chemicals in the IRIS assessment process as of September 30, 2011. On the basis of the planned time frames EPA established under its revised process, once these 12 IRIS assessments are drafted, EPA will require at least 345 days, or 11½ months, to complete the remaining IRIS process steps and issue the assessments—making it unlikely these will be completed in 2012. The increased productivity occurring after May 2009 does not appear to be entirely attributable to the revised IRIS assessment process. According to our analysis of EPA data, the agency’s ability to complete more assessments was not due to a fundamental gain in how quickly assessments are completed, but rather to EPA’s ability to clear up the backlog of assessments that had undergone work under the previous IRIS process and had been delayed for multiple reasons. Most of the assessments completed from May 2009 through September 2011 had been in process 5 years or longer and thus had already passed through some key process steps prior to the implementation of the revised process. In addition, most of these completed IRIS assessments were for standard and moderately complex assessments—that is, they were less challenging to complete than those for more complex chemicals. Specifically, 17 of 20 assessments issued from May 2009 through September 30, 2011, were in process for 5 years or longer, and 2 of the 20 were for exceptionally complex assessments (see table 2). For example, 1 exceptionally complex assessment that EPA did complete was for trichloroethylene (TCE). For information on TCE, as well as on some other key chemicals for which EPA has not completed IRIS assessments, see appendix III. As of September 30, 2011, EPA had 55 IRIS assessments ongoing and 14 on hold—down from the 88 assessments that were in various stages of development when it implemented its revised IRIS assessment process in May 2009. Since May 2009, EPA has undertaken 6 new assessments, dropped 5 assessments that it determined were no longer required, completed 20 assessments, and continued to have 14 assessments on hold (see table 3). According to EPA officials, assessments that have been put on hold will be resumed when the agency has resources available to staff them. However, this tally of IRIS assessments does not reflect the true extent of EPA’s workload or the backlog of demand for IRIS assessments. Beyond the 55 ongoing IRIS assessments and 14 on hold, the demand for additional IRIS assessments is unclear. With existing resources devoted to addressing its current workload of ongoing assessments, EPA has not been in a position to routinely start new assessments. In late 2010, for the first time since 2007, EPA solicited nominations for new IRIS assessments from EPA program and regional offices, as well as from the public and federal agencies that participate in IRIS interagency reviews. However, as of September 30, 2011, EPA officials had not decided which chemicals to include on the IRIS agenda and thus include in their workload. Moreover, instead of nominating new chemicals for assessment in 2010, one regional office requested that the IRIS Program focus its efforts on completing assessments currently under way. In addition, in 2007, the Office of Air and Radiation—which develops national programs, policies, and regulations for controlling air pollution and radiation exposure—requested that ongoing assessments be expedited for 28 chemicals that it identified as high-priority and required to fulfill its regulatory mandates. As of September 30, 2011, 17 of the 28 assessments the office identified are ongoing, and 3 are on hold. See appendix IV for EPA’s expected completion dates for IRIS assessments currently in the assessment process. In addition, other assessments in the IRIS database may need to be updated. As we reported in March 2008, EPA data from 2001 through 2003 indicated that 287 of the assessments in the IRIS database at that time may need to be updated. In October 2009, EPA announced in the Federal Register the establishment of the IRIS Update Project. The stated purpose of the project was to update IRIS toxicity values, such as oral reference doses or inhalation reference concentrations, that are more than 10 years old. However, according to EPA officials, since the project was announced, little progress has been made toward updating these assessments. We note that even if EPA were to overcome the significant productivity difficulties it has experienced in recent years and meet its goal of completing 40 assessments in fiscal year 2012, it is not clear that this level of productivity would meet the needs of EPA program offices and other users. IRIS assessments have taken longer than the time frames established under the revised IRIS process. Since implementing the revised process, most IRIS assessments have exceeded the established time frames for each step of the process. EPA officials, however, told us that the time frames established for the steps in the revised IRIS assessment process apply only to standard assessments—and not to moderately or exceptionally complex assessments. While EPA officials have said that they are trying to hold moderately complex assessments to the established time frames, EPA does not have a written policy that describes the applicability of these time frames or written criteria for designating IRIS assessments as standard, moderately complex, or exceptionally complex. Consequently, it is unclear how IRIS users will know which assessments are standard, moderately complex, or exceptionally complex and what time frames will be required to complete them. According to EPA officials, NCEA management, including IRIS Program management, is tracking the time it takes for each IRIS assessment to complete the various steps in the IRIS process. However, EPA has not yet analyzed these data to determine whether the time frames established for each step or the overall 23-month process are realistic. According to EPA officials, they do not yet have the data needed to draw conclusions regarding completion time frames. On the basis of our analysis of EPA data, however, we determined how long each IRIS process step was taking on average compared with the time frames established for each step under the May 2009 revised process. We performed this analysis for the 55 assessments that were ongoing, as of September 30, 2011, and the 20 assessments that were completed after May 2009. Because none of the 20 IRIS assessments completed from May 2009 through September 2011 were initiated after the revised process was implemented, it was not possible to fully evaluate the extent to which EPA is adhering to the new 23-month time frame. Further, we combined our analysis of steps 4 and 5 because EPA data do not indicate when step 4 ends and when step 5 begins, and we combined steps 6 and 7 for the same reason. According to our analysis, on average, assessments of all types have taken longer than the established time frames for every step in the IRIS process (see table 4). Some other federal agencies that participate in interagency reviews expressed concern that in some cases time and resource constraints present challenges as they try to meet EPA’s time frames for the two interagency review steps. In addition to the time limits established under the revised process, in an effort to increase productivity and complete more IRIS assessments, EPA officials said that, beginning in April 2011, the agency began to accelerate the number of draft assessments sent through the interagency review steps. However, officials from other federal agencies— including HHS and DOD—told us that they have advised EPA that the accelerated pace of interagency reviews in the second half of fiscal year 2011 strained their resources. In addition, the official from NASA told us that not only are the increased pace of reviews straining the agency’s resources, but that it has also affected the ability to provide in-depth independent technical reviews and interagency comments. EPA officials also told us that the interagency reviewer at NASA is so concerned with the pace of the interagency reviews under the revised process that NASA officials have asked OMB to form an interagency work group to discuss the reviews. EPA faces both long-standing and new challenges in implementing the IRIS Program. First, the National Academies has identified recurring issues with how the IRIS Program develops and presents its assessments and has suggested improvements. Second, EPA has not consistently provided reliable information on ongoing and planned IRIS assessments to IRIS users. Third, unresolved discussions with OMB regarding EPA’s responses to Data Quality Act challenges may impede EPA’s ability to issue completed IRIS assessments. The National Academies and EPA’s Science Advisory Board have identified several recurring issues with how EPA develops and presents IRIS assessments. For example, in April 2011, the National Academies in its independent scientific review of EPA’s draft IRIS assessment of formaldehyde provided a critique of EPA’s development and presentation of draft IRIS assessments. Overall, the National Academies noted some recurring methodological problems in the draft IRIS assessment of formaldehyde. In addition, in the report the National Academies also identified recurring issues concerning clarity and transparency with EPA’s development and presentation of its draft IRIS assessments. The National Academies and Science Advisory Board have identified similar clarity and transparency issues in peer review reports over the past 5 years. Some of these reports stated that EPA should more clearly explain its reasons for including or excluding the scientific studies supporting draft IRIS assessments. In addition, some reports stated that EPA should more transparently present its justifications for its methodological approaches. Independent of its review of the formaldehyde assessment, the National Academies also provided a “roadmap for revision” that made suggestions for improvements to the IRIS draft development process, during which EPA selects and evaluates evidence (the literature search) and drafts an assessment (step 1). The National Academies’ “roadmap for revision” suggested that EPA take the following steps, among others:  use clear, standardized methods to identify and select study evidence;  use a standardized approach to evaluate and describe study strengths and weaknesses and the weight of evidence, describe and justify the assumptions and models used, and adopt a standardized approach to characterizing uncertainty factors; and  present methodology and findings more clearly and more concisely through better use of graphics and tables and use a template to facilitate a consistent description of the approach to study selection. The National Academies’ report on the draft IRIS assessment of formaldehyde specifically noted that EPA should not delay the finalization of the assessment in order to implement any of the suggestions it made regarding the overall IRIS process. As of September 30, 2011, according to EPA officials, the agency is revising the assessment in response to the National Academies’ suggestions, but the status page on EPA’s website for formaldehyde lists “TBD”—to be determined—as the posting date for the final assessment. In July 2011, EPA announced that it planned to respond to the National Academies’ suggestions by implementing changes to the way it develops draft IRIS assessments. In announcing the planned changes, EPA stated that it would take the following actions:  enhance its approach to identifying and selecting scientific study  provide more complete documentation of its approach to evaluating scientific study evidence and indicate which criteria were most influential in its evaluation of the weight of evidence; and concisely state the criteria used to include or exclude studies, continue to use existing IRIS guidelines to enhance the clarity and transparency of its data evaluation and presentation of findings and conclusions, eliminate the need for some report text using standardized tables, and portray toxicity values graphically. According to EPA officials, in implementing these changes, EPA will subject those assessments that are in earlier stages of development to more extensive changes than those in later stages of development. It will change the latter “as feasible” without repeating steps in the overall IRIS process. However, EPA has not provided a more detailed description of how the National Academies’ suggestions will apply to each of the assessments in its current inventory of IRIS assessments. Without a more precise description of which drafts would be considered “in the earlier stages of development” or what “more extensive changes” would entail, it is too soon to provide a comprehensive assessment of EPA’s approach. In addition, it is not transparent to stakeholders and other interested parties which assessments will be subject to these changes and which will not. EPA established the Board of Scientific Counselors (BOSC), an advisory committee composed of non-EPA technical experts from academia, industry, and environmental communities, to provide independent advice, information, and suggestions to the Office of Research and Development (ORD) research program—which houses the IRIS Program. Part of BOSC’s mission is to evaluate and provide advice concerning the utilization of peer review within ORD to sustain and enhance the quality of science in EPA. It is unclear if BOSC will have a role in reviewing EPA’s response to the National Academies’ suggestions. We reviewed two IRIS assessments—one completed and one still in draft form—that reflect changes EPA has made in response to the National Academies’ suggestions. First, for its assessment of urea, finalized in July 2011, EPA streamlined the report by moving sections of text from the body to an appendix, which shortened the body of the assessment from 89 to 57 pages, making it more concise. In addition, we reviewed the draft IRIS assessment of diisobutyl phthalate (DIBP), which EPA provided to us, that was undergoing agency review (step 2) and reflects some of the National Academies’ suggestions regarding presentation. For example, it includes (1) descriptive and pictorial explanations of the study selection methods used; (2) tables that, among other things, give side-by-side comparisons of studies considered in determining the oral reference dose for the chemical; and (3) brief descriptions of the strengths and weaknesses of various studies considered. For these two assessments, it appears that EPA has begun to enhance the readability of its assessments by making changes that appear to be in line with the suggestions made by the National Academies. EPA uses two primary mechanisms—the IRIS agenda and a website feature known as IRISTrack—to make information on the status of IRIS assessments available to EPA program and regional offices, other federal agencies, and the public. EPA has not effectively used these two mechanisms, or a third that we recommended in March 2008—that the agency provide a 2-year notice of its intent to assess specific chemicals— to consistently provide reliable information on IRIS assessments to stakeholders and other interested parties. First, EPA has not published an IRIS agenda in the Federal Register— identifying the chemicals that EPA plans to assess (both new and ongoing assessments)—since it announced its 2008 IRIS agenda in December of 2007. EPA started developing an annual IRIS agenda and providing it to the public in a notice in the Federal Register in 1997. In late 2010, EPA began to solicit nominations for its fiscal year 2011 IRIS agenda from its program and regional offices, as well as from the public and federal agencies that participate in IRIS interagency reviews. However, as of September 30, 2011, EPA had not published its fiscal year 2011 agenda. In addition, some of the information provided in the Federal Register notices about the IRIS agenda has been incomplete. For example, an October 2010 Federal Register notice contained a list of chemicals currently on the IRIS agenda but did not distinguish between chemicals the agency was actively assessing and those it had designated for future assessment. We reported on similar issues in March 2008— noting that EPA had identified some assessments that had been suspended as ongoing. Second, EPA has not kept information on the status of the individual ongoing assessments up to date in IRISTrack—an issue we also reported on in 2008. EPA’s IRISTrack, a feature of its website, is intended to provide stakeholders and other interested parties with information on draft IRIS assessments—specifically, estimated start and end dates for steps in the IRIS process. For example, officials from the Office of Water indicated that that their office relies heavily on IRISTrack for information about the status of IRIS assessments. In addition to not updating IRISTrack, EPA recently removed some key information presented in IRISTrack. Now, in some cases, the IRISTrack date for the beginning of draft development (step 1) understates the actual duration of an assessment—sometimes by many years. For example, IRISTrack indicates that draft development for the dioxin assessment began in the first quarter of fiscal year 2009; in fact, as we have reported, EPA has been assessing dioxin since 1991. IRISTrack also understates the duration of assessments of other chemicals of key concern—for formaldehyde, naphthalene, and TCE. Therefore, current and accurate information regarding when an assessment will be started, which assessments are currently ongoing, and when an assessment is projected to be completed is presently not publicly available. Third, EPA does not provide at least 2 years’ notice of its intent to assess specific chemicals, as we recommended the agency should do in our March 2008 report to give agencies and other interested parties the opportunity to conduct research needed to fill any data gaps. In commenting on our report, EPA agreed to consider our recommendation, and EPA officials recently stated that they continue to agree with it, but as of September 30, 2011, the agency still had not taken steps to implement our recommendation. Discussions between EPA and OMB officials regarding Data Quality Act challenges related to specific draft IRIS assessments have been ongoing for over a year without resolution. If these unresolved discussions continue, they could contribute to delays of IRIS assessments. According to EPA officials, OMB would like to return to its role in the prior assessment process, in which it managed interagency reviews and made the final determination as to whether EPA has satisfactorily responded to comments from OMB and officials in other federal agencies. The Information Quality Act, commonly called the Data Quality Act, requires OMB to issue governmentwide guidelines to “ensure and maximize the quality, objectivity, utility, and integrity of information, including statistical information,” disseminated to the public. In addition, it required agencies to issue their own guidelines, set up administrative mechanisms to allow affected parties to seek the correction of information they considered erroneous, and report periodically to OMB information about Data Quality Act challenges (“requests for correction” of agency information) and how the agencies addressed them. Under its data quality guidelines, when EPA provides opportunities for public participation by seeking comments on information, such as during a rulemaking, the agency uses the public comment process rather than EPA guidelines to address concerns about EPA’s information. This is consistent with OMB’s data quality guidelines, which encourage agencies to incorporate data quality procedures into their existing administrative practices rather than create new and potentially duplicative or contradictory processes. According to EPA’s data quality guidelines, the public comment period serves the purposes of the guidelines, provides an opportunity for correction of information, and does not duplicate or interfere with the orderly progression of draft documents through an established process—in this case, the IRIS assessment process. That is, the external peer review and associated public comment period provide the public with the opportunity to raise questions regarding the quality of the information being used to support an IRIS assessment. According to EPA officials, federal agency responses to data quality challenges must be cleared by OMB before EPA sends responses to the parties filing challenges—although no law or guidance specifically provides for such reviews. In June and July 2010, EPA received Data Quality Act challenges regarding two draft IRIS assessments. According to EPA officials, in its draft responses to these data quality challenges, EPA declined to review the challenged data because, according to agency policy, draft IRIS documents are not subject to data quality challenges. EPA used the same approach in 2006 when responding to and declining a similar challenge regarding a draft IRIS assessment; at that time, OMB approved the EPA response. EPA sent its draft responses for the two more recent challenges to OMB for approval in September 2010 and January 2011. EPA’s data quality guidelines set a goal of responding to Data Quality Act challenges within 90 days, but EPA officials said that they still await a decision by OMB. According to EPA officials, OMB is delaying a decision because OMB would like to return to its role in the prior assessment process, in which it managed interagency reviews and made the final determination as to whether EPA has satisfactorily responded to comments from OMB and officials in other federal agencies. EPA officials told us that as of September 30, 2011, the issues regarding data quality challenges had not delayed the progress of draft IRIS assessments. Meanwhile, OMB staff told us that they had sent comments to EPA on the draft responses and await EPA’s reply to their comments. It appears to GAO that the discussions of these issues between EPA and OMB officials, which have been ongoing for over a year without resolution, have highlighted the agencies’ differences regarding the revised IRIS process. If these differences persist, they could contribute to the compounding effects of delays in the IRIS process, discussed here and in our earlier work. For example, in August 2011, EPA received a third data quality challenge on an assessment that EPA had expected to be finalized at the end of fiscal year 2011. For reasons that remain unclear, EPA now projects that this assessment will not be finalized until fiscal year 2012. We note that the assessment had entered the interagency science discussion (step 6b) in July 2011. EPA asked interagency reviewers to submit written comments by August 26, 2011, but as of September 2011, OMB reviewers have not yet submitted comments. The IRIS process reforms EPA began implementing in May 2009 have restored EPA’s control of the process and increased its transparency. Notably, EPA has addressed concerns we raised in our March 2008 report regarding the transparency of comments from both the interagency science consultation and discussion steps in the IRIS process. Making these comments publicly available is especially important because agencies providing input may have a vested interest in the outcome of the assessment should it lead to regulatory or other actions. As a result, stakeholders, including EPA regional and program offices, the public, and industry, can now see which other federal agencies comment and the nature of their comments, making IRIS assessments more transparent. In addition, EPA now manages the interagency science consultation and discussion steps and has streamlined the IRIS process. Progress in other areas, however, has been more limited. For example, even for its less challenging assessments, EPA took longer than its established time frames for accomplishing steps in the revised process— calling into question the feasibility and appropriateness of the established time frames in the IRIS assessment process for standard assessments. Thus, the established time frames may not be feasible. It is also unclear whether the established time frames apply to moderately complex assessments because EPA does not have a written policy that describes the applicability of the time frames, although EPA officials said they are trying to hold moderately complex assessments to the 23-month time frame. Similarly, EPA does not have written criteria for designating IRIS assessments as standard, moderately complex, or exceptionally complex. We note that EPA has not analyzed the time frames to determine whether the actual time taken for each step of the overall 23-month process is realistic. Such an analysis would provide more accurate information for EPA to use in establishing time frames for these assessments. Not having established time frames for these assessments also creates uncertainty for many stakeholders with significant interest in IRIS assessments. EPA also faces both long-standing and new challenges in implementing the IRIS Program. Notably, the National Academies and Science Advisory Board have identified recurring issues of clarity and transparency of draft IRIS assessments. Consequently, as part of its independent scientific review of EPA’s draft IRIS assessment of formaldehyde, the National Academies also provided suggestions in a “roadmap for revision” that included suggestions for improving EPA’s development and presentation of draft IRIS assessments in general. The report identified recurring methodological issues with how the IRIS Program develops and presents its assessments and suggested improvements. EPA announced that it intends to address the issues raised in the National Academies’ report but has not publicly indicated how these proposed changes would be applied to its current inventory of IRIS assessments. Many of the issues raised in the National Academies’ report have been brought to the agency’s attention previously. It is unclear whether any independent entity with scientific and technical credibility, such as EPA’s Board of Scientific Counselors, will have a role in reviewing EPA’s planned response to the National Academies’ suggestions to ensure that EPA addresses these long-standing issues. In addition, EPA has not addressed other long-standing issues regarding the accuracy and availability of information on the status of IRIS assessments to IRIS users—including stakeholders such as EPA program and regional offices, other federal agencies, and the public. For example, since 2007, EPA has not published in the Federal Register an IRIS agenda that includes information on chemicals the agency is actively assessing or when it plans to start assessments of other listed chemicals. The agency also has not updated IRISTrack to display all current information on the status of assessments on the IRIS agenda, including estimated start dates and end dates of steps in the IRIS process. In addition, EPA has recently removed some key information presented in IRISTrack that showed the duration of IRIS assessments. Now, in some cases, the IRISTrack date for the beginning of draft development underestimates the actual duration of an assessment—sometimes by many years. Therefore, current and accurate information regarding when an assessment will be started, which assessments are currently ongoing, and when an assessment is projected to be completed is presently not publicly available. Finally, as we recommended the agency should do in our March 2008 report, EPA does not provide at least 2 years’ notice of its intent to assess specific chemicals, which would give agencies and other interested parties the opportunity to conduct research needed to fill any data gaps. To improve EPA’s IRIS assessment process, we are making the following six recommendations: To better ensure the credibility of IRIS assessments by enhancing their timeliness and certainty, we recommend that the EPA Administrator require the Office of Research and Development to  assess the feasibility and appropriateness of the established time frames for each step in the IRIS assessment process and determine whether different time frames should be established, based on complexity or other criteria, for different types of IRIS assessments, and should different time frames be necessary, establish a written policy that clearly describes the applicability of the time frames for each type of IRIS assessment and ensures that the time frames are realistic and provide greater predictability to stakeholders. To better ensure the credibility of IRIS assessments by enhancing their clarity and transparency, we recommend that the EPA Administrator require the Office of Research and Development to submit for independent review to an independent entity with scientific and technical credibility, such as EPA’s Board of Scientific Counselors, a plan for how EPA will implement the National Academies’ suggestions for improving IRIS assessments in the “roadmap for revision” presented in the National Academies’ peer review report on the draft formaldehyde assessment. To ensure that current and accurate information on chemicals that EPA plans to assess through IRIS is available to IRIS users—including stakeholders such as EPA program and regional offices, other federal agencies, and the public—we recommend that the EPA Administrator direct the Office of Research and Development to  annually publish the IRIS agenda in the Federal Register each fiscal indicate in published IRIS agendas which chemicals EPA is actively assessing and when EPA plans to start assessments of the other listed chemicals; and  update IRISTrack to display all current information on the status of assessments of chemicals on the IRIS agenda, including projected and actual start dates, and projected and actual dates for completion of steps in the IRIS process, and keep this information current. We provided a draft of this report to the Administrator of EPA for review and comment. In written comments, which are included in appendix V, EPA agreed with the report’s recommendations. EPA also provided technical comments, which we incorporated into the report as appropriate. Specifically, EPA agreed that it should (1) assess the feasibility and appropriateness of the established time frames for each step in the IRIS assessment process by using available program performance measures collected since the current IRIS process was established to evaluate determine whether different time frames should be established, based on complexity or other criteria, for different types of IRIS assessments, (2) determine if different time frames are necessary, establish a written policy that clearly describes the applicability of the time frames for each type of IRIS assessment and ensures that the time frames are realistic and provide greater predictability to stakeholders, (3) continue to implement the 2011 suggestions for improving IRIS assessments in the “roadmap for revision” presented in the National Academies’ peer review report on the draft formaldehyde assessment and seek independent review through the Science Advisory Board to ensure that the agency is addressing the recommendations, (4) annually publish the IRIS agenda in the Federal Register each fiscal year, (5) indicate in published IRIS agendas which chemicals EPA is actively assessing and when EPA plans to start assessments of the other listed chemicals, and (6) update IRISTrack to display all current information on the status of assessments of chemicals on the IRIS agenda, including projected and actual start dates, and projected and actual dates for completion of steps in the IRIS process, and keep this information current. 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 Administrator of EPA, the appropriate congressional committees, 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 who made major contributions to this report are listed in appendix VI. This appendix details the methods we used to assess the Environmental Protection Agency’s (EPA) management of its Integrated Risk Information System (IRIS). For this review, our objectives were to evaluate (1) EPA’s progress in completing IRIS assessments under the May 2009 process and (2) the challenges, if any, that EPA faces in implementing the IRIS Program. To address these objectives, we reviewed relevant EPA documents, including documents outlining the April 2008 and the May 2009 versions of the IRIS assessment process; documents related to IRIS performance metrics; chemical nomination forms submitted by EPA regional and program offices, federal agencies, and others; and documents and other information on the public EPA website, including the IRIS database and IRISTrack, the assessment tracking system available at the IRIS website. In addition, we reviewed other relevant documents, including Federal Register notices announcing, among other things, IRIS agendas, as well as documents related to EPA’s meetings with other federal agencies involved in interagency reviews of draft IRIS assessments. We did not evaluate the scientific content or quality of IRIS assessments; however, we did review the National Academies’ peer review report on the draft IRIS assessment of formaldehyde to evaluate their suggestions for overall improvements to the development of IRIS assessments and other peer review reports by the National Academies and EPA’s Science Advisory Board to evaluate their suggestions for improvements to draft IRIS assessments. In addition, we interviewed officials from EPA’s National Center for Environmental Assessment (NCEA) who manage the IRIS Program, including the Acting Center Director, the Associate Director for Health, and the IRIS Program Acting Director, to obtain their perspectives on, among other things, the May 2009 IRIS process and the effects of changes from the April 2008 IRIS process, the extent to which EPA has made progress in completing timely, credible chemical assessments, challenges EPA faces in completing assessments, and EPA’s process for responding to Data Quality Act challenges. We interviewed officials from EPA’s Office of Environmental Information to obtain their perspectives on EPA’s process for responding to data quality challenges. We also attended two Board of Scientific Counselors (BOSC) meetings to understand the board’s role in providing advice, information, and recommendations about the Office of Research and Development (ORD) research programs, including IRIS. For the first objective, we obtained and analyzed data from fiscal year 1999 through September 30, 2011, including data, spreadsheets, project plans, and other documents used in IRIS assessment planning, development, and completion. From the data we gathered, we analyzed information on IRIS productivity, including information on the number of IRIS assessments completed and initiated, the status of IRIS assessments that are currently in progress or on the IRIS agenda, and the completion dates and durations of IRIS assessment process steps completed or currently in progress for given chemical assessments. In addition, we assessed the reliability of the data we received from EPA for our first objective. Our assessment consisted of interviews and e-mail exchanges with EPA officials about the data system, the method of data input, and internal data controls and documentation, among other areas. We also corroborated the data with other sources, where possible. For example, we verified the information provided in tables of IRIS assessment start dates and completion dates of IRIS assessment process steps through interviews and e-mail exchanges with the NCEA officials responsible for maintaining these data. Through our assessment, we determined that the data were sufficiently reliable for our purposes. For the second objective, we interviewed the chair of the National Academies Committee to Review EPA’s Draft IRIS Assessment of Formaldehyde to obtain his perspective on the National Academies’ suggestions for improvements to the IRIS assessment process. We interviewed officials from the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs (OIRA) to obtain their perspectives on interagency review of draft IRIS assessments, OMB’s process for responding to EPA with regard to Data Quality Act challenges, and OMB’s process for reviewing and approving EPA guidance documents. In addition, we interviewed officials from the Department of Defense (DOD), the National Aeronautics and Space Administration (NASA) and the Department of Health and Human Services (HHS)—including representatives from the Centers for Disease Control and Prevention’s National Center for Environmental Health (NCEH)/ Agency for Toxic Substances and Disease Registry (ATSDR), National Institute for Occupational Safety and Health (NIOSH). We also interviewed HHS officials from the Food and Drug Administration (FDA); the National Institute of Environmental Health Sciences/National Toxicology Program and the Office of the Secretary. We also interviewed representatives from a chemical industry group and a nonprofit research and educational organization. We conducted this performance audit from July 2010 to December 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. Step 2–EPA internal review (8 assessments in step) Step 3– Interagency science consultation (2 assessments in step) Step 4–External peer review and public comment (9 assessments in step) Step 5–EPA draft revision (7 assessments in step) Step 6a and b–Final EPA review / Interagency science discussion (1 assessment in step) Step 7– Completion and posting (4 assessments in step) Benzopyrene Polychlorinated biphenyls (PCBs) (noncancer) Arsenic, inorganic (cancer) Dichloro- benzene, 1,2- Dichloro- benzene, 1,3- Dichloro- benzene, 1,4- Formaldehyde Polycyclic aromatic hydrocarbon (PAH) mixtures Tetrachloro- dibenzo-p-dioxin, 2,3,7,8- (dioxin) Dichloro- methane Ethylene oxide (cancer) Tetrachloro- ethylene (perchloro- ethylene or perc) Tetrahydrofuran (THF)  Trichloroethylene (TCE). In September 2011, EPA finalized and posted an IRIS assessment of TCE, 13 years after initiating it. A degreasing agent used in industrial and manufacturing settings, TCE is a common environmental contaminant in air, soil, groundwater, and surface water. TCE has been found in the drinking water at Camp Lejeune, a large Marine Corps base in North Carolina. It has also been found at Superfund sites and many industrial and government facilities, including aircraft and spacecraft manufacturing operations. TCE has been linked to cancer, including childhood cancer, and other significant health hazards, such as birth defects. In 1995, the International Agency for Research on Cancer, part of the World Health Organization, classified the chemical as “probably carcinogenic to humans,” and in 2000, the Department of Health and Human Services’ National Toxicology Program concluded that TCE is “reasonably anticipated to be a human carcinogen.” However, between 1989 and September 2011, the IRIS database contained no quantitative or qualitative data on TCE. Because of questions raised by peer reviewers about the IRIS cancer assessment for TCE, EPA withdrew it from the IRIS database in 1989 and did not initiate a new TCE cancer assessment until 1998. In 2001, EPA issued a draft IRIS assessment of TCE that characterized TCE as “highly likely to produce cancer in humans.” The draft assessment was peer reviewed by a Science Advisory Board panel and released for public comment. In the course of these reviews, issues arose concerning, among other things, EPA’s use of emerging risk assessment methods and the uncertainty associated with these new methods. To help address these issues, EPA and other agencies sponsored a National Academies peer review panel to provide guidance. The National Academies panel recommended in its 2006 report that EPA finalize the draft assessment using available data, noting that the weight of evidence of cancer and other health risks from TCE exposure had strengthened since 2001. Nonetheless, the TCE assessment was returned to draft development. It then underwent a third peer review, again through Science Advisory Board, which issued its report in January 2011. EPA revised the draft in response to the Science Advisory Board’s comments and, in September 2011, finalized and posted the TCE assessment.  Dioxin. The term “dioxin” applies to a family of chemicals that are often the byproducts of combustion and other industrial processes. Complex mixtures of dioxins enter the food chain and human diet through emissions into the air that settle on soil, plants, and water. When animals ingest plants, commercial feed, and water contaminated with dioxins, the dioxins accumulate in the animals’ fatty tissue. EPA’s initial assessment of dioxin, which was published in 1985, focused on the dioxin TCDD (2,3,7,8-tetrachlorodibenzo-p- dioxin), which animal studies dating to the 1970s had shown to be the most potent cancer-causing chemical studied to date. EPA began work on updating this assessment in 1991. From 1995 through 2000, the revised draft assessment underwent a full peer review, as well as three peer reviews of key segments of the draft. As we have reported previously, EPA officials said in 2002 that the version of the revised assessment then in progress would conclude that dioxin may adversely affect human health at lower exposure levels than had previously been thought, and that most exposure to dioxins occurs from eating such American dietary staples as meat, fish, and dairy products. EPA was moving closer to finalizing the assessment when, in 2003, a congressional appropriations committee directed the agency not to issue the assessment until it had been peer reviewed by the National Academies. The National Academies issued its peer review report in July 2006. EPA then revised the draft assessment in response to the National Academies’ recommendations, releasing it for public comment in May 2010 and sending it to the Science Advisory Board for another peer review. In August 2011, the Science Advisory Board panel issued its peer review report. Having been tasked with evaluating EPA’s responses to the National Academies review and its incorporation of studies that have become available since 2006, the panel concluded that the draft IRIS assessment of dioxin was “generally clear, logical, and responsive to many but not all of the suggestions of the NAS.” Among other things, the Science Advisory Board panel recommended that EPA discuss both linear and nonlinear models for cancer risks associated with dioxin exposure in its revised report. Three days after the Science Advisory Board issued its report, EPA announced that it would split the dioxin assessment into two parts, completing the noncancer portion of the assessment first and then addressing the Science Advisory Board’s comments and completing the cancer portion of the assessment. EPA expects to complete the noncancer portion of the dioxin assessment by January 2012, and states that it will complete the cancer portion as expeditiously as possible thereafter. The effort to update the assessment of dioxin, which could have significant health implications for all Americans, has been ongoing for 20 years.  Formaldehyde. Formaldehyde is a gas widely used in such products as pressed wood, paper, pharmaceuticals, leather goods, and textiles. The IRIS database currently lists formaldehyde as a “probable human carcinogen”; however, the International Agency for Research on Cancer classifies it as “carcinogenic to humans.” In June 2011, the Department of Health and Human Services’ National Toxicology Program classified formaldehyde as “known to be a human carcinogen” in its Report on Carcinogens. The report stated that epidemiological studies “have demonstrated a causal relationship between exposure to formaldehyde and cancer in humans”— specifically, nasopharyngeal cancer, sinonasal cancer, and myeloid leukemia. The current IRIS assessment of formaldehyde dates to 1989, when the cancer portion of the assessment was issued, and 1990, when the noncancer portion was added. The last significant revision of the formaldehyde assessment dates to 1991. As we have reported previously, EPA began efforts to update the IRIS assessment of formaldehyde in 1997. In 2004, EPA received a congressional directive to await the results of a National Cancer Institute study that was expected to take, at most, 18 months before finalizing the draft assessment. That study was completed in May 2009, and in June 2010, EPA released the draft assessment, which assessed both cancer and noncancer health effects, to the National Academies for peer review. In May 2011, the National Academies published its peer review report. As of September 30, 2011—14 years after EPA began work to update the IRIS formaldehyde assessment— the agency had indicated no timetable for finalizing the assessment. Continued delays in the revision of the IRIS assessment of formaldehyde have the potential to affect the quality of EPA’s regulatory actions. For example, in August 2011, EPA announced a proposed rule under the Clean Air Act related to certain emissions from natural gas processing plants. Because a newer IRIS assessment of formaldehyde has not been completed, the proposed rule relies on the existing IRIS value for formaldehyde, last updated in 1991. EPA had expected to complete the formaldehyde assessment by the end of fiscal year 2011, but withdrew the projected completion date from the IRIS website after the publication of the National Academies’ peer review report on the draft assessment. As of April 2011, EPA expected to complete the formaldehyde assessment in the fourth quarter of fiscal year 2011. However, as of September 30, 2011, the IRIS website provided no projected completion date for the assessment.  Tetrachloroethylene (Perc). Tetrachloroethylene—also called perchloroethylene or perc—is a manufactured chemical used in, for example, dry cleaning, metal degreasing, and textile production. Perc is a widespread groundwater contaminant and the National Toxicology Program has determined that it is “reasonably anticipated to be a human carcinogen.” Currently, the IRIS database contains only a noncancer assessment based on oral exposure to perc, posted in 1988; it gives no information on potential cancer effects or potential noncancer effects associated with inhalation of perc. EPA began work to update this assessment, and to include information on cancer and noncancer inhalation risk, in 1998. As we have reported previously, EPA completed its internal review of the draft perc assessment in February 2005 and the interagency review in March 2006. However, when the Assistant Administrator of EPA’s Office of Research and Development requested that additional analyses be conducted, EPA was delayed in sending the draft assessment to the National Academies for peer review. In June 2008, EPA sent the draft assessment to the National Academies, which released its peer review report in February 2010. EPA is in the process of responding to the National Academies’ suggestions, 13 years after the agency began work on the draft perc assessment. As a result, IRIS users, including EPA regional and program offices, continue to lack both cancer values and noncancer inhalation values to help them make decisions about how to protect the public from this widespread groundwater contaminant. EPA had expected to complete the perc assessment by the end of fiscal year 2011, but as of September 30, 2011, it had not done so.  Naphthalene. Naphthalene is used in jet fuel and in the production of such widely used commercial products as moth balls, dyes, insecticides, and plasticizers. The current IRIS assessment of naphthalene, issued in 1998, lists the chemical as a “possible human carcinogen”; since 2004, the National Toxicology Program has listed it as “reasonably anticipated to be a human carcinogen.” As we have reported previously, EPA began updating the cancer portion of its naphthalene assessment in 2002. By 2004, EPA had drafted a chemical assessment that had completed internal peer reviews and was about to be sent to an external peer review committee. Once it returned from external review, the next step, at that time, would have been a formal review by EPA’s IRIS Agency Review Committee. If approved, the assessment would have been completed and released. However, in part because of concerns raised by DOD, OMB asked to review the assessment and conducted an interagency review of the draft. In their 2004 reviews of the draft IRIS assessment, both OMB and DOD raised a number of concerns about the assessment and suggested to EPA that it be suspended until additional research could be completed to address what they considered to be significant uncertainties associated with the assessment. Although all of the issues raised by OMB and DOD were not resolved, EPA continued with its assessment by submitting the draft for external peer review, which was completed in September 2004. However, according to EPA, OMB continued to object to the draft IRIS assessment and directed EPA to convene an additional expert review panel on genotoxicity to obtain recommendations about short-term tests that OMB thought could be done quickly. According to EPA, this added 6 months to the process, and the panel, which met in April 2005, concluded that the research that OMB was proposing could not be conducted in the short term. Nonetheless, EPA officials said that the second expert panel review did not eliminate OMB’s concerns regarding the assessment, which they described as reaching a stalemate. In September 2006, EPA decided, however, to proceed with developing the assessment. By 2006, the naphthalene assessment had been in progress for 4 years, and EPA decided that the noncancer portion of the existing IRIS assessment was outdated and needed to be revisited. Having made this decision, the agency returned both portions of the assessment, cancer and noncancer, to the drafting stage. We reported in March 2008 that EPA estimated a 2009 completion date for the naphthalene assessment. As of September 30, 2011, however, the assessment remained in the draft development stage, even though EPA program offices had identified the naphthalene assessment as a high-priority need for the air toxics and Superfund programs. As of September 30, 2011, EPA expects to complete the naphthalene assessment in the third quarter of fiscal year 2013.  Royal Demolition Explosive. This chemical, also called RDX or hexahydro-1,3,5-trinitro-1,3,5-triazine, is a highly powerful explosive used by the U.S. military in thousands of munitions. Currently classified by EPA as a “possible human carcinogen,” this chemical is known to leach from soil to groundwater. RDX can cause seizures in humans and animals when large amounts are inhaled or ingested, but the effects of long-term, low-level exposure on the nervous system are unknown. As we reported in March 2008, as is the case with naphthalene, the IRIS assessment of RDX could require DOD to undertake a number of actions, including steps to protect its employees from the effects of this chemical and to clean up many contaminated sites. We reported at that time that EPA had started an IRIS assessment of RDX in 2000, but it had made minimal progress on the assessment because EPA had agreed to a request by DOD to wait for the results of DOD-sponsored research on this chemical. In 2007, EPA resumed work on the assessment, although some of the DOD-sponsored research was still outstanding at the time. EPA decided to suspend work on the assessment in 2009 in order to focus on assessments that were further along in the IRIS process. According to EPA’s project plan for RDX, in March 2010, EPA received a letter from DOD requesting that EPA complete the assessment. In addition, in 2010, EPA’s Superfund Program labeled the RDX assessment as a high priority because of the presence of the chemical at federal facilities. In June 2010, EPA renewed work on the RDX assessment, but as of September 30, 2011, it remained in the draft development stage (step 1). An EPA official told us in October 2011 that EPA plans to contact DOD officials to confirm that the draft assessment of RDX adequately captures the findings of the DOD- sponsored research. In addition, the EPA official said that the agency plans to contact officials at HHS’s Agency for Toxic Substances and Disease Registry to ensure that the two agencies have coordinated research efforts on this chemical. EPA projects that it will finalize the assessment of RDX in the first quarter of fiscal year 2013. In addition to the individual named above, Diane LoFaro, Assistant Director; Christine Fishkin, Assistant Director; Summer Lingard; Mark Braza; Jennifer Cheung; Nancy Crothers; Lorraine Ettaro; Robert Grace; Gary Guggolz; Richard P. Johnson; Michael Kniss; Nadia Rhazi; and Kiki Theodoropoulos made key contributions to this report. Also contributing to the report were Tim Bober, Michelle Cooper, Anthony Pordes, Benjamin Shouse, Jena Sinkfield, and Nicolas Sloss.

The Environmental Protection Agency's (EPA) Integrated Risk Information System (IRIS) Program supports EPA's mission to protect human health and the environment by providing the agency's scientific position on the potential human health effects from exposure to various chemicals in the environment. The IRIS database contains quantitative toxicity assessments of more than 550 chemicals and provides fundamental scientific components of human health risk assessments. In response to a March 2008 GAO report on the IRIS program, EPA revised its IRIS assessment process in May 2009. GAO was asked to evaluate (1) EPA's progress in completing IRIS assessments under the May 2009 process and (2) the challenges, if any, that EPA faces in implementing the IRIS program. To do this work, GAO reviewed and analyzed EPA productivity data, among other things, and interviewed EPA officials. EPA's May 2009 revisions to the IRIS process have restored EPA's control of the process, increased its transparency, and established a new 23-month time frame for its less challenging assessments. Notably, EPA has addressed concerns GAO raised in its March 2008 report and now makes the determination of when to move an assessment to external peer review and issuance--decisions that were made by the Office of Management and Budget (OMB) under the prior IRIS process. In addition, EPA has increased the transparency of the IRIS process by making comments provided by other federal agencies during the interagency science consultation and discussion steps of the IRIS process available to the public. Progress in other areas, however, has been limited. EPA's initial gains in productivity under the revised process have not been sustained. After completing 16 assessments within the first year and a half of implementing the revised process, EPA completed 4 assessments in fiscal year 2011. Further, the increase in productivity does not appear to be entirely attributable to the revised IRIS assessment process and instead came largely from (1) clearing the backlog of IRIS assessments that had undergone work under the previous IRIS process and (2) issuing assessments that were less challenging to complete. EPA has taken longer than the established time frames for completing steps in the revised process for most of its less challenging assessments. However, EPA has not analyzed its established time frames to assess the feasibility of the time frame for each step or the overall 23-month process. The agency's progress has also been limited in completing assessments that it classifies as exceptionally complex and reducing its ongoing assessments workload. Beyond the 55 ongoing IRIS assessments, the backlog of demand for additional IRIS assessments is unclear. With existing resources devoted to addressing its current workload of ongoing assessments, EPA has not been in a position to routinely start new assessments. EPA faces both long-standing and new challenges in implementing the IRIS program. First, EPA has not fully addressed recurring issues concerning the clarity and transparency of its development and presentation of draft IRIS assessments. For example, as part of its independent scientific review of EPA's draft IRIS assessment of formaldehyde, the National Academies provided suggestions for improving EPA's development and presentation of draft IRIS assessments in general, including that EPA use a standardized approach to evaluate and describe study strengths and weaknesses and the weight of evidence. EPA announced that it planned to respond to the National Academies' suggestions by implementing changes to the way it develops draft IRIS assessments. Given that many of the issues raised by the National Academies have been long-standing, it is unclear whether any entity with scientific and technical credibility, such as an EPA advisory committee, will have a role in conducting an independent review of EPA's planned response to the suggestions. In addition, EPA has not addressed other long-standing issues regarding the availability and accuracy of current information to users of IRIS information, such as EPA program offices, on the status of IRIS assessments, including when an assessment will be started, which assessments are ongoing, and when an assessment is projected to be completed. GAO recommends, among other things, that EPA assess the feasibility of the established time frames for each step in the IRIS assessment process and make changes if necessary, submit for independent review to an entity with scientific and technical credibility a plan for how EPA will implement the National Academies' suggestions, and ensure that current and accurate information on chemicals that EPA plans to assess through IRIS is available to IRIS users. EPA agreed with GAO's recommendations and noted specific actions it will take to implement them. GAO recommends, among other things, that EPA assess the feasibility of the established time frames for each step in the IRIS assessment process and make changes if necessary, submit for independent review to an entity with scientific and technical credibility a plan for how EPA will implement the National Academies’ suggestions, and ensure that current and accurate information on chemicals that EPA plans to assess through IRIS is available to IRIS users. EPA agreed with GAO’s recommendations and noted specific actions it will take to implement them.

You are an expert at summarizing long articles. Proceed to summarize the following text: Information technology should enable government to better serve the American people. However, OMB stated in 2010 that the federal government had achieved little of the productivity improvements that private industry had realized from IT, despite spending more than $600 billion on IT over the past decade. Too often, federal IT projects run over budget, behind schedule, or fail to deliver promised functionality. Both OMB and federal agencies have key roles and responsibilities for overseeing IT investment management. OMB is responsible for working with agencies to ensure investments are appropriately planned and justified. Federal agencies are responsible for managing their IT investment portfolio, including the risks from their major information system initiatives, in order to maximize the value of these investments to the agency. Additionally, each year, OMB and federal agencies work together to determine how much the government plans to spend on IT projects and how these funds are to be allocated. For fiscal year 2014, federal agencies plan to spend about $82 billion. We have previously reported on the challenges associated with agencies’ efforts to identify duplicative IT investments. For example, in September 2011 we reported that there were hundreds of investments providing similar functions across the federal government, including 1,536 information and technology management investments, 781 supply chain management investments, and 661 human resource management investments. Further, we found that OMB guidance to agencies on how to report their IT investments did not ensure complete reporting or facilitate the identification of duplicative investments. Specifically, agencies differed on what investments they included as an IT investment, and OMB’s guidance requires each investment to be mapped to a single functional category. As a result, agencies’ annual IT investments were likely greater that the $79 billion reported in fiscal year 2011 and OMB’s ability to identify duplicative investments was limited. Further, we found that several agencies did not routinely assess operational systems to determine if they were duplicative. We recommended, among other things, that OMB clarify its guidance to help agencies better identify and categorize their IT investments and require agencies to report the steps they take to ensure that their IT investments are not duplicative. OMB agreed with these recommendations. More recently, we reported on efforts at the Departments of Defense, Energy, and Homeland Security to identify duplicative IT investments. More specifically, we noted that although Defense, Energy, and Homeland Security use various investment review processes to identify duplicative investments, 37 of our sample of 810 investments were potentially duplicative at Defense and Energy. These investments accounted for about $1.2 billion in spending for fiscal years 2007 through 2012. We also noted that investments were, in certain cases, misclassified by function, further complicating agencies’ ability to identify and eliminate duplicative investments. We recommended that Defense and Energy utilize transparency mechanisms, such as the IT Dashboard to report on the results of their efforts to identify and eliminate potentially duplicative investments. The agencies generally agreed with this recommendation. We have also reported on the value of portfolio management in helping to identify duplication and overlap and opportunities to leverage shared services. For example, we have reported extensively on various agencies’ IT investment management capabilities by using GAO’s IT Investment Management Framework, in which stage 3 identifies best practices for portfolio management, including (1) creating a portfolio which involves, among other things, grouping investments and proposals into predefined logical categories so they can be compared to one another within and across the portfolio categories, and the best overall portfolio can then be selected for funding, and (2) evaluating the portfolio by monitoring and controlling it to ensure it provides the maximum benefits at a desired cost and an acceptable level of risk. Recognizing the proliferation of duplicative and low-priority IT investments within the federal government and the need to drive efficiency, OMB launched the PortfolioStat initiative in March 2012, which requires 26 agencies to conduct an annual agency-wide IT portfolio review to, among other things, reduce commodity IT spending and demonstrate how their IT investments align with the agency’s mission and business functions. Toward this end, OMB defined 13 types of commodity IT investments in three broad categories: (1) Enterprise IT systems, which include e-mail; identity and access management; IT security; web hosting, infrastructure, and content; and collaboration tools. (2) IT infrastructure, which includes desktop systems, mainframes and servers, mobile devices, and telecommunications. (3) Business systems, which include financial management, grants- related federal financial assistance, grants-related transfer to state and local governments, and human resources management systems. PortfolioStat is designed to assist agencies in assessing the current maturity of their IT investment management process, making decisions on eliminating duplicative investments, and moving to shared solutions (such as cloud computing) in order to maximize the return on IT investments across the portfolio. It is also intended to assist agencies in meeting the targets and requirements under other OMB initiatives aimed at eliminating waste and duplication and promoting shared services, such as the Federal Data Center Consolidation Initiative, the Cloud Computing Initiative, and the IT Shared Services Strategy. PortfolioStat is structured around five phases: (1) baseline data gathering in which agencies are required to complete a high-level survey of their IT portfolio status and establish a commodity IT baseline; (2) analysis and proposed action plan in which agencies are to use the data gathered in phase 1 and other available agency data to develop a proposed action plan for consolidating commodity IT; (3) PortfolioStat session in which agencies are required to hold a face-to-face, evidence-based review of their IT portfolio with the Federal Chief Information Officer (CIO) and key stakeholders from the agency to discuss the agency’s portfolio data and proposed action plan, and agree on concrete next steps to rationalize the agency’s IT portfolio that would result in a final plan; (4) final action plan implementation, in which agencies are to, among other things, migrate at least two commodity IT investments; and (5) lessons learned, in which agencies are required to document lessons learned, successes, and challenges. Each of these phases is associated with more specific requirements and deadlines. OMB has reported that the PortfolioStat effort has the potential to save the government $2.5 billion through fiscal year 2015 by consolidating and eliminating duplicative systems. In its memo on implementing PortfolioStat, OMB established several key requirements for agencies: (1) designating a lead official with responsibility for implementing the process; (2) completing a high-level survey of their IT portfolio; (3) developing a baseline of the number, types, and costs of their commodity IT investments; (4) holding a face-to-face PortfolioStat session with key stakeholders to agree on actions to address duplication and inefficiencies in their commodity IT investments; (5) developing final action plans to document these actions; (6) migrating two commodity IT areas to shared services; and (7) documenting lessons learned. In addition, in guidance supporting the memo, agencies were asked to report estimated savings and cost avoidance associated with their consolidation and shared service initiatives through fiscal year 2015. All 26 agencies that were required to implement the PortfolioStat process took actions to address OMB’s requirements. However, there were shortcomings in their implementation of selected requirements, such as addressing all required elements of the final action plan and migrating two commodity areas to a shared service by the end of 2012. Table 1 summarizes the agencies’ implementation of the requirements in the memo, which are discussed in more detail below. In the memo for implementing the PortfolioStat initiative, OMB required each agency’s chief operating officer (COO) to designate and communicate within 10 days of the issuance of the memo an individual with direct reporting authority to the COO to lead the agency’s PortfolioStat implementation efforts. Consistent with a recent OMB memo requiring chief information officers (CIO) to take responsibility for commodity IT, 19 of the 26 agencies designated the CIO or chief technology officer to lead their PortfolioStat efforts. The remaining 7 agencies designated the Assistant Attorney General for Administration (Department of Justice), the deputy CIO (Department of Transportation), the Assistant Secretary for Management (Department of the Treasury), the Office of Information and Technology Chief Financial Officer (Department of Veterans Affairs), the Director, Office of Information Resources Management, Chief Human Capital Officer (National Science Foundation), the Senior Advisor to the Deputy Commissioner/Chief Operating Officer (Social Security Administration), and the Senior Deputy Assistant Administrator (U.S. Agency for International Development). As part of the baseline data-gathering phase, OMB required agencies to complete a high-level survey of the status of their IT portfolio. The survey asked agencies to provide information related to implementing OMB guidance, including information on the CIO’s explicit authority to review and approve the entire IT portfolio, the percentage of IT investments that are reflected in the agency’s EA (required in OMB Circular A-130), and the percentage of agency IT investments (major and non-major) that have gone through the TechStat process, both agency-led and OMB-led (required in OMB M-11-29). While all 26 agencies completed the survey, the survey responses highlighted that agencies varied in the maturity of their IT portfolio management practices. In particular, 6 agencies reported varying levels of CIO authority, 5 agencies reported that less than 100 percent of investments were reflected in the agency’s EA, and most agencies noted that less than 50 percent of their major and non-major investments had gone through the TechStat process. Following are highlights of their responses: CIO authority: Twenty of the 26 agencies stated that they either had a formal memorandum or policy in place explicitly noting the CIO’s authority to review and approve the entire agency IT portfolio or that the CIO collaborated with others (such as members of an investment review board) to exercise this authority. However, the remaining 6 agencies either reported that the CIO did not have this authority or there were limitations to the CIO’s authority: The Department of Energy reported that while its CIO worked with IT governance groups, by law, the department CIO has no direct authority over IT investments in two semi-autonomous agencies (the National Nuclear Security Administration and the Energy Information Administration). Although the Department of Health and Human Services reported having a formal memo in place outlining the CIO’s authority and ability to review the entire IT portfolio, it also noted that the CIO had limited influence and ability to recommend changes to it. The Department of State reported that its CIO currently has authority over just 40 percent of IT investments within the department. The National Aeronautics and Space Administration reported that its CIO does not have authority to review and approve the entire agency IT portfolio. The Office of Personnel Management reported that the CIO advises the Director, who approves the IT portfolio, but this role is not explicitly defined. The U.S. Agency for International Development reported that the CIO’s authority is limited to the portfolio that is executed within the office of the CIO. It is important to note that OMB’s survey did not specifically require agencies to disclose limitations their CIOs might have in their ability to exercise the authorities and responsibilities provided by law and OMB guidance. Thus it is not clear whether all those who have such limitations reported them or whether those who reported limitations disclosed all of them. We recently reported that while federal law provides CIOs with adequate authority to manage IT for their agencies, limitations exist that impede their ability to exercise this authority. We noted that OMB’s memo on CIO authorities was a positive step in reaffirming the importance of the role of CIOs in improving agency IT management, but did not require them to measure and report the progress of CIOs in carrying out these responsibilities. Consequently, we recommended that the Director of OMB establish deadlines and metrics that require agencies to demonstrate the extent to which their CIOs are exercising the authorities and responsibilities provided by law and OMB’s guidance. In response, OMB stated that it would ask agencies to report on the implementation of the memo. The high-level survey responses regarding CIO authority at agencies indicate that several CIOs still do not exercise the authority needed to review and approve the entire IT portfolio, consistent with OMB guidance. Although OMB has issued guidance and required agencies to report on actions taken to implement it, this has not been sufficient to ensure that agency COOs address the issue of CIO authority at their respective agencies. As a result, agencies are hindered in addressing certain responsibilities set out in the Clinger-Cohen Act of 1996, which established the position of CIO to advise and assist agency heads in managing IT investments. Until the Director of OMB and the Federal CIO require agencies to fully disclose limitations their CIOs may have in exercising the authorities and responsibilities provided by law and OMB’s guidance, OMB may lack crucial information needed to understand and address the factors that could prevent agencies’ from successfully implementing the PortfolioStat initiative. Investments reflected in agencies’ enterprise architecture: Twenty one of the 26 agencies reported that 100 percent of their IT investments are reflected in their agency’s EA, while the remaining 5 agencies reported less than 100 percent: Commerce (90 percent), Justice (97 percent), State (40 percent), National Aeronautics and Space Administration (17 percent), and U.S. Agency for International Development (75 percent). According to OMB guidance, agencies must support an architecture with a complete inventory of agency information resources, including stakeholders and customers, equipment, systems, services, and funds devoted to information resources management and IT, at an appropriate level of detail. Until these agencies’ enterprise architectures reflect 100 percent of their IT investments, they will be limited in their ability to use this tool as a mechanism to identify low-value, duplicative, or wasteful investments. TechStat process: Twenty-one of the 26 agencies reported that less than 50 percent of major and non-major investments had gone through the TechStat process and 1 reported that more than 50 percent of its investments had gone through the process. As we have previously reported, TechStat accountability sessions have the value of focusing management attention on troubled projects and establishing clear action items to turn the projects around or terminate them. In addition, the TechStat model is consistent with government and industry best practices for overseeing IT investments, including our own guidance on IT investment management processes. Consistent with these survey responses, in June 2013 we reported that the number of TechStat sessions held to date was relatively small compared to the current number of medium- and high-risk IT investments at federal agencies. Accordingly, we recommended that OMB require agencies to conduct TechStat sessions on certain IT investments, depending on their risk level. Holding TechStat sessions will help strengthen overall IT governance and oversight and will help agencies to better manage their IT portfolio and reduce waste. OMB generally concurred with our recommendation and stated that it was taking steps to address it. As part of the baseline data-gathering phase, each of the 26 agencies was also required to develop a comprehensive commodity IT baseline including information on each of the 13 types of commodity IT. Among other things, they were to include the fiscal year 2011 obligations incurred for commodity IT services and the number of systems providing these services. The 26 agencies reported that they obligated approximately $13.5 billion in fiscal year 2011 for commodity IT, with the majority of these obligations (about $8.1 billion) for investments related to IT Infrastructure. Agencies also classified approximately 71.2 percent of the commodity IT systems identified (about 1,937 of the 2,721 reported) as enterprise IT systems. Further, as illustrated in figure 1, of the total systems reported, most were related to IT security, whereas the fewest systems were related to grants- related transfer to state and local governments. When collecting data, it is important to have assurance that the data are accurate. We have previously reported on the need for agencies, when providing information to OMB, to explain the procedures used to verify their data. Specifically, agencies should ensure that reported data are sufficiently complete, accurate, and consistent, and also identify any significant data limitations. Explaining the limitations of information can provide a context for understanding and assessing the challenges agencies face in gathering, processing, and analyzing needed data. We have also reiterated the importance of providing OMB with complete and accurate data and the possible negative impact of that data being missing or incomplete. While all 26 agencies developed commodity IT baselines, these baselines were not all complete. Specifically, 12 agencies (the Departments of Agriculture, Commerce, Defense, Housing and Urban Development, Labor, and the Interior; the Environmental Protection Agency, Nuclear Regulatory Commission, Office of Personnel Management, Small Business Administration, Social Security Administration, and U.S. Agency for International Development) could not ensure the completeness of their commodity IT baseline, either because they did not identify a process for this or faced challenges in collecting complete information. These agencies reported they were unable to ensure the completeness of their information for a range of reasons, including that they do not typically capture the required data at the level of detail required by OMB, that they used service contracts which do not allow visibility into specifics on the commodity IT inventory, that they lacked visibility into bureaus’ commodity IT information, and that OMB’s time frames did not allow for verification of information collected from lower-level units of the organization. Until agencies develop a complete commodity IT baseline, they may not have sufficient information to identify further consolidation opportunities. While it is important that reported data are sufficiently complete, accurate, and consistent, OMB did not require agencies to verify their data or disclose any limitations on the data provided and does not plan to collect this information as agencies provide updated information in quarterly reporting. Until OMB requires agencies to verify their data and disclose any limitations in integrated data collection quarterly reporting, it may lack information it needs to more effectively oversee agencies’ investment in commodity IT and identify Portfolio cost savings. All 26 agencies held a PortfolioStat session in 2012, consistent with OMB’s requirement. In addition, the agencies noted that the agency CIO, Chief Administrative Officer, Chief Financial Officer, and COO—the key stakeholders identified in OMB memorandum 12-10—in many instances attended this session. In the instances where key stakeholders did not attend, authorized representatives of those stakeholders generally attended in their place, according to agency officials. Involvement from key stakeholders in agencies’ PortfolioStat sessions is critical to ensuring agencies are maximizing their efforts to successfully implement PortfolioStat. Agencies were required by OMB to complete a final action plan that addressed eight specific elements: (1) describe plans to consolidate authority over commodity IT spending under the agency CIO; (2) establish specific targets and deadlines for commodity IT spending reductions; (3) outline plans to migrate at least two commodity IT areas to shared services by December 31, 2012; (4) target duplicative systems or contracts that support common business functions for consolidation; (5) illustrate how investments within the IT portfolio align with the agency’s mission and business functions; (6) establish criteria for identifying wasteful, “low-value,” or duplicative investments; (7) establish a process to identify these potential investments and a schedule for eliminating them from the portfolio; and (8) improve governance and program management using best practices and, where possible, benchmarks. All 26 agencies completed an action plan as required by OMB, but the extent to which they addressed the required items varied. Specifically, 18 agencies fully addressed at least six of the eight required elements—with Commerce, Education, General Services Administration, and Social Security Administration addressing all of them—and the remaining 8 agencies fully addressed five requirements or fewer and either partially addressed or did not address others. The consolidation of commodity IT spending under the agency CIO and establishment of criteria for identifying low-value, wasteful, and duplicative investments were the elements that were addressed the least (12 and 9 agencies respectively); and the alignment of investments to the agency’s mission and improvement of governance and program management were addressed by all agencies. Table 2 shows the extent to which the 26 agencies addressed the required elements in their action plan. Until agencies address the items that were required in the PortfolioStat action plan in future OMB reporting, they will not be in a position to fully realize the intended benefits of the PortfolioStat initiative. Memorandum 12-10 required the 26 agencies to complete the migration of the two commodity IT areas mentioned in their action plan to shared services by December 31, 2012 (see app. II for the list of migration efforts by agency). However, 13 of the 26 agencies (the Departments of Housing and Urban Development, the Interior, Labor, State, Transportation and Veterans Affairs; the Environmental Protection Agency, General Services Administration, National Aeronautics and Space Administration, Office of Personnel Management, Social Security Administration, U.S. Agency for International Development, and the U.S. Army Corps of Engineers) reported that they still had not completed the migration of these areas as of August 2013. These agencies reported several reasons for this, including delays in establishing contracts with vendors due to the current budget situation, and delays due to technical challenges. While OMB has stated that this initial requirement to migrate two systems was to initiate consolidation activities at the agencies, and not necessarily an action which it was intending to track for compliance, tracking the progress of such efforts would help to ensure accountability for agencies’ results and the continued progress of PortfolioStat. OMB’s 2013 PortfolioStat memo includes a requirement for agencies to report quarterly on the status of consolidation efforts and the actual and planned cost savings and/or avoidances achieved or expected, but the guidance does not specify that agencies should report on the status of the two migration efforts initiated in 2012. Until agencies report on the progress in consolidating the two commodity IT areas to shared services and OMB requires them to report on the status of these two efforts in the integrated data collection quarterly reporting, agencies will be held less accountable for the results of all their PortfolioStat efforts. Memorandum 12-10 required agencies to document and catalogue successes, challenges, and lessons learned from the PortfolioStat process into a document which was to be submitted to OMB by February 1, 2013. Of the 26 agencies required to implement the PortfolioStat process, 23 agencies submitted lessons learned documentation. The 3 agencies that did not submit lessons learned in the format requested by OMB indicated that they did not submit this documentation because lessons learned had already been included in their final action plans. Several agencies identified lessons learned related to the CIO’s authority and the use of an IT valuation model (12 and 15, respectively). More specifically, 8 agencies noted that OMB’s requirements for a plan to consolidate commodity IT spending under the agency CIO and to identify the extent to which the CIO possesses explicit agency authority to review and approve the entire agency IT portfolio had enabled their agencies to improve the management of their commodity IT and portfolio. Further, 4 agencies stated that the requirements regarding CIO authority would help them identify opportunities to achieve efficiencies and reduce duplication or migrate areas to a shared service. In addition, 1 agency encouraged OMB to continue to provide guidance and issue directives related to CIO authority and empowerment. With respect to the agencies’ use of an IT valuation model, 8 agencies generally recognized the value of using such a model; however, they identified challenges in determining the appropriate model and the need to continue to refine processes and analyze the supporting cost data. Two agencies also stated that OMB should assist in facilitating and sharing IT valuation model best practices and other benchmarks among federal agencies. More specifically, 1 agency stated that OMB should assist in the development of a federal IT valuation model, and another agency suggested that best practices regarding IT valuation models should include those from private sector institutions. As part of the 2013 OMB memorandum on PortfolioStat, OMB generally identified the same broad themes from the lessons learned documents that agencies reported. OMB has also established a page related to the 2013 PortfolioStat implementation. In separate guidance supporting the PortfolioStat initiative, OMB asked agencies to report planned cost savings and avoidance associated with their consolidation and shared service initiatives through fiscal year 2015. While agencies included consolidation efforts for which they had cost savings numbers, six agencies also reported planned migration or consolidation efforts for which they had incomplete information on cost savings and avoidance. According to OMB, agencies reported a total of 98 consolidation opportunities and $2.53 billion in planned cost savings and avoidance for fiscal years 2013 through 2015. However, OMB’s overall estimate of the number of opportunities and cost savings is underreported. Among other things, it does not include the Departments of Defense and Justice because these agencies did not report their plans in the template OMB was using to compile its overall estimate. While OMB acknowledged that the $2.53 billion in planned cost savings and avoidance was underreported when it issued the estimate, it did not qualify the figure quoted. Identifying any limitations or qualifications to reported figures is important in order to provide a more complete understanding of the information presented. Until OMB discloses any limitations or qualifications to the data it reports on the agency’s consolidation efforts and associated savings and avoidance, the public and other stakeholders may lack crucial information needed to understand the current status of PortfolioStat and agency progress in meeting the goals of the initiative. Our analysis of data collected from the 26 agencies shows that they are reporting 204 opportunities and at least $5.8 billion in savings through fiscal year 2015, at least $3.3 billion more than the number initially reported by OMB. See table 3 for an overview of the number of opportunities and reported cost savings and avoidance by agency. See appendix III for a detailed list of opportunities and associated savings by agency. In their portfolio improvement plans, the five agencies selected for our review—the Departments of Agriculture, Defense, the Interior, the Treasury, and Veterans Affairs—identified a total of 52 initiatives expected to achieve at least $3.7 billion in potential cost savings or avoidance through fiscal year 2015, as well as several improvements of processes for managing their IT portfolios. To identify these opportunities, the agencies used several processes and tools, including, to varying degrees, their EA and valuation model, as recommended by OMB in its PortfolioStat guidance. More consistently using the processes recommended by OMB could assist agencies in identifying further opportunities for consolidation and shared services. In addition, four agencies did not always provide support for their estimated savings or show how it linked to the estimates. Better support for the estimated savings would increase the likelihood that these savings will be achieved. The Department of Agriculture (Agriculture) identified two contract consolidations—the Cellular Phone Contract Consolidation and the Enterprise Contracts for Standardized Security Products and Services— as the commodity IT investments it planned to consolidate by December 2012. In addition to these two efforts, the department identified three efforts that it reported to OMB would yield cost savings or avoidance between fiscal years 2013 and 2015 (IT Infrastructure Consolidation/Enterprise Data Center Consolidation, Enterprise IT Systems: Tier 1 Helpdesk Consolidation, and Enterprise IT Systems: Geospatial Consolidation Initiative). In addition, Agriculture identified several other opportunities for which it had yet to identify associated cost savings or avoidance. According to officials from the Office of the CIO, several of the consolidation opportunities were identified prior to the PortfolioStat initiative being launched, as part of the Secretary’s initiative to streamline administrative processes. The department also identified several process improvement efforts which, while not all specific to commodity IT, would help better manage these types of investments. Examples of the process improvement efforts include (1) recommitting to internal TechStats as a tool for evaluating all IT investments, (2) acquiring a portfolio management tool, and (3) implementing a department-wide portfolio management program that reviews major and non-major investments on a continual basis. Agriculture officials stated that they used their EA process to identify consolidation and shared service opportunities, and that the department checks for architectural compliance throughout its governance process. For example, Agriculture’s Executive IT Investment Review Board is to ensure that the department integrates information systems investment decisions with its EA and that the department’s decisions comply with EA. In addition, Agriculture’s Information Priorities and Investment Council is responsible for reviews of architectural compliance and for using the EA as a framework for investment decision making. These officials also stated that while the department determines the value of its IT investments through evaluation, analyses, prioritization, and scoring, it does not have a formal, documented valuation model for doing so. Having such a model would enhance the department’s ability to identify additional opportunities to consolidate or eliminate low-value, duplicative, or wasteful investments. The department also uses other processes to help manage its IT investments. For example, Agriculture has an Executive IT Investment Review Board which is to use a scoring process in ensuring the alignment of investments with strategic goals and objectives. Further, the department noted the establishment of several governance boards, and processes, such as the EA, IT acquisition approval request, and capital planning and investment control, to ensure such alignment. Agriculture anticipates that its efforts will generate about $221 million in cost savings or avoidance for fiscal years 2012 through 2015 and provided varying degrees of support for these estimates. Specifically, for two of the four initiatives for which we requested support (Cellular Phone Contract Consolidation and the IT Infrastructure Consolidation/Enterprise Data Center Consolidation), it provided support for calculations for cost savings and avoidance estimates. However, these estimates did not match those provided to OMB for the 2012 PortfolioStat process. For the third initiative, Geospatial Consolidation, Agriculture did not provide support for the estimate reported to OMB as part of the 2012 PortfolioStat process; however, it noted that this current estimate is $58.76 million less than originally reported to OMB. For the fourth, a department official from the office of the Chief Information Officer said no savings were being anticipated. Documentation received from the department noted that this effort was not a cost savings initiative but a way to meet several programmatic needs: to streamline the work required for agencies procuring security services, to improve the quality and repeatability of the security products across the agencies, and to establish a process flow that ensured the department security were included in any delivered products. An Agriculture official noted challenges with calculating cost savings or avoidance but did not identify any plans to improve its cost estimating processes. A lack of support for its current estimates may make it difficult for Agriculture to realize these savings and for OMB and other stakeholders to accurately gauge its performance. The Department of Defense (Defense) identified its Unclassified Information Sharing Service/All Partner Network and the General Fund Enterprise Business System as the two commodity opportunities that would be consolidated by December 2012. In addition to these 2 efforts, Defense identified 24 other efforts that would be undertaken from 2012 to 2015 to consolidate commodity IT services. These consolidation efforts were mostly in the areas of Enterprise IT and IT infrastructure, though the department also identified a significant effort to move its major components to enterprise-wide business systems. In addition, Defense also identified several process improvements, including restructuring its IT governance boards, establishing a department IT Commodity Council, and optimizing IT services purchasing. Defense began its effort to consolidate and improve IT services in 2010 at the request of the Secretary, prior to the launch of PortfolioStat. The Defense CIO developed a 10-Point Plan for IT Modernization focused on consolidating infrastructure and streamlining processes in several commodity IT areas, including consolidating enterprise networks, delivering a department cloud environment, standardizing IT platforms, and taking an enterprise approach for procurement of common IT hardware and software. Each of the component CIOs, in coordination with the Defense CIO, was tasked with developing plans to achieve these efforts within their own component. As part of this process, Defense utilized its EA and valuation model to determine the list of IT improvements because, according to officials from the Office of the CIO, these processes were incorporated into its existing requirements, acquisition, and planning, programming, budget, and execution processes. In particular, Defense has taken a federated approach for developing and managing its EA that is based on enterprise- level guidance, capability areas, and component architectures and is currently in the process of drafting a new EA program management plan for improvement effectiveness and interoperability across missions and infrastructure. In addition, according to a Defense official, the department has done extensive work related to implementing a valuation model, and its value engineering process for IT investments has been integrated into the department’s acquisition process. Defense also has a department website devoted to providing guidance on its valuation model. Using the EA and valuation model increases the likelihood that the department will identify a comprehensive list of opportunities for consolidation. Defense’s CIO estimates that the consolidation efforts will save between $3.2 billion and $5.2 billion through fiscal year 2015, and result in efficiencies between $1.3 billion and $2.2 billion per year beginning in fiscal year 2016. Defense provided its most recent estimates for the four initiatives for which we requested support (Unclassified Information Sharing Service/All Partner Access Network, data center consolidation, enterprise software purchasing, and General Fund Enterprise Business System) but was unable to show how these estimates were calculated. For the first initiative, the issue paper showing the calculations of estimated savings was reportedly classified and we therefore decided not to obtain a copy. For the other three initiatives, an official from the Office of the CIO stated that there was not support available at the department level. Each component reportedly used its existing planning, programming, budget and execution process, and associated systems to determine a overall budget and then identified estimated cost savings or avoidance related to the commodity initiatives, which were then aggregated by the department. The official also reported that, because the department’s accounting systems do not collect information at the level of granularity required for reporting on the PortfolioStat initiative (e.g., by commodity IT type), it is difficult to show how numbers were calculated or how they changed over time. In addition, because component-level systems do not collect commodity IT data, it had generally been a challenge for the department to determine cost savings for commodity IT as OMB required. While we recognize the challenges the department faces in obtaining the support for consolidation opportunities identified by its components, obtaining it is critical to ensuring that planned savings and cost avoidance are realized. This is important considering the size of Defense’s projected savings. The Department of the Interior (Interior) identified two commodity IT investments in its action plan and other supporting documentation— Financial and Business Management System (Deployments 7&8) and Enterprise Forms System—that it planned to consolidate by December 2012. For fiscal years 2013 to 2015, Interior identified four additional consolidation opportunities—cloud e-mail and collaboration services, enterprise eArchive system, circuit consolidation, and the Networx telecommunications contract. Interior also identified its “IT Transformation” initiative as a source of additional savings beyond 2015. This initiative is one of the management priorities which, according to officials, Interior has been focusing on to drive efficiency, reduce costs, and improve services. It is intended to streamline processes within the department, to include a single e-mail system for the department, telecommunications, hosting services, and an enterprise service desk (help desk). Interior has also identified efforts to improve processes for managing its portfolio. Specifically, it is working to fully implement its EA and to align the IT portfolio more closely with the department’s business priorities and performance goals. In addition, in fiscal year 2010, Interior centralized authority for the agency’s IT—which had previously been delegated to its offices and bureaus—under the CIO. This consolidation gave the CIO responsibilities for improving the operating efficiencies of the organizational sub-components and Interior as a whole. Interior is also establishing several new IT Investment governance boards to make recommendations to the CIO for review and approval. To identify its consolidation opportunities, Interior officials from the Office of the CIO stated they used their EA. Specifically, the department established an EA team and a performance-driven prioritization framework to measure its IT Transformation efforts. The EA team takes a “ruthless prioritization” approach to align the department’s priorities with the IT Transformation goals. The priorities are evaluated by IT Transformation goals and expected outcomes, and supported by successive versions of architectures, plans, and solutions. In addition to using the EA, officials from the Office of the CIO stated that the department leveraged a set of investment processes to identify wasteful, duplicative, and low-value investments, which includes the use of road maps it has developed for different functional areas. Collectively, these processes are integrated into the department’s capital planning and investment control process in order to ensure that the portfolio of IT investments delivers the desired value to the organization. Interior officials from the Office of the CIO also reported using its IT investment valuation process which it has been maturing while also balancing changes to its IT governance process. More specifically, the department uses the Value Measuring Methodology, recommended by the federal CIO Council, to score its bureaus’ budget requests. Based on these assessments, a risk-adjusted value score is assigned to each major investment. These scores are used to identify funding levels across Interior’s IT portfolio, with risk being viewed from the standpoint of the “probability of success” for the investment. By making use of the EA and investment valuation process as recommended by OMB, Interior has enhanced its ability to identify opportunities to consolidate or eliminate duplicative, low-value, and wasteful investments. Interior anticipates its PortfolioStat efforts will generate approximately $61.9 million in savings and cost avoidance through fiscal year 2015 and provided adequate support for these estimates. Specifically, for the Financial and Business Management System, Interior provided calculations for the savings for each year from fiscal year 2012 to fiscal year 2016. For the other three initiatives—Electronic Forms System, Networx Telecommunications, and Cloud E-mail and Collaboration Services—Interior provided estimated savings for fiscal year 2013, the first year in which savings are anticipated, which were based on the difference between the fiscal year 2012 baseline and lower costs that had been achieved through the department’s strategic sourcing initiative, and explained that these savings were expected to be realized each year after—through fiscal year 2015. Having well-supported estimates increases the likelihood that Interior will realize its planned savings and provides OMB and other stakeholders with greater visibility into the department’s performance. The Department of the Treasury (Treasury) identified two new shared service opportunities—the Invoice Processing Platform and the DoNotPay Business Center—as the two commodity IT investments it planned to consolidate by December 2012; Treasury also reported to OMB that these efforts would yield cost savings and avoidance for fiscal years 2013 through 2015. In addition, Treasury identified six consolidation opportunities it anticipated would generate savings between fiscal years 2012 and 2014, and two others which did not have associated cost savings. These consolidation opportunities include those classified as Business Systems, IT Infrastructure, and Enterprise IT. Treasury also described several process improvement efforts which, while not specific to commodity IT, will help better manage these types of investments. Examples of the process improvement efforts include establishing criteria for robust reviews of investments, refining the department’s valuation and risk models and incorporating these models into the business case template at Treasury’s departmental offices, and launching an IT cost model working group to refine Treasury’s IT cost model. Treasury has also proposed additional steps in its Departmental Offices’ IT governance process and investment life cycle to evaluate the alignment of investments with its strategic goals and objectives. With respect to EA, in July 2013, Treasury established a Treasury Departmental Technical Advisory Working Group. According to its charter, the working group will be responsible for, among other things, ensuring the alignment of programs and projects with Treasury’s existing technologies or EA. More specifically, all new and existing investments are expected to be reviewed and approved by the working group to ensure such compliance. Treasury officials from the Office of the CIO stated they had not used the EA or a valuation model to identify their consolidation opportunities. In addition, Treasury has yet to develop a valuation model for assessing the value of its IT investments. According to officials, Treasury’s efforts to develop a valuation model are 30 to 40 percent complete. Further, while it has efforts underway within its Departmental Offices to develop models for assessing value, cost, and risk, Treasury has not documented its value engineering process and associated models. According to the officials, the department’s consolidation opportunities were identified through innovative ideas from the bureaus that were driven by current budget constraints. While the identification of these opportunities is not centrally managed or controlled, Treasury reported that it is currently developing a systematic process for promoting innovative ideas from its bureaus. According to Treasury, it uses other processes to help manage IT investments, including a process for evaluating the alignment of investments with its strategic goals and objectives via its investment review boards at both the department-wide and departmental office levels. Further, Treasury has noted that investments’ alignment with the mission is considered during the annual planning cycle (for existing and new investments), and during individual investment/project reviews (for every major investment). While Treasury identified consolidation and shared service opportunities through innovative ideas from its bureaus, utilizing the EA and valuation model could assist Treasury in identifying additional opportunities for cost savings. Treasury anticipates it will generate $56.49 million in savings from fiscal years 2012 through 2014 and provided varying degrees of support for these estimates. Specifically, for two of the three initiatives that we reviewed supporting documentation for, one initiative (DoNotPay Business Center) had supporting assumptions and calculations; however, these calculations support earlier estimates Treasury reported for this initiative, and not its more recent estimates. Treasury did not provide documentation to support the cost estimates for the two remaining efforts (Fiscal IT Data Center Consolidation and Business Process Management Status). Without support for its estimates, Treasury may be challenged in realizing planned savings, and OMB and other stakeholders will be hindered in evaluating its progress. The Department of Veterans Affairs (VA) identified its VA Server Virtualization and Elimination of Dedicated Fax Servers as the two commodity IT investments it planned to consolidate by December 2012. In its PortfolioStat submission to OMB, VA identified five additional consolidation opportunities it anticipated would generate savings between fiscal years 2013 and 2015 (enterprise license agreement, standardization of spend planning and consolidation of contract, voice over internet protocol, vista data feeds, and one CPU policy). VA also described several process improvement efforts in its action plan that, while not specific to commodity IT, are intended to help better manage these types of investments. These improvement efforts include updating its EA process and establishing a Project Management Accountability System that supports project planning and management control and responsibilities for IT investments. VA officials from the Office of the CIO stated that they did not use their EA (which the department is still maturing) or their valuation model to identify their consolidation opportunities. Instead, they stated that VA uses its Ruthless Reduction Taskforce as the main mechanism for identifying IT commodity consolidation opportunities. The task force’s function is to ensure redundant functionality is reduced or eliminated and to recommend the reallocation of funds from low-value projects to higher priorities. Through its operational analysis process, it looks for excessive expenditures to determine whether there are redundancies and therefore opportunities to consolidate into a larger contract or service. While the task force is the main mechanism used to identify consolidation opportunities, VA officials from the Office of the CIO stated that the department uses other OMB-recommended processes to help it identify and prioritize other IT investments. For example, VA has documented processes for evaluating the alignment of investments with its strategic goals and objectives via its multiyear planning process and its senior investment review boards. Specifically, the department’s multiyear planning process provides a framework for identifying near- and long-term priorities and opportunities for divestiture, reduction, re-investments, and expansion of IT priorities and capabilities and timetables. To support this and other planning processes, VA has established several IT Investment governance boards that are intended to provide a framework for investment decision making and accountability to ensure IT initiatives meet the department’s strategic and business objectives in an effective manner. While VA has identified many opportunities to consolidate commodity IT investments and move to shared services through its Ruthless Reduction Task Force and other processes, making use of its EA and valuation model could help identify additional opportunities. VA estimates that the consolidation opportunities it reported to OMB will generate about $196 million in savings from fiscal years 2013 through 2015. However, we could not verify the support for some of the estimates. In particular, for two of the four initiatives for which we requested support (Server Virtualization and Eliminate Dedicated Fax Servers Consolidation), VA provided support for calculations for cost savings and avoidance estimates. However, these estimates did not match those provided to OMB for the 2012 PortfolioStat process. For the third initiative, Renegotiate Microsoft Enterprise License Agreement, VA did not provide detailed support but instead provided a written explanation for an overall cost avoidance figure of $161 million that was agreed to by VA’s Deputy Chief Information Officer for Architecture, Strategy and Design and VA’s Deputy Assistant Secretary for Information Technology Management and Chief Financial Officer for the Office of Information Technology. For the fourth initiative (one CPU policy), VA stated that the initiative was no longer a stand-alone project but had been subsumed by the Field Office Mobile Workers and Telework Support Agreement and that the economic justification for this consolidation effort had not yet been completed. Officials reported that in general the lack of a strong cost estimation process is the main challenge the department faced in estimating cost savings, even though VA’s Ruthless Reduction Task Force does have a process in place for performing cost estimates for the initiatives that the task force reviews. VA officials stated that they plan to address improving their IT cost estimation process issue with VA’s executive leadership team, but did not provide a time frame for doing so. For the near term, VA recently hired an operations research analyst to assist IT staff who lack experience with cost and savings estimation activities and plans to hire two more analysts. Without support for its estimates, VA will have less assurance that it can realize planned cost savings and avoidance, and OMB and stakeholders will be hindered in evaluating its progress. OMB has outlined several planned improvements to the PortfolioStat process in a memo issued in March 2013 that should help strengthen federal IT portfolio management and address key issues we have identified with agencies’ efforts to implement the initiative. In particular, OMB has changed its reporting requirements, requiring agencies to report on progress made on a quarterly basis. In addition, agencies will also be held accountable for their portfolio management as part of annual PortfolioStat sessions. However, selective OMB efforts could be strengthened to improve the PortfolioStat process and ensure agencies achieve identified cost savings, including addressing issues related to existing CIO authority at federal agencies, and publically reporting on agency-provided data. OMB’s plans identify a number of improvements that should help strengthen IT portfolio management and address key issues we have identified: Agency reporting on PortfolioStat progress: OMB’s memorandum has consolidated previously collected IT plans, reports, and data calls into three primary collection channels—an information resources management strategic plan, an enterprise road map, and an integrated data collection channel. As part of this reporting requirement, agencies will be required to provide updates on their progress in meeting key OMB requirements related to portfolio management best practices, which address issues identified in this report. Agencies must describe how their investment review boards coordinate between investment decisions, portfolio management, EA, procurement, and software development methodologies to ensure that IT solutions meet business requirements, as well as identify areas of waste and duplication wherever consolidation is possible. Agencies are to describe the valuation methodology used in their governance process to comparatively evaluate investments, including what criteria and areas are assessed, to ensure greater consistency and rigor in the process of selecting, controlling, and evaluating investments an agency decides to fund, de-fund, or terminate. Agencies must report their actual and planned cost savings and avoidances, as well as other metrics, achieved or expected through the implementation of efforts such as agency migration to shared services and cloud solutions, the consolidation of commodity IT, and savings achieved through data center consolidation. In addition, agencies are to describe their plans to re-invest savings resulting from consolidations of commodity IT resources (including data centers). In addition, agencies will now be required to report the status of their progress in implementing PortfolioStat on a quarterly basis. Agency integrated data collections were first required to be submitted in May 2013 and will be updated quarterly beginning in August 2013, with subsequent updates on the last day of November, and February of each fiscal year. Requiring agencies to provide consolidated reports on their progress in meeting key initiatives should help OMB to better manage these initiatives. Holding agencies accountable for portfolio management in PortfolioStat sessions: Moving forward, the PortfolioStat sessions held with agency stakeholders and OMB officials are intended to involve discussions of agency efforts related to several ongoing initiatives and their plans to implement key OMB guidance, such as guidance on CIO authorities, in order to help agencies mature their management of IT resources. Specifically, OMB plans to use the documentation and data submitted by the agencies in May 2013 to determine the state of each agency’s IT portfolio management, such as the use of an EA and valuation methodology, and develop areas OMB identifies as the most appropriate opportunities for agencies to innovate, optimize, and protect systems and data. Based on the session, OMB and the agency are expected to identify and agree on actionable next steps and specific time frames for the actions to be taken, which OMB intends to formalize and transmit in a memorandum to the agency within 2 weeks of the completed session, and no later than August 31, 2013. Upon receipt of the action item memorandum, agency PortfolioStat leads are to work with OMB to establish follow-up discussions as appropriate to track progress against action items identified. Deviation from the committed schedule will trigger a requirement for follow-up briefings by the agency to the Federal CIO no less frequently than quarterly, until corrective actions have been implemented or the action item is back on schedule. OMB’s efforts to follow up with agencies on a regular basis are critical to ensuring the success of these efforts. We have previously reported that OMB-led TechStat sessions have enabled the government to improve or terminate IT investments that are experiencing performance problems by focusing management attention on troubled projects and establishing clear action items to turn the projects around or terminate them. By having similar sessions focusing on agency IT portfolios, OMB can hold agencies accountable for their ongoing initiatives to consolidate or eliminate duplicative investments and achieve significant cost savings. Improving analytical capabilities: OMB expects to collect information from agencies as part of PortfolioStat and use a variety of analytical resources to evaluate the data provided, track agency progress each quarter, and determine whether there are any areas for improvement to the process. In addition, OMB plans to provide this information to Congress as part of the quarterly report it is required to submit to the Senate and House Appropriations Committees on savings achieved by OMB’s government-wide IT reform efforts. Analyzing and reporting data on agencies’ efforts to implement the PortfolioStat initiative will help OMB to provide more oversight of these efforts and hold agencies accountable for information reported in the quarterly reports. Although OMB’s planned improvements should help strengthen the PortfolioStat initiative going forward, they do not address some of the shortcomings with efforts to implement the initiative identified in this report: Addressing issues with CIO authority: While OMB’s memorandum has indicated that agencies must now report on how their policies, procedures, and CIO authorities are consistent with OMB Memorandum 11-29, “Chief Information Officer Authorities,” as noted earlier, OMB’s prior guidance and reporting requirements have not been sufficient to address the implementation of CIO authority at all agencies. In addition, OMB’s 2013 PortfolioStat guidance does not establish deadlines or metrics for agencies to demonstrate the extent to which CIOs are exercising the authorities and responsibilities provided by the Clinger- Cohen Act and OMB guidance, which, as we have previously recommended, are needed to ensure accountability for acting on this issue, nor does it require them to disclose any limitations CIOs might have in their ability to exercise their authority. Until CIOs are able to exercise their full authority, they will be limited in their ability to implement PortfolioStat and other initiatives to improve IT management. Reporting on action plan items that were not addressed: In OMB’s 2013 memorandum, agencies are no longer required to submit separate commodity IT consolidation plans as in 2012 but are to identify the progress made in implementing portfolio improvements as part of the broader agency reporting requirement mentioned above. While OMB’s shift to requiring agencies to report on progress now is reasonable given the goals of PortfolioStat, it was based on the assumption that agencies would develop robust action plans as a foundation last year. However, as noted earlier, the submitted agency final action plans were incomplete in that they did not always address all the required elements. Going forward, it will be important for agencies to address the plan items required. In addition, until OMB requires agencies to report on the status of these items, it may not have assurance that these agencies’ plans for making portfolio improvements fully realize the benefits of the PortfolioStat initiative. Ensuring agencies’ commodity IT baselines are complete, and reporting on the status of 2012 migration efforts: OMB’s 2013 guidance does not require agencies to document how they verified their commodity IT baseline data or disclose any limitations of these data or to report on the completion of their two 2012 migration efforts. Without such requirements, it will be more difficult for OMB to hold agencies accountable for identifying and achieving potential cost savings. Publically reporting agency PortfolioStat data: Finally, we have previously reported that the public display of agencies’ data allows OMB, other oversight bodies, and the general public to hold the agencies accountable for results and progress. While OMB officials have stated that they intend to make agency-reported data and the best practices identified for the PortfolioStat effort publicly available, they have not yet decided specifically which information they will report. Until OMB publicly reports data agencies submit on their commodity IT consolidation efforts, including planned and actual cost savings, it will be more difficult for stakeholders, including Congress and the public, to monitor agencies’ progress and hold them accountable for reducing duplication and achieving cost savings. OMB’s PortfolioStat initiative offers opportunities to save billions of dollars and improve the way in which agencies manage their portfolios. While agencies implemented key PortfolioStat requirements, including establishing a commodity IT baseline and documenting a final action plan to consolidate commodity IT, shortcomings in their implementation of these requirements could undermine the savings the PortfolioStat effort is expected to achieve. First, reported limitations in CIOs exercising authority over the IT portfolios at six of the agencies suggests that more needs to be done to empower CIOs to improve management and oversight of agency IT resources. Second, not including all IT investments in their EA or developing complete commodity IT baselines limits agencies’ ability to identify further opportunities for reducing wasteful, duplicative, or low-value investments. Third, not addressing key elements in action plans for implementing the PortfolioStat initiative increases the likelihood that agencies will not achieve all the intended benefits. Finally, following through on commitments to migrate or consolidate investments is critical to ensuring accountability for results. Regarding estimated savings and cost avoidance, the significant understatement—by at least $2.8 billion—of OMB’s reported figures highlights the importance of ensuring the accuracy of data and disclosing any limitations or qualifications on reported savings. The identification by five agencies—the Departments of Agriculture, Defense, the Interior, the Treasury, and Veterans Affairs—of 52 initiatives and more than $3.7 billion in potential cost savings or avoidance through fiscal year 2015 demonstrates the significant potential of portfolio improvements to yield ongoing benefits. Making greater use of their EA and valuation model to identify consolidation opportunities, as recommended by OMB, could assist agencies in identifying additional opportunities. In addition, better support for the estimates of cost savings associated with the opportunities identified would increase the likelihood that these savings will be achieved. OMB’s planned improvements to the PortfolioStat process outlined in its March 2013 guidance—such as streamlining agency reporting on progress in implementing the process and holding agencies accountable for these efforts in PortfolioStat sessions—should help the office provide better oversight and management of government-wide efforts to consolidate commodity IT. However, OMB’s plans do not address key issues identified in this report, which could strengthen the PortfolioStat process. In particular, addressing issues of CIO authority by working directly with agency leadership to establish time lines and metrics for implementing existing guidance, requiring agencies to report on the reliability of their commodity baseline data and the progress of all their consolidation efforts, and making data on agencies’ progress in consolidating commodity IT and achieving cost savings publicly available will be essential to PortfolioStat’s success in reducing duplication and maximizing the return on investment in federal IT. To help ensure the success of PortfolioStat, we are making six recommendations to OMB. We recommend that the Director of the Office of Management and Budget and the Federal Chief Information Officer require agencies to fully disclose limitations their CIOs might have in exercising the authorities and responsibilities provided by law and OMB’s guidance. Particular attention should be paid to the Departments of Health and Human Services, and State; the National Aeronautics and Space Administration; the Office of Personnel Management; and the U.S. Agency for International Development, which reported specific limitations with the CIO’s authority. In addition, we recommend that the Director of the Office of Management and Budget direct the Federal Chief Information Officer to require that agencies (1) state what actions have been taken to ensure the completeness of their commodity IT baseline information and (2) identify any limitation with this information as part of integrated data collection quarterly reporting; require agencies to report on the progress of their two consolidation efforts that were to be completed by December 2012 as part of the integrated data collection quarterly reporting; disclose the limitations of any data reported (or disclose the parameters and assumptions of these data) on the agencies’ consolidation efforts and associated savings and cost avoidance; require that agencies report on efforts to address action plan items as part of future PortfolioStat reporting; and Improve transparency of and accountability for PortfolioStat by publicly disclosing planned and actual data consolidation efforts and related cost savings by agency. We are also making 58 recommendations to 24 of the 26 departments and agencies in our review to improve their implementation of PortfolioStat requirements. Appendix IV contains these recommendations. We provided a draft of this report to OMB and the 26 executive agencies in our review for comment and received responses from all 27. Of the 27, 12 agreed with our recommendations directed to them, 5 disagreed or partially disagreed with our recommendations directed to them, 4 provided additional clarifying information, and 6 (the Departments of Education, Labor, Transportation, and Treasury; the Small Business Administration; and the U.S. Agency for International Development) stated that they had no comments. Several agencies also provided technical comments, which we incorporated as appropriate. The agencies’ comments and our responses are summarized below. In e-mail comments from the Federal Chief Information Officer, OMB generally agreed with three of our recommendations and disagreed with three. Specifically, OMB agreed with the recommendation to require agencies to disclose limitations their CIOs might have in exercising the authorities and responsibilities provided by law and OMB guidance but stated that it had already addressed this issue as part of its fiscal year 2013 PortfolioStat process. Specifically, according to OMB, its fiscal year 2013 PortfolioStat guidance required agencies to describe how their policies, procedures, and authorities implement CIO authorities, consistent with OMB Memorandum 11-29, as part of either the information resources management plan or enterprise roadmap they were instructed to submit. OMB stated that it reviewed and analyzed agencies’ responses and discussed limitations to CIOs’ authorities directly with agencies during the PortfolioStat sessions in cases where it determined that such limitations existed. However, OMB did not provide documentation supporting its reviews or discussions with agencies. In addition, as we note in our report, requiring agencies to fully disclose limitations their CIOs may have in exercising the authorities and responsibilities provided by law and OMB guidance should provide OMB information crucial to understanding and addressing the factors that could prevent agencies from successfully implementing the PortfolioStat initiative. For these reasons, we are maintaining our recommendation. OMB stated that it agreed with our recommendation to require that agencies (1) state what actions have been taken to ensure the completeness of their commodity IT baseline information and (2) identify any limitations with this information as part of the integrated data collection quarterly reporting. It acknowledged the value in ensuring the completeness and in understanding the limitations of agency-produced artifacts and stated it would continue to dedicate resources to validating agency savings associated with federal IT reform efforts prior to presenting these savings to Congress. OMB also stated that it would modify its analytical process to cite these limitations when producing PortfolioStat reports in the future. OMB generally agreed with the recommendation to require agencies to report on the progress of the two consolidation efforts they were to complete by December 2012 and stated that, to the extent feasible, it would dedicate resources to analyzing this information. OMB disagreed with our recommendation to disclose the limitations of any data reported on the agencies’ consolidation efforts and associated cost savings and avoidance, stating that it had disclosed limitations on data reported and citing three instances of these efforts. While we acknowledge that OMB reported limitations of data regarding consolidation efforts in these cases, the information reported did not provide stakeholders and the public with a complete understanding of the information presented. For example, OMB did not disclose that information from the departments of Defense and Justice was not included in the consolidation estimates reported, which, considering the scope of Defense’s efforts in this area (at least $3.2 billion), is a major gap. As noted in our report, OMB’s disclosure of limitations of or qualifications to the data it reports would provide the public and other stakeholders with crucial information needed to understand the status of PortfolioStat and agency progress in meeting the goals of the initiative. Therefore, we stand by our recommendation. OMB also disagreed with our recommendation to require agencies to report on efforts to address action plan elements as part of future OMB reporting, stating that it had found that 24 of 26 agencies had completed their plans. OMB further stated that it continuously follows up on the consolidation efforts identified in the plans and, where savings have been identified, reports this progress to Congress on a quarterly basis. However, our review of the 26 agency action plans found 26 instances where a required element (e.g., consolidation of commodity IT spending under the CIO) was not addressed and 26 instances where a required element was only partially addressed--an assessment with which agencies agreed. As noted in our report, addressing all the required elements would better position agencies to fully realize the intended benefits of the PortfolioStat initiative, and they should therefore be held accountable for reporting on them as required in OMB memo M-12-10. Accordingly, we stand by our recommendation. Finally, OMB disagreed with our recommendation to improve transparency and accountability for PortfolioStat by disclosing consolidation efforts and related cost savings by agency. Specifically, OMB stated that this recommendation does not adequately account for the work it currently performs to ensure accountability for and transparency of the process through its quarterly reporting of identified savings to Congress. It further stated that some details are deliberative or procurement sensitive and it would therefore not be appropriate to disclose them. However, while OMB currently reports realized savings by agency on a quarterly basis, these savings are not measured against planned savings. Doing this would greatly enhance Congress’s insight into agencies’ progress and hold them accountable for reducing duplication and achieving planned cost savings and would not require reporting deliberative or procurement-sensitive information. Therefore, we stand by our recommendation. In written comments, the U.S. Department of Agriculture concurred with the content of our report. The department’s comments are reprinted in appendix V. In written comments, the Department of Commerce concurred with our recommendations but disagreed with our statement that the CIO only has explicit authority over major IT investments. Commerce cited a June 21, 2012, departmental memo on IT portfolio management that it believes provides the CIO with explicit authority to review any IT investment, whether major or non-major. Our statement regarding the limitations on the CIO’s authority was based on information reported by the department to OMB in May 2012 and confirmed with officials from the Commerce Office of the CIO during the course of our review. However, we agree that the June 2012 memo provides the CIO with explicit authority to review all IT investments. Accordingly, we have removed the original statement noting limitations from the report and also removed Commerce from the list of departments OMB should require to disclose CIO limitations. The Department of Commerce’s comments are reprinted in appendix VI. In its written response, the Department of Defense provided comments for both the department and the Army Corps of Engineers. It concurred with one of the three recommendations made to Defense, partially concurred with another and disagreed with the third. Specifically, the department concurred with our recommendation to obtain support from the relevant component agencies for the estimated savings for fiscal years 2013 to 2015 for the data center consolidation, enterprise software purchasing, and General Fund Enterprise Business System initiatives. It partially concurred with our recommendation to develop a complete commodity baseline, stating that the department has efforts under way to further refine the baseline. Since these efforts have not yet been completed, we are maintaining our recommendation. The department did not concur with our recommendation to fully describe the consolidation of commodity IT spending under the CIO in future OMB reporting. The department stated that it did not intend to follow OMB’s guidance to consolidate commodity IT spending under the CIO because this approach would not work within the department’s federated management process. However, our recommendation was not to implement OMB’s guidance, but rather to address the element in the plan as required by either describing the steps it will take to implement it or explaining why it will not or cannot implement it. DOD did neither of these and instead was silent on the subject. We therefore stand by our recommendation. The department concurred with both of the recommendations we made to the Army Corps of Engineers. The department’s comments are reprinted in appendix VII. In written comments, the Department of Energy concurred with our recommendation to fully describe PortfolioStat action plan elements in future OMB reporting and stated that the department was committed to increasing the CIO’s oversight and authority for federal commodity IT investments. The department also noted that our statement that the “department has no direct authority over IT investments in two semi- autonomous agencies (the National Nuclear Security Administration and the Energy Information Administration)” should be clarified to say that it is the department CIO who does not have this authority. We found support for this clarification in documentation we had already received and therefore made it as requested. The department’s comments are reprinted in appendix VIII. In written comments, the Environmental Protection Agency generally agreed with two of the three recommendations we made and generally disagreed with the third. Specifically, the Environmental Protection Agency generally agreed with our recommendations to (1) fully describe three PortfolioStat action plan elements and (2) report on the agency’s progress in consolidating the managed print services and strategic sourcing of end user computing to shared services as part of the OMB integrated data collection quarterly reporting until completed. The agency disagreed with our recommendation to develop a complete commodity IT baseline, stating that it had provided a complete baseline to OMB on August 31, 2012, and had also reported to us during our review that the information was current and complete at the time of submission. During our review, we found that the Environmental Protection Agency did not have a process in place to ensure the completeness of the information in the baseline. Without appropriate controls and processes in place to confirm this, the Environmental Protection Agency cannot be assured that its data are complete. We therefore stand by our recommendation. The Environmental Protection Agency’s comments are reprinted in appendix IX. In written comments, the General Services Administration agreed with our findings and recommendations and stated it would take action as appropriate. The agency’s comments are reprinted in appendix X. In written comments, the Department of Homeland Security disagreed with our recommendation to fully describe its efforts related to consolidating commodity IT spending under the CIO in future OMB reporting, stating that the department had already addressed this recommendation. Specifically, the department stated that it had included updated information on this topic in its fiscal year 2013 Information Resources Management Plan that was submitted to OMB in May 2013. We reviewed the Information Resources Management Plan and agree that it addresses our recommendation. We therefore removed the recommendation from the report. The department’s comments are reprinted in appendix XI. In written comments, the Department of Housing and Urban Development concurred with our recommendations and stated it would provide more definitive information with timelines once the final report had been issued. The department’s comments are reprinted in appendix XII. In e-mail comments, the Department of the Interior’s GAO Audit Liaison stated that the department generally concurred with our findings and recommendations. However, the department recommended revising the criteria we used to assess whether agencies met the requirement to develop a commodity IT baseline (depicted in table 1) to reflect whether or not an agency had developed a baseline instead of whether that baseline was complete. The department stated that a validation was not being performed on how all agencies responded to the question and agencies that answered truthfully were being penalized for responding honestly. We recognize that agencies were not required to report on the completeness of the commodity IT baseline information they submitted to OMB; for this reason, we have recommended that OMB require agencies to state what actions have been taken to ensure the completeness of their commodity IT baseline information and identify any limitations with this information as part of the integrated data collection quarterly reporting. In e-mail comments, an official from the Department of Justice’s Audit Liaison Group stated that all references to the department were factually correct. In written comments, the National Aeronautics and Space Administration concurred with our recommendations and noted the agency will take actions to address them. The agency’s comments are reprinted in appendix XIII. In written comments, the National Archives and Records Administration concurred with our recommendation and stated that it would include updated or new descriptions of the elements of the PortfolioStat action plan in future OMB reporting. The agency’s comments are reprinted in appendix XIV. In written comments, the National Science Foundation stated that it generally agreed with our characterization of the agency’s PortfolioStat status and would update its PortfolioStat action plan as appropriate to more fully describe the two elements that we noted were not fully addressed. Regarding our recommendation to complete the consolidation of e-mail services to shared services, the agency stated that this effort was completed in August 2013. After reviewing additional documentation provided, we agree that the agency has met the requirement. We modified the report as appropriate, and removed the recommendation. The National Science Foundation’s comments are reprinted in appendix XV. In e-mail comments, the U.S. Nuclear Regulatory Commission’s GAO Audit Liaison stated that the agency was generally in agreement with our report. In written comments, the Office of Personnel Management concurred with our recommendations and noted that the agency will provide updated information on efforts to address them to OMB on November 30, 2013. The agency’s comments are reprinted in appendix XVI. In written comments, the Social Security Administration agreed with one recommendation and disagreed with the other. The agency disagreed with our recommendation to develop a complete commodity IT baseline, stating that it believed its commodity baseline data to be complete and accurate. However, our review found that the Social Security Administration did not have a process in place to ensure the completeness of the information in the baseline. Without appropriate controls and processes in place to confirm the completeness of data, the Social Security Administration cannot be assured that its data are complete. The agency also acknowledged that it needed to document a process for demonstrating the completeness of its baseline data. Consequently, we stand by our recommendation. The Social Security Administration’s comments are reprinted in appendix XVII. In written comments, the Department of State stated that it concurred with our report and would develop specific responses to each of the three recommendations we made once the report is published. However, related to our recommendation to complete the consolidation of the Foreign Affairs Network and content publishing and delivery services, the department stated that it has already consolidated more than two commodity IT areas per OMB Memorandum M-11-29. While we acknowledge that it has made efforts in this area, during our review the department changed what it considered the two commodity areas to be consolidated by December 2012 several times before stating that the two efforts were the Foreign Affairs Network and content publishing and delivery services. Based on this determination, we assessed the status of these two efforts and confirmed that neither had been completed as of August 2013. In addition, the department did not provide any documentation to support that it had consolidated more than two commodity IT areas. We therefore stand by our recommendation. The Department of State’s comments are reprinted in appendix XVIII. In written comments, the Department of Veterans Affairs concurred with our four recommendations, stating the department is taking steps to manage its investment portfolio more effectively and has developed an action plan to address each recommendation. The department’s comments are reprinted in appendix XIX. We are sending copies of this report to interested congressional committees, the Director of the Office of Management and Budget, the secretaries and agency heads of the departments and agencies addressed in this report, and other interested parties. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staffs have any questions on the matters discussed in this report, please contact me at (202) 512-9286 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 XX. Our objectives were to (1) determine the status of efforts to implement key required PortfolioStat actions, (2) evaluate selected agencies’ plans for making portfolio improvements and achieving associated cost savings, and (3) evaluate Office of Management and Budget’s (OMB) plans to improve the PortfolioStat process. To determine the status of agency efforts to implement key PortfolioStat actions, we obtained and analyzed policies, action plans, PortfolioStat briefing slides, status reports, agency communications to OMB, and other documentation relative to the key requirements of the Portfolio initiative outlined in OMB’s 2012 memorandum from each of the 26 federal agencies in our review. These requirements included (1) designating a lead for the initiative; (2) completing a high-level IT portfolio survey; (3) establishing a commodity IT baseline; (4) holding a PortfolioStat session; (5) submitting a final plan to consolidate commodity IT; (6) migrating at least two duplicative commodity IT services by December 31, 2012; (7) and documenting lessons learned. For the final plan to consolidate commodity IT, we reviewed agency plans to determine whether each element required in the plan was fully addressed. A “partially” rating was given if the plan addressed a portion but not all of the information required in the element. In addition, we obtained a briefing book which OMB provided to the agencies that, among other things, summarized the agencies’ commodity IT baseline data. We assessed the reliability of OMB’s reporting of these data through interviews with OMB officials regarding their processes for compiling the briefing books and used the briefing books to describe the federal investment in commodity IT at the time of the 2012 PortfolioStat. We also assessed the reliability of agencies’ commodity IT baseline data by reviewing the processes agencies described they had in place to ensure that all investments were captured in the baseline. We identified issues with the reliability of the agencies’ commodity IT baseline data and have highlighted these issues throughout this report, as appropriate. For objective two, we selected five agencies with (1) high fiscal year IT expenditure levels (based on information reported on the OMB’s IT dashboard); (2) a mix of varying IT and CIO organizational structures (centralized vs. decentralized); and (3) a range of investment management maturity levels based on knowledge gathered from prior work and reported results of PortfolioStat sessions. In addition, to the extent possible, we avoided selecting projects that were the subject of another engagement underway. The agencies selected are the Departments of Agriculture, Defense, the Interior, the Treasury, and Veterans Affairs. To evaluate the selected agencies’ plans for making portfolio improvements and achieving associated cost savings, we obtained and analyzed agencies’ action plans to consolidate commodity IT, and other relevant documentation, and interviewed relevant agency officials to compile a list of planned portfolio improvements and determine the processes agencies used to identify these portfolio improvements. We determined the extent to which these processes included using (1) the agency enterprise architecture and (2) a valuation model, which OMB recommended in its guidance to assist in analyzing portfolio information and developing action plans. In addition, we assessed the reliability of the cost savings and avoidance estimates by obtaining and analyzing the support for the estimates for the two efforts that were to be migrated by December 2012 and the two efforts with the highest anticipated savings between fiscal years 2013 and 2015. Based on the results of our analysis, we found the data to be sufficiently reliable given the way they are reported herein. To evaluate OMB’s plans for making PortfolioStat improvements, we reviewed PortfolioStat guidance for fiscal year 2013 and interviewed OMB officials to compile a list of planned improvements. In addition, we analyzed the information obtained from our sources and the results of our analyses for our first two objectives to determine whether OMB’s plans for improving PortfolioStat addressed the issues we identified. We conducted this performance audit from October 2012 to November 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. The table below lists the commodity IT efforts for migration to shared services agencies identified in their action plan. Moving website and census data to shared service provider Moving e-mail to shared services Electronic Capital Planning and Investment Control (eCPIC) Portfolio Management tool (FESCOM Program Participant) Electronic Capital Planning and Investment Control (eCPIC) The table below lists the commodity IT initiatives that agencies identified in the cost target templates provided to OMB in September 2012. Total estimated savings or cost avoidance Dollars in millions (rounded) Geo Spatial Consolidation Total reported savings and cost avoidance Commerce Desktop/Laptop Management Several Data Center Consolidation Activities Reduce total number of computers, use Commerce PC purchase contract to get discount. National Oceanic and Atmospheric Administration National Service Desk Enterprise-Wide IT Security Assessment and Authorization National Institute of Standards and Technology Cloud Initiatives Voice over Internet Protocol Total reported savings and cost avoidance Defense Branch Services Consolidation of Commodity IT Components and Applications n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Multi-level Security Domain Thin Client Solutions n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Consolidation Procurement of Commodity IT Hardware Purchases n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Unclassified Information Sharing Service / All Partner Access Network n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Implement Cross Domain Solution as Enterprise Service n.d. n.d. n.d. n.d. Fiscal year 2013 estimated savings or cost avoidance n.d. Fiscal year 2014 estimated savings or cost avoidance n.d. Fiscal year 2015 estimated savings or cost avoidance n.d. Total estimated savings or cost avoidance n.d. Video Over Internet Protocol Enterprise Service n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Defense Red Switch Network Rationalization n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Computing Infrastructure and Services Optimization n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Enterprise Messaging and Collaboration Services n.d. n.d. n.d. n.d. Identify and Access Management Services n.d. n.d. n.d. n.d. Enterprises Services – Identify and Access Management n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Defense Interoperability with Mission Partners n.d. n.d. n.d. n.d. General Fund Enterprise Business System n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Initiative Office of the Chief Financial Officer Grants Information Award Database Internet Site Education Web Total reported savings and cost avoidance Energy Commodity IT Contract Consolidation Enhanced Connectivity for Telework and Travel Public Key Infrastructure Migration to Shared Service Provider Collaboration Tools Consolidation (Microsoft SharePoint) Migration on-premise Exchange Services into Cloud 365 offering Rocky Mountain Oilfield Testing Center - Commodity IT Full Time Equivalent Reduction eCPIC Migration to General Services Administration Cloud Environment Implement CISCO Unified Communication & Collaboration ITSM Replacement of Office of the Chief Information Officer Remedy systems with ServiceNow Total reported savings and cost avoidance Environmental Protection Agency Email (Software as a Service) Collaboration Tools (Software as a Service) Identity Credentials and Access Management (.16) Initiative Enterprise eArchive System part of eMail Enterprise Records and Document Management System Financial and Business Management System deployment 7&8 Enterprise Forms System Total reported savings and cost avoidance Justice Consolidation of Classified Processing Services n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Web Time and Attendance Cloud Solution n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Justice Management Division Mobility-Virtual Private Network n.d. n.d. n.d. n.d. Consolidation of Justice Land Mobile Radio Systems n.d. n.d. n.d. n.d. Monitoring at two security operations centers n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Bureau of Alcohol, Tobacco, Firearms and Explosives Unified Communications n.d. n.d. n.d. n.d. Strategic sourcing (contract escalations) n.d. n.d. n.d. n.d. Network Delivery Order for CISCO services Total reported savings and cost avoidance Labor DOLNet Network Infrastructure consolidation n.d. n.d. n.d. Learning Management System aka Integrated Talent Management System = LMS (Learning Management System) + PM (Performance Management) $265k WFA aka Workforce Analytics or Workforce Planning $535k eCPIC Portfolio Management Tool (FESCOM Program Participant) Telecommunications and Computer Operations Center Total reported savings and cost avoidance U.S. Army Corps of Engineers eCPIC Total reported savings and cost avoidance Veterans Affairs Server Virtualization Eliminate Dedicated Fax Servers Consolidation Standardize Spend Planning and Consolidation Contracts Total reported savings and cost avoidance Total reported savings and cost avoidance (all agencies) n.d.—no data. Numbers may not add up due to rounding. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of Agriculture direct the CIO to take the following four actions: Develop a complete commodity IT baseline. In future reporting to OMB, fully describe the following PortfolioStat Action plan elements: (1) consolidate commodity IT spending under the agency CIO and (2) establish criteria for wasteful, low-value, or duplicative investments. As the department finalizes and matures its valuation methodology, utilize this process to identify whether there are additional opportunities to reduce duplicative, low-value, or wasteful investments. Develop support for the estimated savings for fiscal years 2013 through 2015 for the Cellular Phone Contract Consolidation, IT Infrastructure Consolidation/Enterprise Data Center Consolidation, and Geospatial Consolidation initiatives. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of Commerce direct the CIO to take the following two actions: Reflect 100 percent of information technology investments in the department’s enterprise architecture. Develop a complete commodity IT baseline. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of Defense direct the CIO to take the following three actions: Develop a complete commodity IT baseline. In future reporting to OMB, fully describe the following PortfolioStat action plan element: consolidate commodity IT spending under the agency CIO. Obtain support from the relevant component agencies for the estimated savings for fiscal years 2013 to 2015 for the data center consolidation, enterprise software purchasing, and General Fund Enterprise Business System initiatives. In addition, to improve the U.S. Army Corps of Engineers’ implementation of PortfolioStat, we recommend that the Secretary of Defense direct the Secretary of the Army to take the following two actions: In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO; (2) target duplicative systems or contracts that support common business functions for consolidation; (3) establish criteria for identifying wasteful, low-value, or duplicative investments; and (4) establish a process to identify these potential investments and a schedule for eliminating them from the portfolio.. Report on the agency’s progress in consolidating eCPIC to a shared service as part of the OMB integrated data collection quarterly reporting until completed. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of Energy direct the CIO to take the following action: In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO and (2) establish criteria for identifying wasteful, low- value, or duplicative investments. To improve the agency’s implementation of PortfolioStat, we recommend that the Administrator of the Environmental Protection Agency direct the CIO to take the following three actions: Develop a complete commodity IT baseline. In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO; (2) establish targets for commodity IT spending reductions and deadlines for meeting those targets; and (3) establish criteria for identifying wasteful, low-value, or duplicative investments. Report on the agency’s progress in consolidating the managed print services and strategic sourcing of end user computing to shared services as part of the OMB integrated data collection quarterly reporting until completed. To improve the agency’s implementation of PortfolioStat, we recommend that the Administrator of the General Services Administration direct the CIO to take the following action: Report on the agency’s progress in consolidating the contract writing module to a shared service as part of the OMB integrated data collection quarterly reporting until completed. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of Health and Human Services direct the CIO to take the following action: In future OMB reporting, fully describe the following PortfolioStat action plan element: consolidate commodity IT spending under the agency CIO. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of Housing and Urban Development direct the CIO to take the following three actions: Develop a complete commodity IT baseline. In future reporting to OMB, fully describe the following PortfolioStat action plan element: establish criteria for identifying wasteful, low- value, or duplicative investments. Report on the department’s progress in consolidating the HR End-to- End Performance Management Module to a shared service as part of the OMB integrated data collection quarterly reporting until completed. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of the Interior direct the CIO to take the following three actions: Develop a complete commodity IT baseline. In future reporting to OMB, fully describe the following PortfolioStat action plan element: establish criteria for identifying wasteful, low- value, or duplicative investments. Report on the department’s progress in consolidating the Electronic Forms System component of the eMail Enterprise Records & Document Management System deployment 8 to a shared service as part of the OMB integrated data collection quarterly reporting until completed. To improve the department’s implementation of PortfolioStat, we recommend that the Attorney General direct the CIO to take the following two actions: Reflect 100 percent of information technology investments in the department’s enterprise architecture. In future reporting to OMB, fully describe the following PortfolioStat action plan element: establish targets for commodity IT spending reductions and deadlines for meeting those targets. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of Labor direct the CIO to take the following three actions: Develop a complete commodity IT baseline. In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO and (2) establish targets for commodity IT spending reductions and deadlines for meeting those targets. Report on the department’s progress in consolidating the cloud e-mail services to a shared service as part of the OMB integrated data collection quarterly reporting until completed. To improve the agency’s implementation of PortfolioStat, we recommend that the Administrator of the National Aeronautics and Space Administration direct the CIO to take the following three actions: Reflect 100 percent of information technology investments in the agency’s enterprise architecture. In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO; (2) target duplicative systems or contracts that support common business functions for consolidation; (3) establish criteria for identifying wasteful, low-value, or duplicative investments; and (4) establish a process to identify these potential investments and a schedule for eliminating them from the portfolio. Report on the agency’s progress in consolidating the NASA Integrated Communications Services Consolidated Configuration Management System to a shared service as part of the OMB integrated data collection quarterly reporting until completed. To improve the agency’s implementation of PortfolioStat, we recommend that the Archivist of the United States direct the CIO to take the following action: In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO; (2) target duplicative systems or contracts that support common business functions for consolidation; (3) establish criteria for identifying wasteful, low-value, or duplicative investments; and (4) establish a process to identify these potential investments and a schedule for eliminating them from the portfolio. To improve the agency’s implementation of PortfolioStat, we recommend that the Director of the National Science Foundation direct the CIO to take the following action: In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO and (2) establish criteria for identifying wasteful, low- value, or duplicative investments. To improve the agency’s implementation of PortfolioStat, we recommend that the Chairman of the U.S. Nuclear Regulatory Commission direct the CIO to take the following two actions: Develop a complete commodity IT baseline. In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO; (2) establish targets for commodity IT spending reductions and deadlines for meeting those targets; (3) target duplicative systems or contracts that support common business functions for consolidation; and (4) establish a process to identify these potential investments and a schedule for eliminating them from the portfolio. To improve the agency’s implementation of PortfolioStat, we recommend that the Director of the Office of Personnel Management direct the CIO to take the following three actions: Develop a complete commodity IT baseline. In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) move at least two commodity IT areas to shared services and (2) target duplicative systems or contracts that support common business functions for consolidation. Report on the agency’s progress in consolidating the help desk consolidation and IT asset inventory to shared services as part of the OMB integrated data collection quarterly reporting until completed. To improve the agency’s implementation of PortfolioStat, we recommend that the Administrator of the Small Business Administration direct the CIO to take the following two actions: Develop a complete commodity IT baseline. In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO; (2) establish targets for commodity IT spending reductions and deadlines for meeting those targets; (3) target duplicative systems or contracts that support common business functions for consolidation; and (4) establish a process to identify those potential investments and a schedule for eliminating them from the portfolio. To improve the agency’s implementation of PortfolioStat, we recommend that the Commissioner of the Social Security Administration direct the CIO to take the following two actions: Develop a complete commodity IT baseline. Report on the agency’s progress in consolidating the geospatial architecture to a shared service as part of the OMB integrated data collection quarterly reporting until completed. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of State direct the CIO to take the following three actions: Reflect 100 percent of information technology investments in the department’s enterprise architecture. In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO; (2) establish targets for commodity IT spending reductions and deadlines for meeting those targets; (3) move at least two commodity IT areas to shared services; (4) target duplicative systems or contracts that support common business functions for consolidation; and (5) establish a process to identify those potential investments and a schedule for eliminating them from the portfolio. Report on the department’s progress in consolidating the Foreign Affairs Network and content publishing and delivery services to shared services as part of the OMB integrated data collection quarterly reporting until completed. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of Transportation direct the CIO to take the following two actions: In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO; (2) establish targets for commodity IT spending reductions and deadlines for meeting those targets; (3) target duplicative systems or contracts that support common business functions for consolidation; and (4) establish a process to identify those potential investments and a schedule for eliminating them from the portfolio. Report on the department’s progress in consolidating the Enterprise Messaging to shared services as part of the OMB integrated data collection quarterly reporting until completed. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of the Treasury direct the CIO to take the following three actions: In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) consolidate commodity IT spending under the agency CIO and (2) establish criteria for identifying wasteful, low- value, or duplicative investments. As the department finalizes and matures its enterprise architecture and valuation methodology, utilize these processes to identify whether there are additional opportunities to reduce duplicative, low-value, or wasteful investments. Develop support for the estimated savings for fiscal years 2013 to 2015 for the DoNotPay Business Center, Fiscal IT Data Center Consolidation and Business Process Management Status initiatives. To improve the agency’s implementation of PortfolioStat, we recommend that the Administrator of the U.S. Agency for International Development direct the CIO to take the following four actions: Reflect 100 percent of information technology investments in the agency’s enterprise architecture. Develop a complete commodity IT baseline. In future reporting to OMB, fully describe the following PortfolioStat action plan elements: (1) target duplicative systems or contracts that support common business functions for consolidation and (2) establish a process to identify those potential investments and a schedule for eliminating them from the portfolio. Report on the agency’s progress in consolidating the e-mail and Telecommunication and Operations Center to shared services as part of the OMB integrated data collection quarterly reporting until completed. To improve the department’s implementation of PortfolioStat, we recommend that the Secretary of Veterans Affairs direct the CIO to take the following four actions: In future reporting to OMB, fully describe the following PortfolioStat action plan element: target duplicative systems or contracts that support common business functions for consolidation. Report on the department’s progress in consolidating the dedicated fax servers to a shared service as part of the OMB integrated data collection quarterly reporting until completed. As the department matures its enterprise architecture process, make use of it, as well as the valuation model, to identify whether there are additional opportunities to reduce duplicative, low-value, or wasteful investments. Develop detailed support for the estimated savings for fiscal years 2013 to 2015 for the Server Virtualization, Eliminate Dedicated Fax Servers Consolidation, Renegotiate Microsoft Enterprise License Agreement, and one CPU policy initiatives. In addition to the contact named above, individuals making contributions to this report included Sabine Paul (Assistant Director), Valerie Hopkins, Lee McCracken, Tomas Ramirez, and Bradley Roach.

Federal agencies plan to spend at least $82 billion on IT in fiscal year 2014, and GAO has previously reported on challenges in identifying and reducing duplicative IT investments. In 2012, OMB launched its PortfolioStat initiative—a process where agencies gather information on their IT investments and develop plans for consolidation and increased use of shared-service delivery models.GAO was asked to review the implementation of PortfolioStat. GAO’s objectives were to (1) determine whether agencies completed key required PortfolioStat actions, (2) evaluate selected agencies’ plans for making portfolio improvements and achieving associated cost savings, and (3) evaluate OMB’s plans to improve the PortfolioStat process. To do this, GAO analyzed plans, status reports, and other documentation from agencies and interviewed agency and OMB officials. GAO also interviewed officials and reviewed documentation from five agencies selected based on their IT expenditures and management structures. The 26 major federal agencies that were required to participate in the PortfolioStat initiative fully addressed four of seven key requirements established by the Office of Management and Budget (OMB). However, only 1 of the 26 agencies addressed all the requirements. For example, agencies did not develop action plans that addressed all elements, such as criteria for identifying wasteful, low-value or duplicative information technology (IT) investments, or migrate two commodity IT areas—such as enterprise IT systems and IT infrastructure—to a shared service by the end of 2012. Further, OMB’s estimate of about 100 consolidation opportunities and a potential $2.5 billion in savings from the PortfolioStat initiative is understated because, among other things, it did not include estimates from the Departments of Defense and Justice. GAO’s analysis, which includes these estimates, shows that, collectively, the 26 agencies are reporting about 200 opportunities and at least $5.8 billion in potential savings through fiscal year 2015. Five selected agencies—the Departments of Agriculture, Defense, the Interior, the Treasury, and Veterans Affairs—identified 52 consolidation initiatives, along with other IT management improvements, and estimated at least $3.7 billion in potential cost savings through fiscal year 2015. However, four agencies did not always provide sufficient support for all of their estimates, and they varied in their use of processes—such as an enterprise architecture and a method for assessing the value of investments—recommended by OMB to identify consolidation opportunities. More consistently using these tools may reveal further opportunities for consolidation, and better support for estimated savings may increase the chances that they will be achieved. OMB‘s fiscal year 2013 PortfolioStat guidance identifies a number of planned improvements but does not fully address certain weaknesses in the implementation of the initiative, such as limitations in CIOs’ authority, weaknesses in agencies’ commodity IT baselines, accountability for migrating selected commodity IT areas, or the information on agencies’ progress that OMB intends to make public. GAO is recommending, among other things, that OMB require agencies to fully disclose limitations in CIOs’ ability to exercise their authority and that 24 agencies take steps to improve their PortfolioStat implementation. OMB agreed with some of the recommendations and disagreed with others; and responses from the 21 agencies commenting on the report varied. GAO continues to believe that the majority of the recommendations are valid, but has removed two, and modified one, as discussed in the report.

You are an expert at summarizing long articles. Proceed to summarize the following text: Since 1949, the governance structure of the MHS has been the subject of numerous studies conducted by DOD internal and external boards, commissions, task forces, and GAO, and several of those studies have led to recommendations for a major organizational realignment. After studying several options for reorganizing the defense organizations that constitute the MHS, in 2006 the Deputy Secretary of Defense approved multiple initiatives including a shared services directorate to integrate the services these organizations provide, such as information technology, and make the MHS more cost-effective. DOD implemented those initiatives to varying extents; however, the directorate was never formed and the overarching governance structure of the MHS did not change. Further, Congress expressed concern that DOD had not yet developed a comprehensive plan to enhance quality, efficiencies, and savings in the MHS. DOD’s senior leadership established a task force in 2011 to review various options for changing the governance structure of the system. This task force reported the results of its review to the congressional defense committees in March 2012 and, in October 2013, implemented its recommended course of action by establishing the DHA. According to DOD, with the creation of the DHA, the military services’ respective Surgeons General will continue to oversee medical forces and the operation of health care systems, including their military hospitals, and the DHA will support the services in executing their respective medical missions. DOD created the DHA with the intent of creating a more cost-effective and integrated MHS. This reform effort comprises seven overarching goals: consolidate functions (shared services) common to DOD; deliver more-integrated health care in areas with more than one establish more-standardized processes; more-closely align financial incentives with health and readiness match other resources with missions; deliver more primary care and other health services; and better coordinate care over time and across treatment settings. The Deputy Secretary of Defense directed the formation of a team to develop an implementation plan for the governance changes. As a result, in March 2013, the Assistant Secretary of Defense for Health Affairs chartered the MHS Governance Transition Organization to provide oversight, management, and support for the implementation of MHS governance reforms. The formation of this MHS Governance Transition Organization addresses an issue we previously reported on—that DOD had not formed an overarching team to manage the implementation of the 2006 attempt to improve the department’s medical governance structure. As we reported in November 2013, DOD has not conducted an accurate baseline assessment of the headquarters personnel currently working in the MHS—that is, personnel working at each military service’s headquarters and at the Office of the Secretary of Defense. In addition, DOD has not determined the number of personnel required for the DHA when it is fully operational in 2015, as currently planned. Our previous work highlighted the need for federal agencies to have valid, reliable data and to be aware of the size of their workforce, its deployment across the organization, and the knowledge, skills, and abilities needed for the agency to accomplish its mission. A baseline assessment of the number of current headquarters personnel is a crucial first step for developing an estimate of the number of personnel that will be required once DHA is fully operational. In its September 2011 analysis of options to reform the MHS, DOD identified anticipated personnel savings as part of the rationale for the reform effort and estimated a resulting estimated annual personnel cost savings of $46.5 million. The Deputy Secretary of Defense based the decision to establish the DHA, in part, on this estimate of personnel savings. In contrast, we reported in November 2013 that DOD officials told us that there would be no net increase in personnel numbers across the MHS headquarters as a result of the creation of the DHA. Further, we reported that, according to DOD officials, military service officials believed that DOD’s previous baseline assessment that was reflected in the $46.5 million cost savings estimate did not accurately reflect the current number of headquarters personnel working in the MHS. We also reported in November 2013 that, according to DOD officials, the number of military, civilian, and contractor positions required when the DHA is fully operational in 2015 could be significantly higher for certain headquarters functions than the estimates for the number of positions required at the time of the DHA’s establishment in October 2013. For example, we reported that according to a senior official responsible for information technology in the MHS, the number of staff required to provide information-technology services when DHA began initial operations in October 2013 was estimated at about 400 military and civilian positions; however, that estimate could increase to about 3,500 military and civilian positions and about 5,000 contractor equivalent positions once the DHA becomes fully operational in 2015. We concluded that DOD was unable to determine whether the establishment of the DHA would result in an increase or decrease in the number of headquarters personnel because the department had not completed an accurate baseline assessment of the number of headquarters personnel working in the MHS across the services and the Office of the Secretary of Defense. In our November 2013 report, we recommended that DOD develop a baseline assessment of the current number of military, civilian, and contractor personnel currently working within the MHS headquarters and an estimate for the DHA at full operating capability, including estimates of changes in contractor full-time equivalents. DOD concurred with our recommendation. In our November 2013 report, we noted that DOD officials told us that they planned to conduct a baseline assessment of headquarters staffing levels and submit a revised estimate of its staffing needs in the department’s third and final implementation plan submission. In the final submission which we reviewed for this statement, DOD did not include a baseline assessment of the number of personnel currently working in the MHS headquarters across the services and the Office of the Secretary of Defense, nor did it include an estimate of the staffing needs once the DHA is fully operational in 2015. Instead, DOD reported that the DHA would include 1,941 military and civilian personnel as of its initial operating capability on October 1, 2013. Additionally, the plan’s estimate of staffing in October 2013 does not account for any contractor positions currently associated with the MHS’s headquarters functions. As the DHA moves toward full operating capability, accurate baseline staffing data is critical for senior leadership to make informed decisions about the resources required to manage the MHS. Such data have become even more critical since the Deputy Secretary of Defense announced a 20 percent reduction in DOD management headquarters spending over 5 fiscal years beginning in fiscal year 2014. DOD has not provided discrete cost savings estimates for the various functions it has identified as part of its 10 shared service projects it is planning as part of the MHS reform. In addition, DOD has not clarified its plan to monitor implementation costs. According to GAO’s Business Process Reengineering Assessment Guide, an initial business case is a high-level document aimed at convincing customers and stakeholders that reengineering the selected business process is the appropriate means for achieving performance and cost-savings goals. The Guide identifies that as the reengineering process matures, the business case should include detailed qualitative and quantitative analysis in support of selecting and implementing the new process that includes a statement regarding benefits, costs, and risks. In addition, business-case analyses should demonstrate the sensitivity of the outcome to changes in assumptions, with a focus on the dominant benefit and cost elements and the areas of greatest uncertainty. In the context of major business- process reengineering efforts, such as DOD’s shared services, implementation costs can be the dominant cost element and the area of greatest uncertainty. GAO-14-49. DOD’s submissions did not include detailed quantitative analysis regarding the sources of its cost-savings estimates or provide a basis for or an explanation of key assumptions and rationales used in estimating such savings. For example, DOD identified the consolidation of medical logistics functions and a resulting aggregated cost-savings range of between $132 million and $353 million from fiscal years 2014 through 2019. However, the plan did not explain which function within this area (e.g., equipment or housekeeping) would be the larger source of those savings. Similarly, DOD’s second implementation plan submission identified that DOD plans to achieve savings in administration of its health care plan for servicemembers, TRICARE, by closing walk-in help centers and transitioning to a phone-based system. Further, it plans to achieve savings through better coordination of TRICARE benefit payments with other health insurers. However, as in the case of the consolidation of medical logistics functions, DOD did not identify separate cost-savings estimates for each planned effort (e.g., transitioning to a phone-based system) and instead presented the estimated cost savings as an aggregated amount of between $503 million and $787 million. DOD’s second implementation plan submission included risk-adjusted estimates of net cost savings for shared services based on uncertainty regarding these projects’ effectiveness and that are presented as a range, with a 10 percent to 100 percent chance of achieving the maximum estimated savings for each shared service. However, while DOD assessed the risk of its reforms failing to achieve their maximum potential cost savings, it did not similarly assess the risk that estimated implementation costs may increase and affect net savings. As noted above, our prior work emphasizes that business-case analyses should demonstrate the sensitivity of the outcome to changes in assumptions, with a focus on the dominant benefit and cost elements and the areas of greatest uncertainty. DOD’s analysis did not assess the risk that estimated implementation costs may increase. In instances where estimated implementation costs increase, overall savings may be negatively affected. DOD’s past experience with large-scale projects demonstrates its difficulties in controlling rising implementation costs. For example, in October 2010, we previously found that after obligating approximately $2 billion over the 13-year life of its initiative to acquire an electronic health record system, as of September 2010 DOD had delivered various capabilities for outpatient care and dental care documentation, but scaled back other capabilities it had originally planned to deliver, such as replacement of legacy systems and inpatient-care management. In addition, users continued to experience significant problems with the performance (speed, usability, and availability) of the portions of the system that have been deployed. According to DOD’s estimates, collectively, the 10 shared services to be implemented as part of the MHS reform effort require an investment in information-technology capabilities of about $273 million between fiscal years 2014 and 2019. Given DOD’s past experience in this area, rising implementation costs are an area of specific concern. In our November 2013 report, we recommended that DOD develop a more thorough explanation of the potential sources of cost savings from the implementation of its shared-services projects and monitor the cost of the implementation process, and DOD concurred with our recommendations.submission did not provide additional information concerning the potential sources of cost savings, nor did it clarify its plan to monitor implementation costs. In February 2014, a DOD representative told us that DOD has developed a process for leadership to monitor implementation costs, and we plan to review DOD’s process to determine if it addresses our recommendation. As DOD implements its shared services, greater clarity with regard to the sources of cost savings is also needed to allow senior leaders to monitor progress in achieving cost savings. DOD has developed some milestones and activities associated with each of its reform goals, including identifying steps to reach each reform goal’s initial operating capability. However, DOD did not consistently identify milestones between initial operating capability and final operating capability, nor did it include steps to achieve all seven reform goals. Practices of successful performance management show that interim milestones can be used to show progress towards implementing efforts or to make adjustments when necessary. Specifically, we found that developing and using specific milestones and timelines to guide and gauge progress toward achieving an agency’s desired results informs management of the rate of progress toward achieving goals and whether adjustments need to be made in order to maintain progress within given time frames. DOD’s March 2013 submission was required to include a detailed schedule for carrying out the reform of the governance of the MHS, including a schedule for meeting the goals of the reform. However, in that submission, DOD provided a schedule of activities leading up to its first major milestone—initial operating capability of October 1, 2013. This schedule of activities did not provide information related to activities beyond this first major milestone, and it did not present milestones for achieving each of the supporting seven goals of the reform. In that March 2013 submission, DOD also did not include some key features of effective schedules identified in our prior work, such as interim milestones or related timelines for all of the activities supporting the reform. Specifically, the submission did not contain any interim actions or milestones between October 1, 2013 and October 1, 2015—the planned final operating capability date. Furthermore, the schedule provided in the submission does not clearly establish how each of the supporting seven goals of the reform will be met. Subsequent to DOD’s March 2013 submission, the House Report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2014 directed the Secretary of Defense to provide the House Armed Services Committee with, among other things, a detailed schedule for managing the reform effort. In response, DOD submitted a supplemental report on August 16, 2013, that included estimated interim milestones for the achievement of three of the reform goals that it had not initially provided in either of its earlier submissions. In our November 2013 report, we recommended that DOD develop a comprehensive timeline that includes interim milestones for all reform goals that could be used to show implementation progress, and DOD concurred with our recommendation. DOD’s third implementation plan submission contained additional timeline activities for its reform goal concerning the implementation of shared services, with milestones leading up to each shared services’ initial operating capability. However, DOD has not consistently identified milestones for all activities between initial operating capability and final operating capability for each of the goals of its reform. While senior leaders now have more interim milestones by which to track the implementation of the DHA, they continue to lack milestones subsequent to initial operating capability in a number of areas. Unless DOD develops interim milestones for its reform timelines, it may not be able to adequately monitor its progress toward achieving its goals by October 2015. DOD did not include critical details in the performance measures it developed to assess progress in achieving the seven goals of the reform effort. Specifically, DOD did not develop explanations for how each measure relates to the goals of the reform effort; did not define the specific measure to be developed; did not provide a baseline assessment of the current performance that is to be measured; and, most importantly, did not identify quantifiable targets for assessing the progress of each reform goal. We have previously concluded that federal agencies engaging in large projects, including the consolidation of management functions, can use performance measures to determine how well they are achieving their Additionally, we goals and identify areas for improvement, if needed.have found that by tracking and developing a performance baseline for all measures, agencies can better evaluate progress made and determine whether goals are being achieved. Identifying and reporting deviations from the baseline as a program proceeds provides valuable information for these decision makers as they identify areas of risk and diagnose their causes. GAO-14-49. As noted in our report, some performance measures were used to assess multiple objectives. performance measures that we had established in our prior work.Specifically, we found that DOD provided only the measures’ names, with no accompanying explanation for how each measure relates to the goals of the reform effort, definition of the specific measure to be developed, or quantifiable, numerical target for performance, nor had DOD provided a baseline assessment of the current performance to be measured. For example, DOD listed “Emergency Room Utilization Rate” as a performance measure, but did not explain how that measure relates to the objective of consolidating delivery of health care in areas with more than one military service. Further, we found that DOD did not provide an explanation of what each measure will evaluate, which could be used to determine the extent to which each measure provides new information beyond that provided by other measures. For example, two of the measures listed under the objective to deliver more-comprehensive primary care and integrated health services using advanced patient- centered medical homes are “satisfaction with provider communications” and “satisfaction with health care.” As presented in DOD’s June submission of its implementation plan, it is unclear whether there is any overlap between these measures, because the aspects of satisfaction are not clarified by any accompanying explanation or definition. We also reported that decision makers would not be able to determine the objectivity of DOD’s measures because there is no information accompanying the measures that indicates specifically what is to be observed, in which population or conditions, and in what time frame. For example, one of the measures is “savings achieved versus savings projected.” This measure does not indicate specifically how savings will be measured, and does not indicate what time frame will be used to compare what savings were projected versus what were actually achieved. In our November 2013 report, we recommended that DOD provide more detailed information on its performance measures—specifically, that DOD develop and present to Congress measures that are clear, quantifiable, objective, and include a baseline assessment of current performance.the third submission of its implementation plan, DOD provided some additional information, such as baselines and performance targets, for the performance measures under two of its seven reform goals. In this submission, DOD included tables with expanded information for the performance measures for its goals related to (1) delivering more- comprehensive primary care and integrated health services using advanced patient-centered medical homes, and (2) coordinating care over time and across treatment settings to improve outcomes in the management of chronic illness, particularly for patients with complex medical and social problems. For these objectives, DOD listed the measures’ names, and, where available, estimates of current and target performance. For those measures without a definition or baseline, DOD provided a date by when the measures would be defined and when the baseline performance level would be established. As of DOD’s final submission, much of the information to be included in these two tables was still to be determined. As a result, many of the entries in the tables represented placeholders for information, rather than actual baselines or performance targets. Further, DOD did not include this additional information for any of the performance measures listed under its other five reform goals. In this third submission, DOD noted that it was in the process of developing measures and respective performance targets to be published in its 2014 strategic plan for the MHS, which it expected to issue in December 2013. In February 2014, a DOD representative told us that the strategic plan is now expected to be released in May 2014. Fully developed performance measures are key to senior leaders’ ability to assess if DOD’s reform effort is achieving its goals or if corrective action is required. In summary, DOD’s reform efforts represent positive steps to improve the efficiency of the governance of the MHS, and these reforms have progressed much further than previous attempts to improve the governance structure. As we noted in previous reports, the successful implementation of the DHA will require committed senior leadership to sustain the momentum created by the current reform effort. This leadership, in turn, will help to provide oversight and accountability for the improvement process. However, senior leaders need appropriate information to make decisions and guide the reform. The first step to determine what is needed for the implementation of the DHA is a baseline assessment of current MHS staffing, followed by an estimate of DHA staffing at full operating capability. In addition, a detailed quantitative analysis regarding the sources of cost savings and a plan to monitor implementation costs would provide greater clarity to DOD’s shared- service consolidation projects. Moreover, the development of comprehensive milestones for all of the reform goals would allow decision makers to track the progress of DOD’s reform efforts toward achieving its goals. Finally, the completion of a set of fully developed performance measures across all seven of DOD’s stated goals for the DHA would ensure that DOD’s senior leaders and other decision makers have the necessary information to assess DOD’s progress in creating a more cost- effective and integrated MHS. Chairman Wilson, Ranking Member Davis, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have at this time. For further information about this statement, please contact Brenda S. Farrell 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 statement. Individuals who made key contributions to this testimony are Lori Atkinson, Assistant Director; Beckie Beale; Jeff Heit; Mae Jones; and Adam Smith. Defense Health Care Reform: Additional Implementation Details Would Increase Transparency of DOD’s Plans and Enhance Accountability. GAO-14-49. Washington, D.C.: November 6, 2013. Defense Health Care: Additional Analysis of Costs and Benefits of Potential Governance Structures Is Needed. GAO-12-911. Washington, D.C.: September 26, 2012. Defense Health Care: Applying Key Management Practices Should Help Achieve Efficiencies within the Military Health System. GAO-12-224. Washington, D.C.: April 12, 2012. Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011. Military Personnel: DOD Addressing Challenges in Iraq and Afghanistan but Opportunities Exist to Enhance the Planning Process for Army Medical Personnel Requirements. GAO-11-163. Washington, D.C.: February 10, 2011. Military Personnel: Enhanced Collaboration and Process Improvements Needed for Determining Military Treatment Facility Medical Personnel Requirements. GAO-10-696. Washington, D.C.: July 29, 2010. Defense Health Care: DOD Needs to Address the Expected Benefits, Costs, and Risks for Its Newly Approved Medical Command Structure. GAO-08-122. Washington, D.C.: October 12, 2007. Defense Health Care: Tri-Service Strategy Needed to Justify Medical Resources for Readiness and Peacetime Care. GAO/HEHS-00-10. Washington, D.C.: November 3, 1999. 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’s MHS costs almost $50 billion annually and is expected to grow to $70 billion by 2028. The MHS governance structure has been the subject of many studies, some recommending major changes. In 2006, DOD considered potential governance structure changes but left its existing structure in place, approving instead a shared-services directorate to consolidate common MHS functions (e.g., shared information-technology services) that ultimately was never developed. In 2012, DOD announced the creation of the DHA by October 1, 2013, with seven main goals: (1) consolidate functions (shared services) common to DOD, (2) deliver more-integrated health care in areas with more than one military service, (3) establish more-standardized processes, (4) more-closely align financial incentives with health and readiness outcomes, (5) match other resources with missions, (6) deliver more primary care and other health services, and (7) better coordinate care over time and across treatment settings. Section 731 of the National Defense Authorization Act for Fiscal Year 2013 required DOD to provide three submissions in March, June, and September 2013, detailing its plan to reform the MHS. This testimony addresses the additional actions that would increase transparency and enhance accountability of DOD’s reform plans. It is based primarily on (1) GAO’s November 2013 report which assessed DOD’s first two submissions of its reform plans to Congress and (2) selected updates. For the updates, GAO analyzed DOD’s third reform plan and interviewed a DOD representative. Department of Defense (DOD) senior leadership has demonstrated a commitment to oversee implementation of its military health system’s (MHS) reform and has taken a number of actions to enhance the reform efforts. For example, in March 2013, DOD chartered the MHS Governance Transition Organization to provide oversight, management, and support for the implementation. This entity is chartered to exist until October 2015, when the Defense Health Agency (DHA) is expected to reach full operating capability. Formation of this entity addresses an issue GAO reported on in April 2012—that DOD did not form such a team to oversee its 2006 MHS reform effort. GAO’s November 2013 report identified several areas in DOD’s implementation plan where sustained senior leadership attention is needed to help ensure the reform achieves its goals including: Undetermined staffing requirements : DOD did not have the data to determine how the creation of the DHA will affect the total number of MHS headquarters staff because it had not conducted an accurate baseline assessment of current staffing levels. Notwithstanding, using data that service officials later believed were inaccurate, in 2011, DOD identified anticipated annual personnel savings of $46.5 million as part of the rationale for creating the DHA. Unclear cost estimates : DOD’s cost savings estimates were missing key details such as the source of the savings. DOD aggregated the separate functions of its shared services, which obscures the size and cost of planned efficiencies for each function. A business case analysis requires detailed information to convince customers and stakeholders that the selected business process is the appropriate means for achieving performance. In addition, business-case analyses should demonstrate the sensitivity of the outcome to changes in assumptions. However, DOD did not assess the risk that implementation costs could increase. Incomplete performance measures : DOD did not develop explanations for how each measure relates to the goals of the reform effort, did not define the specific measure to be developed; did not provide a baseline assessment of the current performance that is to be measured; and, most importantly, did not identify quantifiable targets for assessing progress. In its third submission, DOD provided some additional information, but did not provide fully developed performance measures for any of its seven reform goals. DOD concurred with all of GAO’s recommendations, including: (1) develop a baseline assessment of the number of personnel currently working within the MHS headquarters and an estimate for the DHA at full operating capability; (2) develop a more thorough explanation of the potential sources of cost savings from DOD’s implementation of shared services; and (3) develop performance measures that are clear, quantifiable, objective, and include a baseline assessment of current performance. In February 2014, a DOD representative said that DOD has taken action to address the recommendations, but it has not completed implementation. GAO continues to believe that it is imperative for DOD to complete these actions so decision makers will have complete information to gauge reform progress.

You are an expert at summarizing long articles. Proceed to summarize the following text: To obtain information on whether CPOT investigations were consistent with the mission of the HIDTA program, we reviewed the Office of National Drug Control Policy Reauthorization Act of 1998, ONDCP’s appropriations statutes and accompanying committee reports, ONDCP’s strategic plans and policies, and ONDCP’s Web site. We also reviewed all HIDTA applications (38) to ONDCP from HIDTAs that received discretionary funds for various investigation activities linked to the CPOT list in fiscal years 2002 and 2003, and compared them with the mission of the HIDTA program. At 11 selected HIDTA sites—Appalachia; Atlanta; Central Florida; Lake County, Indiana; Los Angeles; Milwaukee; Nevada; North Texas; Oregon; Rocky Mountain; and Washington-Baltimore—we interviewed HIDTA management officials and task force leaders to discuss whether their investigative activities were consistent with the HIDTA mission. We selected these 11 HIDTAs to ensure geographic spread (east coast, central, west coast) across the country. To obtain information about ONDCP’s distribution of CPOT funding, we interviewed ONDCP officials and obtained statistics they provided on HIDTAs that received CPOT funding in fiscal years 2002, 2003, and 2004 (app.I). We also reviewed ONDCP documents and correspondence that described the basis for ONDCP’s decision for awarding HIDTAs CPOT funding. In addition, we discussed with officials at three HIDTAs— Washington-Baltimore, North Texas, and Los Angeles—how CPOT funding was being used. We selected these three HIDTAs because they had received funds for both fiscal years 2002 and 2003 and were geographically dispersed. We also interviewed officials from 8 of the 13 HIDTAs (Appalachia, Atlanta, Central Florida, Lake County, Milwaukee, Nevada, Oregon, and Rocky Mountain) that did not apply for or applied for but did not receive CPOT funding in fiscal years 2002 and 2003. We selected these HIDTAs to reflect broad geographic segments of the country. We determined that the data presented in appendixes I and II from ONDCP, the Organized Crime Drug Enforcement Task Force (OCDETF), the Drug Enforcement Administration (DEA), and the Federal Bureau of Investigation (FBI) are sufficiently reliable, for the purposes of this review, based on interviews with agency officials and a review of their information systems documentation. In 1988, Congress established the White House’s Office of National Drug Control Policy to, among other things, coordinate the efforts of federal drug control agencies and programs and establish the HIDTA program. By fiscal year 2004, ONDCP had designated 28 drug trafficking areas (HIDTAs) as centers of illegal drug production, manufacturing, importation, or distribution within the United States with a federally funded HIDTA program budget of about $225 million. Each HIDTA is to develop and implement an annual strategy to address the regional drug threat. The initiatives involve the active participation of federal, state, and local law enforcement agencies to enhance and assist the coordination of drug trafficking control efforts in the region. To encourage HIDTAs to conduct CPOT investigations, ONDCP utilized discretionary funding. In fiscal year 2004, ONDCP allocated about $8 million in discretionary funding to HIDTAs to support their drug initiatives that link with international drug trafficking organizations on the CPOT list. This funding is not meant to supplant or replace existing agency/program budgets intended for similar purposes, according to ONDCP guidance to the HIDTAs. OCDETF is a nationwide law enforcement task force program administered within Justice that targets major narcotic trafficking and money laundering organizations using the combined resources and expertise of its federal member agencies together with state and local investigators. Its mission is to identify, investigate, and prosecute members of high-level drug trafficking enterprises and to dismantle or disrupt the operations of those organizations. To help carry out this mission and to focus investigative resources on major sources of supply, OCDETF member agencies developed the CPOT list of major international drug trafficking organizations. In September 2002, at the request of the U.S. Attorney General, OCDETF issued the first CPOT list, naming international drug trafficking organizations most responsible for supplying illegal drugs to the United States. OCDETF member agencies developed criteria for determining whether an international drug organization was to be placed on the CPOT list. Criteria include whether the international organization operates nationwide in multiple regions of the United States and deals in substantial quantities of illegal drugs or illicit chemicals on a regular basis that have a demonstrable impact on the nation’s drug supply. OCDETF compiles and issues the CPOT list at the beginning of each fiscal year, with the intent that federal law enforcement agencies will target their investigations on CPOT organizations. OCDETF member agencies control the CPOT list and its distribution. OCDETF also collaborates with ONDCP on reviews of CPOT funding applications by HIDTAs that link their initiatives with the CPOT list. CPOT investigations were not inconsistent with the mission of the HIDTA program because HIDTAs’ targeting of local drug traffickers linked with international organizations on the CPOT list was one possible strategy for achieving the program’s goal of eliminating or reducing significant sources of drug trafficking in their regions. The mission of the HIDTA program is not expressly stated in current law. However, ONDCP has developed a mission statement that reflects the legislative authority for the HIDTA program, specifically, to enhance and coordinate U.S. drug control efforts among federal, state, and local law enforcement agencies to eliminate or reduce drug trafficking and its harmful consequences in critical regions of the United States. The primary legislative authority for the HIDTA program is the Reauthorization Act, which provides guidance on the mission of the program by setting out factors for the Director of ONDCP to consider in determining which regions to designate as HIDTAs. The factors contained in the act are the extent to which 1. the area is a center of illegal drug production, manufacturing, importation, or distribution; 2. state and local law enforcement have shown a determination to respond aggressively to drug trafficking in the area by committing resources to respond to it; 3. drug-related activities in the area are having a harmful impact in other areas of the country; and 4. a significant increase in federal resources is necessary to respond adequately to drug-related activities in the area. In addition, House and Senate Appropriations Committee reports on ONDCP’s appropriations have stated that the program was established to provide assistance to federal, state, and local law enforcement entities operating in those areas most adversely affected by drug trafficking. The use of a portion of the HIDTA program’s discretionary funds to focus on CPOT investigations is not inconsistent with ONDCP’s mission statement for the program and the legislative authority on which it is based, particularly the first and third factors in the Reauthorization Act. Drug traffickers operating in a HIDTA may be linked with the CPOT list because of their role in major international drug trafficking activities, including illegal distribution in multiple regions of the United States. Given such activities, they would contribute to the HIDTA’s status as a center of illegal drug importation and distribution and have a harmful impact in other regions. Similarly, in keeping with appropriations committee statements on the purpose of the program, HIDTA involvement in CPOT investigations is one way of assisting federal, state, and local operations in areas where the significant adverse effects of drug trafficking activities are due in part to links to international criminal organizations. Thus, for HIDTAs to investigate and disrupt or dismantle regional drug traffickers that are linked with CPOT organizations is not inconsistent with the HIDTA program’s stated mission and its legislative authority. ONDCP distributed discretionary funds to HIDTAs to help support their investigations of drug traffickers linked with international organizations on the CPOT list by reviewing and approving HIDTA applications for funding. In fiscal years 2002, 2003, and 2004, ONDCP distributed CPOT funds to a total of 17 of the 28 HIDTAs. A Justice official who participates in the evaluation of HIDTA applications for CPOT funding said that ONDCP encourages applications for CPOT funding where additional funds are likely to benefit an initiative and move the investigation forward. Some HIDTAs chose not to apply because they face a domestic drug threat that does not have a link to any international CPOT organization activity. Other HIDTAs that have applied for funds did not receive CPOT funding because they did not have sufficient investigative resources to uncover the link to a CPOT organization. In commenting on a draft of this report, Justice said that while this may be true in some circumstances, it was also often the case that HIDTAs may have had sufficient resources but simply had not yet taken the investigation far enough to justify the award of discretionary funds. During fiscal years 2002 and 2003, 6 HIDTAs did not apply and 7 applied but were not approved for CPOT funding. In fiscal year 2004, 17 of the 28 HIDTAs did not receive CPOT funding—10 did not apply and 7 applied but were not approved for funding. ONDCP and HIDTA officials mentioned several reasons why some HIDTAs may not receive funding. First, some HIDTAs were denied funding if the investigative activities in their funding applications were not consistent with the HIDTA mission and linked to a CPOT organization. Second, ONDCP did not provide clear guidance or sufficient information for HIDTAs to develop their applications for CPOT funds, although it took steps to clarify its guidance and create opportunity for all HIDTAs to participate. Third, reducing the amount of discretionary funds available for CPOT funding in fiscal year 2004 affected the number of HIDTAs that received this funding. Fourth, HIDTAs’ local priorities may not link to any CPOT organization activity. ONDCP granted CPOT funding for HIDTA investigative activities that it determined demonstrated a link to the CPOT list and were consistent with the mission of the HIDTA program. As an example, one of the applications we reviewed requested CPOT funding for overtime pay, video cameras, portable computers, and wiretaps for surveillance activities to target a complex criminal organization involved in the distribution of significant quantities of heroin and cocaine as well as related homicides, abductions, arson, assaults, fraud, and witness tampering. Surveillance of the organization indicated that it was being supplied with drugs through an affiliate of a Latin American/Caribbean-based CPOT organization. Therefore, these drug activities were linked to an organization on the CPOT list, and the investigations also were consistent with the HIDTA program’s mission, in that these activities contributed to eliminating or reducing significant sources of drug trafficking within the HIDTA region. Drug investigation activities that were not consistent with the HIDTA program’s mission were not to receive CPOT funds from ONDCP, even if they showed a CPOT link. Specifically, it is inconsistent with the HIDTA program’s mission to supplant funds from other sources. Rather CPOT funds are meant to supplement funding for investigations that support the HIDTA mission. For example, in one HIDTA application, a request was made for $686,000 for the HIDTA to provide software to a cellular telephone company located in a Caribbean country to monitor the cellular telephone calls of a CPOT organization. The application also asked for travel expenses of $7,500 to send a prosecutor and two HIDTA investigators to that country to review the cellular telephone records. ONDCP officials told us that they denied funding for these activities because ONDCP guidance to the HIDTAs regarding CPOT funding states that the funds cannot be used to “supplant,” or replace, existing agency/program budgets intended for similar purposes because to do so would be inconsistent with the HIDTA mission. In commenting on a draft of this report, ONDCP made the clarifying statement that CPOT funding is provided for investigations of major drug trafficking organizations affiliated with CPOTs. However, HIDTAs do not participate in international investigations, and CPOT funding cannot be used to conduct or supplement investigations in places like Colombia or Afghanistan. In another application, a request was made for $120,000 to pay for street lighting in a drug-infested crime area of a major U.S. city to aid the HIDTA surveillance task force in pursuing drug enforcement operations. ONDCP officials told us that they determined the activity was not consistent with the HIDTA mission because CPOT funding cannot be used to supplant a city’s budget for street maintenance and improvements. In some cases, ONDCP’s lack of clear guidance or sufficient information limited some HIDTAs’ ability to apply for CPOT funding. For example, some HIDTA officials told us that in fiscal year 2002, ONDCP did not provide clear directions in its guidance about how HIDTAs were to document the link between their investigations and the CPOT list. However, in fiscal year 2003, ONDCP’s officials recognized the problem and, at quarterly meetings, discussed with HIDTAs how to document links between their investigations and the CPOT list, thus resolving the problem. In addition, ONDCP was only able to provide a partial CPOT list to officials in all HIDTAs in each of the 3 fiscal years it provided CPOT funding, even though applications were to include a link between their investigations and the CPOT list. The partial list contained some of the largest organizations in operation and ones that were most frequently targeted by law enforcement. ONDCP, in its guidance, advised HIDTAs that they could obtain the entire list from their Justice contacts. Some HIDTA officials said not having a full list available to them from ONDCP limited their ability to apply for CPOT funding. In fiscal year 2004, ONDCP created an opportunity for all HIDTAs to participate. According to OCDETF officials, access to the full CPOT list is restricted to federal law enforcement officials. Commenting on a draft of this report, Justice said these restrictions are driven by the fact that the member agencies have designated the list as “law enforcement sensitive,” because disclosure of certain investigative information contained on the list might jeopardize ongoing investigations of targeted organizations. As a result, access to the full CPOT list is restricted to OCDETF-member federal law enforcement agencies. Nonparticipating federal agencies, HIDTA directors, state and local police officials, and non-law enforcement federal agencies such as ONDCP could obtain the list from U.S. Attorneys or Special Agents-in-Charge of the OCDETF member agencies on a need-to- know basis. To facilitate the distribution of discretionary CPOT funding, however, OCDETF provided a partial list, which contained information on some of the largest organizations and those commonly known to, and targeted by, the law enforcement community, to ONDCP. Since HIDTA officials have said that they need to know who is on the CPOT list to determine which of their investigations qualify for CPOT funds, ONDCP, in its guidance, advised HIDTAs to obtain the full CPOT list through their Justice contacts. However, officials from 2 HIDTAs we spoke to said that they had some difficulty in obtaining the full CPOT list. We spoke with officials from 8 of the 13 HIDTAs that either did not apply or applied for and did not receive CPOT funds in either of the first 2 years (fiscal years 2002 and 2003) ONDCP awarded CPOT funds. Officials from 2 of the HIDTAs said that obtaining the full list was a problem because for one HIDTA, they did not have the full CPOT list within the time needed to complete the application, and the other HIDTA said there was not a formal procedure for obtaining the full CPOT list. Officials from 6 of the 8 HIDTAs said it was not a problem, however, because they were able to obtain the full CPOT list from their Justice contacts. Although these examples may not typify all HIDTAs, they nevertheless indicate that not every HIDTA was able to readily access the full CPOT list and that it would be difficult to show how their investigations qualify for CPOT funds without having the full list. Although ONDCP believed the CPOT information it provided was sufficient for all HIDTAs to fairly compete for discretionary CPOT funding, an ONDCP official responsible for CPOT funding acknowledged that not receiving a full CPOT list most likely reduced opportunities for some HIDTAs to receive CPOT funding or discouraged others from applying for funds. All HIDTAs are eligible to apply to receive CPOT funding, according to ONDCP officials, even though 13 of the 28 HIDTAs did not apply for or applied for but did not receive CPOT funding in fiscal years 2002 and 2003. In fiscal year 2004, ONDCP’s guidance identified three international organizations that trafficked in illegal drugs in all HIDTAs. ONDCP officials said that this additional guidance would allow all HIDTAs to focus their limited funding on these three organizations and would allow a baseline of opportunity for all HIDTAs to apply for CPOT funding. ONDCP stated it would give preference to funding applications that had links to these three CPOT organizations. Ten of the 11 HIDTAs that received CPOT funds in fiscal year 2004 linked their applications to the three CPOTs referenced in ONDCP’s guidance. Providing HIDTAs with the names of three CPOT organizations that operated in all the HIDTA regions established a baseline of opportunity for the HIDTAs to apply for funding despite receiving a limited number of CPOT organizational targets from ONDCP. Commenting on a draft of this report, Justice acknowledged that the HIDTAs did face some difficulty regarding the distribution of the CPOT list. However, through participation with ONDCP in evaluating applications for CPOT funding, Justice officials noticed that—for those HIDTAs that applied—problems associated with the limited distribution of the list appeared to be confined to fiscal year 2002, when the list was first developed. In subsequent years, law enforcement agencies, including those in the HIDTAs, were more familiar with the CPOT list and how to gain access to it. The CPOT funding amount almost tripled from fiscal year 2002 to fiscal year 2003 but was cut in half in fiscal year 2004. Given the reduction in discretionary funding allocated to CPOT funding, ONDCP officials said that even if HIDTAs link their investigations to the CPOT list, and do not supplant other funding sources, they are not guaranteed CPOT funding. They recognized that reduced funding affected HIDTA participation. As shown in figure 1, fiscal year 2004 funding was reduced from $16.5 million to $7.99 million. In the first year, 8 HIDTAs received funding. In the second year, 14 HIDTAs received funding, and in the third year, when funding was reduced, 11 HIDTAs received funding. Despite more than a 50 percent drop in funding in fiscal year 2004, 2 of 11 HIDTAs received CPOT funding for the first time. While there could be multiple causes, we also noted that the number of HIDTAs that did not apply in fiscal year 2004 compared with prior years increased from 6 to 10. ONDCP officials said that the limited CPOT funds must be directed at those HIDTAs where, in the judgment of those officials who reviewed the CPOT applications, the supply of drugs from CPOT organizations had the best chance of being interrupted. Commenting on a draft of this report, ONDCP agreed that the reduction of CPOT funding in fiscal year 2004 affected HIDTA participation but added that this observation, while accurate, should be stated within the context of all discretionary funding activities. ONDCP consulted with Congress prior to allocating the discretionary funding, as required by the report language accompanying the ONDCP’s appropriations. As a result of those consultations, ONDCP decided to reduce the amount available for funding CPOT-related investigations in order to fund other activities. Thus, while the reduction in fiscal year 2004 for CPOT-related funding resulted in fewer HIDTAs receiving CPOT funding, that should not have caused a decline in applications for other discretionary funding activities. For more detailed information on the amounts funded to each HIDTA, see appendix I. Figure 2 shows the 17 HIDTAs that received CPOT funding at least once during fiscal years 2002 through 2004 and the 11 that have not received funding. Within certain HIDTAs, law enforcement tended to focus more on domestic drug enforcement than on developing links with CPOT organizations. Officials at three HIDTAs we spoke to told us that in fiscal years 2002 and 2003, they did not apply for CPOT funding because their biggest drug problems were domestic drug producers and distributors, such as those organizations involved in methamphetamine and marijuana. As a result, their strategy was to focus on these local drug traffickers that they were required by law to investigate, and those investigations did not necessarily link with CPOT organizations. In addition, according to some HIDTA law enforcement officials, local law enforcement officers in their HIDTA focused on local investigations rather than those potentially linked with CPOT organizations because they saw a direct benefit to their city or countyprosecution of local targets accompanied by drug and asset seizures. Also, HIDTA officials said that while their law enforcement officers initiated numerous investigations, they do not always have enough funds to proceed to a level that may link the HIDTA investigation to the CPOT list. Commenting on a draft of this report, ONDCP did not disagree with the facts above but emphasized that HIDTAs should be focusing on investigations of local activities that reach beyond the boundaries of the HIDTA, consistent with their designation as centers of illegal drug trafficking activities that affect other parts of the country. On December 27, 2004, we provided a draft of this report for review and comment to ONDCP and Justice. ONDCP commented on our analysis that the use of some discretionary funding for the HIDTA program to support CPOT-related drug trafficking investigations was not inconsistent with the HIDTA mission because it was one possible strategy to eliminate or reduce significant sources of drug trafficking in their regions. Justice generally agreed with the substance of the report and provided clarifications that we also incorporated in this report where appropriate. Both agencies focused their comments and clarifications on the second objective: how ONDCP distributed discretionary funds to HIDTAs for CPOT investigations and why some HIDTAs did not receive funding. ONDCP stressed their belief that the information they provided to HIDTAs was sufficient for all HIDTAs to fairly compete for limited CPOT funding, and that although CPOT funding was reduced in fiscal year 2004, HIDTAs could still participate in other discretionary funding activities. Finally, ONDCP believes that while some HIDTAs’ investigations may not link to CPOTs, HIDTAs should focus on finding that link, given their designation as centers of illegal trafficking that affect other parts of the country. Justice emphasized that their restrictions on the distribution of the CPOT list were soundly based, allowed for HIDTAs to gain access to the full list, and were not intended to withhold access to the CPOT list from HIDTA personnel. They acknowledged that HIDTAs did face some difficulty but were confident the problem has been overcome. We incorporated their perspectives as appropriate. The full text of the ONDCP Deputy Director for State and Local Affairs’ letter, and the Department of Justice’s Associate Deputy Attorney General’s memo are presented in appendix III and IV, respectively. We will provide copies of this report to appropriate departments and other interested congressional committees. In addition, we will send copies to the Attorney General of the United States and the Director of the Office of National Drug Control Policy. 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. Major contributors to this report are listed in appendix V. If you or your staffs have any questions concerning this report, contact me on (202) 512-8777. During fiscal year 2003, a total of 744 CPOT investigations were conducted by OCDETF member law enforcement agencies. The majority of those investigations (497, or 67 percent) were multi-agency OCDETF investigations, involving participation from DEA, FBI, ICE, IRS and other member agencies, while the remaining were conducted individually by DEA (191, or 26 percent) or FBI (56, or 8 percent). For fiscal year 2004, the majority of CPOT investigations continued to be multi-agency OCDETF investigations. For the first 7 months of fiscal year 2004, 72 percent (548 of 761) of CPOT investigations conducted by member law enforcement agencies were designated as OCDETF investigations. OCDETF officials attributed fiscal year 2004 increases in CPOT investigations over fiscal year 2003 to OCDETF’s emphasis on identifying links between targeted domestic organizations and the CPOT list. As previously mentioned, OCDETF is composed of member agencies that worked together on the 497 CPOT investigations in fiscal year 2003. Member agencies either led investigations or supported other OCDETF member agencies in these investigations. The bar chart in figure 3 shows the number of drug investigations in which each OCDETF member agency participated. For example, DEA participated in 402 CPOT investigations, the highest level of participation by any member agency. FBI participated in 320 investigations, many of which it conducted jointly with DEA along with other member agencies. DEA and FBI are the only OCDETF member agencies that conducted separate CPOT investigations. Generally, these investigations were handled outside of OCDETF because they did not yet satisfy the criteria for OCDETF designation—that is, they were investigations conducted exclusively by foreign offices or investigations that had not yet developed to a sufficient level to be designated as OCDETF cases. For the first 7 months of fiscal year 2004, data showed that DEA separately conducted 23 percent (172 of 761) and FBI separately conducted 5 percent (41 of 761) of investigations linked to CPOTs in addition to their participation in OCDETF investigations. These two agencies conducted their CPOT investigations out of their own agency’s direct appropriations. These CPOT investigations can subsequently become eligible for OCDETF funding when OCDETF’s criteria are met. For example, besides being linked to the CPOT list, DEA and FBI investigations are to involve multiple law enforcement agencies, among other things, in order to qualify as OCDETF-designated CPOT investigations. Figure 4 shows the relationship among OCDETF, DEA, and FBI in their handling of CPOT investigations and shows that DEA and the FBI conduct CPOT investigations both separately and collectively with other OCDETF member agencies. Figure 4 also shows the collaborative relationship between ONDCP and Justice. In addition to those named above, the following individuals contributed to this report: Frances Cook, Grace Coleman, David Dornisch, Michael H. Harmond, Weldon McPhail, and Ron Salo.

In fiscal year 2002, the Attorney General called upon law enforcement to target the "most wanted" international drug traffickers responsible for supplying illegal drugs to America. In September 2002, law enforcement, working through the multi-agency Organized Crime Drug Enforcement Task Force (OCDETF) Program, developed a list of these drug traffickers, known as the Consolidated Priority Organization Target List (CPOT), to aid federal law enforcement agencies in targeting their drug investigations. Also, the White House's Office of National Drug Control Policy (ONDCP) collaborated with law enforcement to encourage existing High Intensity Drug Trafficking Areas (HIDTA) to conduct CPOT investigations. According to ONDCP, the 28 HIDTAs across the nation are located in centers of illegal drug production, manufacturing, importation, or distribution. ONDCP distributed discretionary funds to supplement some HIDTAs' existing budgets beginning in fiscal year 2002 to investigate CPOT organizations. Out of concern that a CPOT emphasis on international drug investigations would detract from the HIDTA program's regional emphasis, the Senate Committee on Appropriations directed GAO to examine whether investigations of CPOT organizations are consistent with the HIDTA program's mission and how ONDCP distributes its discretionary funds to HIDTAs for CPOT investigations. The mission of the HIDTA program is to enhance and coordinate U.S. drug control efforts among federal, state, and local law enforcement agencies to eliminate or reduce drug trafficking and its harmful consequences in HIDTAs. CPOT investigations were not inconsistent with this mission because HIDTAs' targeting of local drug traffickers linked with international organizations on the CPOT list was one possible strategy for achieving the program's goal of eliminating or reducing significant sources of drug trafficking in their regions. GAO found that in fiscal years 2002 through 2004, ONDCP distributed discretionary funds to 17 of the 28 HIDTAs for CPOT investigations. Some HIDTA officials said they did not receive CPOT funding for several reasons including unclear guidance, insufficient application information to the HIDTAs for funding, and local priorities not linking with CPOT investigations. Reduced discretionary funding in fiscal year 2004 for CPOT investigations affected the number of HIDTAs that received this funding.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Army classifies its vehicles on the basis of such factors as function and physical characteristics. For example, tracked vehicles (Abrams Tanks and Bradley Fighting Vehicles) are classified as Army combat vehicles; wheeled vehicles (trucks, automobiles, cycles, and buses) are classified as Army motor vehicles. Within the Army motor vehicle grouping, vehicles are further separated into tactical and non-tactical categories and within the tactical grouping, into light, medium, and heavy classifications based primarily on vehicle weight. The M939 series trucks are accounted for as part of the Army motor vehicle’s medium tactical fleet. The Army reviews operational requirements for its vehicle fleet in an effort to improve readiness. From January 1983 through October 1993, the Army upgraded its 5-ton medium tactical fleet by purchasing about 34,900 M939s to replace aging and obsolete trucks. The new truck, designed to operate on and off road, maintained the basic design of its predecessors but came equipped with such first-time standard equipment as air-brakes and automatic transmissions. At present, the Army has three variations and nearly 40 different models of the M939 in its inventory. Depending on the model, the truck performs multiple duties that include hauling cargo, collecting refuse, transporting troops, and operating as a tractor or wrecker. The last M939s were fielded in late 1993. Should vehicles or equipment prove dangerous or unsafe to operate, the Army Safety Center, Transportation School and Center, and Tank-Automotive and Armaments Command (TACOM) are responsible for identifying problems and disseminating information. Among other duties, the commands collect and evaluate information from accident investigations and field reports. They also issue Army-wide safety alerts, precautionary messages, and other information warning of identified dangers with equipment and vehicles. Our two analyses and the analysis conducted by the Army Safety Center all involved comparisons of different types of accident data collected over different time frames. Nevertheless, all of the analyses showed that the M939 had a higher accident rate than each type of comparison vehicle. In our first analysis, we reviewed data from January 1987 through June 1998 and compared selected M939 accident statistics with those of the rest of the Army motor vehicle fleet. We reviewed the accident categories in terms of “fatal accidents,” defined as any accident event in which at least one occupant of an Army motor vehicle died; “occupant deaths,” defined as the total number of Army motor vehicle occupants killed; “rollovers,” defined as any vehicle that did not remain upright as the result of an accident; and “rollover deaths,” defined as those occurring to occupants of Army motor vehicles that rolled over as a result of an accident. In analyzing this selected accident information compiled by the Army Safety Center, we found the frequency of M939 accidents high in each instance. For the 11-1/2 year period reviewed, the M939 series truck inventory averaged 26,991, or about 9 percent of the average annual Army motor vehicle inventory of about 314,000 vehicles, and accounted for about 15 percent of the total Army motor vehicle accidents. Appendix I shows the actual figures by year, 1987-1998. Our comparison of M939 accident statistics with accident statistics for the rest of the Army motor vehicle fleet showed that the M939 accounted for about 34 percent of all Army motor vehicle fatal accident events, and 34 percent of all Army motor vehicle occupant deaths. Comparative rollover statistics revealed much the same. The M939 rollovers accounted for 17 percent of the total Army motor vehicle rollovers, and 44 percent of the total Army motor vehicle rollover fatalities. Figure 2 shows these accident statistics. In our second analysis, we used Department of Transportation published data for years 1987-1996 and compared the accident rate for M939s with the rate for single-unit medium and heavy commercial trucks (which are physically similar to M939s). According to an agency official, the Department of Transportation defines “fatal crashes” as any event in which someone is killed in a crash—vehicle occupant or otherwise—and “truck occupant fatalities” as a fatality of an occupant of a single-unit truck. These comparisons revealed that the accident rates for the M939 were substantially higher than those found for the commercial trucks. However, Army officials point out that commercial trucks are driven almost exclusively on paved roads; the M939 is driven on both paved and unpaved roads. We found that over the 10-year period, 1987-1996, the frequency rates of fatal crashes per million miles driven for M939s averaged about seven times higher than those for commercial trucks. The M939 accident rate ranged from a high of 12 to a low of 3 times higher than the commercial truck rate. In 1988, the M939’s accident rate was 0.23 and the commercial truck rate was 0.02—about 12 times higher; and in 1992, the M939 accident rate was 0.056 and the commercial truck rate was 0.018—about 3 times higher. Figure 3 shows these statistics. We also found that, over this same 10-year period, the M939 occupant fatality rate averaged about 30 times higher than those for commercial trucks. The M939 occupant fatality rate ranged from a high of 59 to a low of 13 times higher than the commercial truck rate. In 1995, the M939 occupant fatality rate was 0.165 and the commercial truck rate was 0.0028—about 59 times higher; and in 1989, the M939 rate was 0.046 and the commercial truck rate was 0.0035—about 13 times higher. Figure 4 shows these statistics. The Army Safety Center’s analysis reviewed accident data from October 1990 through June 1998. In this analysis, the accident rate of the M939 was compared with accident rates for another series of trucks—the M34/M35 series 2-1/2 ton truck. Army officials advised us that this truck was most comparable with the M939. The analysis reviewed accidents categorized as Class A mishaps. Army Regulation 385-40 defines a “Class A” mishap as an accident where total property damage equals $1 million or more; an Army aircraft or missile is destroyed, missing or abandoned; or an injury and/or occupational illness resulting in a fatality or permanent total disability. Because an M939 costs significantly less than $1 million, almost all Class A mishaps involving an M939 are so classified because they result in a death or permanent total disability. The Army Safety Center’s analysis found accident rates for M939s to be higher than the comparison vehicles. The analysis showed M939 Class A mishap frequency rates per million miles driven to be 3 to 21 times higher than those of similar M34/M35 series 2-1/2 ton trucks. For example, the 1995 Class A mishap rate for the M939 was 0.21 and for the 2-1/2 ton M34/35s, it was 0.01 per million miles driven—about a 21-fold difference. Figure 5 shows this comparison. The Army has initiated a program to improve the M939’s safety performance and, according to TACOM estimates, plans to spend around $234 million for various modifications. Most of the modifications are the direct result of corrective actions suggested in studies. These studies focused on identifying root causes of M939 accidents based on information contained in accident investigation reports. On the basis of the studies’ findings, the Army concluded that the overall truck design was sound but that some modifications were necessary to improve the truck’s safety performance. Planned modifications include $120 million for upgrading the trucks tires, altering brake proportioning specifications, and adding anti-lock brake kits. Other modifications include $114 million to install cabs equipped with rollover crush protection systems and improve accelerator linkage. The modifications, for the most part, will be completed by 2005 with the M939s remaining in service during the process. To identify possible mechanical problems or performance limitations contributing to M939 accidents, the Army conducted two studies and a computer simulated modeling analysis. Although M939 trucks have been in service since 1983, Army Safety Center personnel stated that no aberrant accident statistics appeared before early 1992. However, during 1990-91, with the increased operating tempo associated with Desert Shield/Desert Storm, there was an increase in fatal accidents and deaths attributable to M939s. In August 1992, TACOM issued Safety of Use Message 92-20 discussing M939 performance limitations. This message warned of the truck’s sensitive braking system—specifically that, when the truck is lightly loaded and on wet pavement, aggressive braking could cause rear wheel lockup, engine stall-out, power steering inoperability, and uncontrolled skidding. The Army began taking a closer look at the M939’s accident history after circulating Safety of Use Message 92-20. Between 1993 and 1995, TACOM, the Army Safety Center, and the Army Transportation School and Center initiated a review of M939 accident reports and began putting together evidence that validated the need for the studies. Also, in an effort to reduce the number and severity of M939 accidents, the Army issued Ground Precautionary Message 96-04 in December 1995, limiting M939s to maximum speeds of 40 miles per hour on highway and secondary roads and 35 miles per hour over cross-country roads. Between September 1995 and June 1997, TACOM conducted two studies and a computer simulation analysis. The studies among other things, recreated and analyzed repetitive events cited in many accident investigation reports and discussed in Safety of Use Message 92-20. The two studies and modeling analysis focused on tire and air brake performance under various conditions. On the basis of the project’s findings, TACOM concluded the overall truck design was sound and nothing was significantly different between the M939 and its commercial counterparts produced during the same time period. However, the studies found that improvements to some vehicle subsystems would enhance the truck’s safety performance. The tire study completed in October 1996, together with other information relating to M939 usage, confirmed that the M939s were being used on-road more than originally planned. The original intent was for M939s to be driven on-road 20 percent and off-road 80 percent of the time. In some Army units, especially reserve units, this no longer held true. Some units were using the M939s on-road as much as 80 to 90 percent of the time. The truck’s original tire, designed for maximum efficiency during off-road usage, performed less efficiently on-road, especially during inclement weather. The increased on-road usage enhanced the probability of the M939’s being involved in an accident. On the basis of this scenario, TACOM tested several different tire designs looking to improve on-road traction under all environmental conditions, while retaining required off-road capabilities. The study recommended that all M939s be equipped with radial tires. The brake study, completed in June 1997, concluded that the air brake system may lock up more quickly than drivers expect, especially when the vehicle is lightly loaded. In tests, the Army found that aggressively applied pressure to the brake pedal caused the sequence of events found in many accident reports: wheel lockup, engine stall-out, loss of power steering, and uncontrolled skidding, often culminating in rollover. The probability of spin-out and rollover increased on wet or inclined surfaces. To lessen the likelihood of wheel lockup and the resulting chain of events, the study suggested (1) modification of all brake proportioning systems and (2) installation of anti-lock braking kits. The modeling analysis used computer technology to recreate the truck’s probable behavioral characteristics in a simulated environment and also to validate conditions being tested in the studies. According to TACOM officials, the modeling results correlated with actual testing results compiled during the tire and brake studies. Besides the recommended improvements from the studies, the Army identified others it considered necessary. The Army decided to replace M939 cabs when they wore out with ones outfitted with a rollover crush protection system and also to modify the accelerator pedal resistance on the A2 variant of the M939. Both TACOM and Army Safety Center personnel stated that installation of the reinforced cab rollover crush protection system, while not an industry standard or required by law, would better protect M939 occupants in the event of a rollover. According to TACOM officials, the scheduled M939 modifications will cost around $234 million. The Army estimates that tire upgrades, brake proportioning, and anti-lock brake system improvements will cost about $120 million or about $3,800 per truck; adding cab rollover protection and modifying the A2’s accelerator linkage will cost another $114 million or an additional $3,600 per truck. With respect to the current schedule for completing M939 modifications, brake proportioning and accelerator linkage equipment modifications will be completed by the end of fiscal year 1999; all remaining modifications, except for cab replacement, are scheduled for completion around 2005. Because the truck cabs will be replaced as they wear out, a precise schedule for completing this modification cannot be estimated at this time. Even though some of the M939s have been in service for 15 years, the decision to spend $234 million on modifications and equipment upgrades is based on the need to improve the vehicles’ safety because the Army expects these trucks to be in service for at least 30 years. According to TACOM, the June 1998, M939 inventory was around 31,800 trucks. All M939s will be equipped with radial tires, brake reproportioning, anti-lock brake kits installation, and reinforced cab replacements. However, the accelerator linkage improvements are needed only on the 16,800 A2 variant of the trucks. Table 1 shows the schedule for the planned modifications. Although most scheduled modifications will not be completed until fiscal year 2005 or later, TACOM and Army Safety Center personnel noted that accident rates have declined significantly since the reduced speed limits instituted by the December 1995 precautionary message. Figure 6 shows the drop in the number of mishaps since 1995. Army officials believe the modifications being made to the M939s will improve their safety performance and reduce severe accidents, rollovers, and fatalities. In written comments on a draft of this report (see app. III), DOD stated that it concurred with this report and noted that the report accurately describes problems the Army found to be causing M939 accidents. To analyze the accident history of the M939 series 5-ton tactical vehicle, we obtained specific information from the Army Safety Center, Fort Rucker, Alabama; TACOM, Warren, Michigan; the Department of Transportation, Federal Highway Administration, Washington, D.C.; and the Department of the Army, Washington, D.C. To identify any accident anomalies associated with the M939s, we conducted two analyses and reviewed another conducted by the Army Safety Center. Our first analysis compared selected M939 accident statistics with similar information for the overall Army motor vehicle fleet (of which M939s are a subset). Our second analysis compared M939 accident statistics per million miles driven to Department of Transportation accident statistics for comparable commercial trucks. The Army Safety Center study we reviewed compared various M939 accident frequency rates per million miles driven with rates for comparable military tactical trucks. The number of years used in each comparison varied on the basis of the data available. Army motor vehicle fleet to M939 comparisons did not include events prior to 1987 because some accident statistics were not readily available. Our comparison of rates of M939 fatal accident events and vehicle occupant fatalities with rates for corresponding commercial sector trucks was limited to 1987-1996 due to the unavailability of accident data for commercial sector vehicles after 1996. Lastly, the Army Safety Center study comparing M939 Class A accident rates with rates for other similar Army tactical vehicles only included events occurring between October 1990 and June 1998. The extent to which other factors, such as human error, driver training, and off-road versus on-road usage, may have contributed to disparate accident rates was beyond the scope of this review. To assess Army initiatives directed at identifying M939 performance, mechanical, or systemic problems and limitations, as well as recommended corrective actions, we obtained or reviewed relevant Army studies. We also interviewed officials at the Army Safety Center and TACOM about these studies but did not assess or validate the findings, estimated costs, or recommendations resulting from these studies. Although we worked with personnel from the Army Safety Center, TACOM, Department of Transportation, and the Department of the Army during data gathering and reviewed those results for reasonableness, accuracy, and completeness, we did not validate the accuracy of accident statistics contained in various databases or other published information. However, this data is used to support the management information needs of both internal and external customers and is periodically reviewed internally by each organization for accuracy, completeness, and validity. We conducted our review from July 1998 through February 1999 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Honorable William Cohen, Secretary of Defense; the Honorable Louis Caldera, Secretary of the Army, and interested congressional committees. Copies will also be made available to other interested parties upon request. Please contact me on (202) 512-5140 should you or your staff have any questions concerning this report. Major contributors to this report were Carol R. Schuster; Reginald L. Furr, Jr.; Kevin C. Handley; and Gerald L. Winterlin. Occupant fatalities Million miles driven 49,537. 51,239. 52,969. 53,443. 53,787. 53,691. 56,781. 61,284. 62,705. 63,967. 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 the Army's M939 series 5-ton tactical cargo truck, focusing on the: (1) extent to which accidents involving the truck have occurred; and (2) results of Army studies on the truck's design and its plans to address any identified deficiencies. GAO noted that: (1) GAO's analyses and an Army analysis indicate a higher rate of accidents involving the M939 series 5-ton tactical cargo truck than other comparison vehicles; (2) GAO's analysis of January 1987 through June 1998 accident data showed that, while M939s made up an average of about 9 percent of the Army motor vehicle fleet during that time, about 34 percent of the fleet's accidents resulting in fatalities of vehicle occupants involved these trucks; (3) 44 percent of accidents that involved a rollover and resulted in fatalities of vehicle occupants involved the M939; (4) GAO's comparison of Department of Transportation accident statistics and M939 accident statistics showed that over a 10-year period, the fatality rate for occupants of the M939 averaged about 30 times higher than the fatality rate for occupants of comparably sized commercial trucks; (5) an Army Safety Center analysis found that the chance of a fatality in a M939 was 3 to 21 times higher than in other similar military trucks in the Army motor vehicle fleet--the M34/M35 series 2 1/2 ton trucks; (6) the Army plans to spend an estimated $234 million on various modifications to improve the M939's safety and operational performance; (7) based on the results of studies into the root causes of M939 accidents, the Army concluded that the overall truck design was sound, but some modifications were necessary; (8) the Army plans to use the $234 million to add anti-lock brake kits, alter brake proportioning specifications, upgrade the truck's tires, install cab rollover crush protection, and modify the accelerator linkage; (9) most modifications will be completed by 2005; and (10) the M939s will remain in service as these modifications are made.

You are an expert at summarizing long articles. Proceed to summarize the following text: A consensus does not exist on a definition of small business, including which specific attributes or thresholds distinguish small businesses from other firms. Estimates of the small business population are driven by the purpose, concepts, and data that are used to produce the estimates. As we have previously reported, various thresholds such as number of employees, gross receipts, and number of shareholders may be used when determining which provisions of the tax code apply to a small business. In this report, we rely on studies that use taxpayer data for individuals and entities that generate business income. Businesses (including small businesses) file specific tax forms based on certain attributes of the business, such as the ownership structure and how the business income is taxed. Below are different types of businesses and the required forms and schedules. Nonfarm sole proprietorships (Form 1040, Schedule C) are unincorporated and owned by a single individual. Net business income or loss is included in the owner’s individual adjusted gross income. Landlords (Form 1040, Schedule E-Part I) are individuals who report rental real estate activity on Part I of Schedule E. Farmers (Form 1040, Schedule F or Form 4835) are individuals who report farm income or landowners who report farm rental income. C corporations (Form 1120) are owned by shareholders. Corporate income is taxed at the corporate level on taxable income and at the shareholder level on distributed profits. S corporations (Form 1120-S) cannot have more than 100 shareholders, among other requirements. Gross income is distributed to shareholders and taxed at the shareholder level. Partnerships (Form 1065) are unincorporated businesses that have two or more owners. Profits and losses are distributed to owners who are taxed at the partner level. IRS has separate operating divisions that focus on different types of taxpayers—individuals, small businesses and self-employed, large businesses, and tax exempt organizations. The Small Business and Self- Employed division oversees taxpayers filing tax returns as individuals with business income and as businesses with less than $10 million in total assets. However, not all of these tax returns are for business entities. This is because the principal purpose of some entities that file tax returns reporting business income may not be to generate revenue or to engage in substantive business activity. For example, some C corporations can serve as investment vehicles that engage in little or no business activity. Further, partnerships may be created to redistribute profits generated by Filers of another partnership and may not generate income themselves.Form 1040, Schedule C, may be independent contractors who may more closely resemble employees rather than small businesses. Additionally, rental income for some individuals may be incidental and not represent business activities. We define tax compliance burden as the time and money spent by the taxpayer to meet tax obligations. This would include federal, state, and local obligations. This does not include tax liability. For the purposes of this report, we are only examining compliance burden as a result of federal tax obligations. Time spent on tax activities can include working with a paid professional, tax planning, keeping records, completing forms, submitting forms, learning tax laws, and working with IRS on tax issues. Monetary burden can include expenses for hiring a paid professional to file taxes, investing in a tax software system, paying for payroll services, and legal fees. When measuring tax compliance burden, researchers may separate burden into both time and money, or they may place a value on the time spent by taxpayers and add it to monetary burden to create a single measure of tax compliance burden. A key concept in tax administration is minimizing burden, including eliminating unnecessary burden. As shown in figure 1, using data from researchers at Treasury’s Office of Tax Analysis (OTA), most small businesses (approximately 69 percent or 16 million) are individual taxpayers who report business income on their Form 1040, using Schedule C (sole proprietor), Schedule E-Part I (landlords), or Schedule F (farmers). The remaining 31 percent of small businesses (or roughly 7.3 million) are partnerships, S corporations, or C corporations. OTA researchers also provide a total income measure, generally defined as the sum of all business income reported on tax returns, including gross receipts, rents, dividends, capital gains, royalties, and interest. Individual small businesses generated only 23 percent (or $1.4 trillion) of the total income of all small businesses, whereas small business partnerships, S corporations, and C corporations accounted for the majority—77 percent (or about $4.5 trillion)—of total small business income. When looking at the average total income for small businesses (total income divided by number of filers), partnerships, S corporations, and C corporations each generated more than $450,000 on average, while sole proprietors, farmers, and landlords reported income of about $100,000 or less on average. Figure 2 shows the estimated average total income by small business type. Small businesses (as defined as reporting total income and deductions of less than $10 million) make up 99 percent of the taxpayers identified as For being engaged in substantial and substantive business activity.each type of filer, small businesses account for at least 95 percent of businesses. Among individual filers reporting business income, small businesses account for most of the reported income. However, among S corporations, C corporations, and partnerships, larger businesses account for most of the reported income, even though they are far outnumbered by small businesses, as shown in figure 3. The estimated average total income across all types of small businesses is $250,000, while the average total income for larger businesses is estimated to be $121 million. Small businesses with at least one employee (which we will refer to as employers) generated most of the reported total income for small businesses (or about 71 percent). Employers account for about 86 percent of total income for small business C corporations and S corporations combined and about 55 percent for small business sole proprietors, farmers, and partnerships. Employers make up about 20 percent of all small businesses. Employers make up 16 percent of the combined group of small business Schedule C sole proprietors, Schedule F farmers, and partnerships and 51 percent of the combined group of small business C corporations and S corporations. Figure 4 shows the estimated number of small business filers and total income separated by employers and non-employers. As shown in figure 5, employer small businesses, on average, generate more income than non-employer small businesses. Small businesses undertake a number of tax compliance-related activities that create burden. These activities can be grouped into general categories: employer-related tax activities, and third-party information reporting and industry-specific tax activities. The tax compliance burden associated with these activities varies by characteristics of the small business. Some of these characteristics include the business’s asset size, filing entity type, number of employees, and industry type. Tax compliance activities are not limited to the annual filing of a tax return, but rather occur throughout the year. For example, sole proprietors are generally required to file income tax returns every April. Some small businesses need to pay estimated income taxes four times a year. Moreover, small businesses with employees are required to deposit employment taxes either monthly or semiweekly, and to report summary information of these activities on a quarterly basis. Additionally, depending on specific business operations, other tax compliance activities such as reporting excise tax, tax planning, and recordkeeping happen throughout the tax year. Figure 6 provides an overview of some of these tax compliance activities for sole proprietors and when they occur. Appendix III, table 8 provides a more detailed description of tax activities. Every year, small businesses need to file income tax returns and may pay estimated income taxes quarterly. The type of small business dictates the type of income tax returns and related schedules that need to be filed. Some of the returns include a set of schedules embedded in the form— found within the income tax return—while some small businesses and individuals with business income must attach a mandatory schedule to their return. For example, the primary corporate income tax return, Form 1120, U.S. Corporation Income Tax Return, contains eight embedded schedules, while sole proprietorships file Form 1040, U.S. Individual Income Tax Return, and attach Form Schedule C, Profit or Loss from Business. Small businesses with employees are responsible for reporting, withholding, and depositing employment and unemployment taxes. While these requirements may impose a cost on employers, withholding is widely believed to improve compliance and may reduce compliance burdens for employees. The number of employment tax reports and deposits depends on the number of employees and the resulting employment tax liability owed at a particular time (see table 1). In general, businesses with an employment tax liability greater than $50,000 need to make deposits more frequently than businesses with a lower liability. Additionally, each year, the employer must furnish a copy of Form W-2, Wage and Tax Statement, to each employee. Since the characteristics of employers vary, responsibilities for withholding, depositing, and reporting employment taxes can differ. For example, consider a small business restaurant owner who has 20 employees and has an employment tax liability of less than $50,000. She files a Form 941 quarterly which details the income tax withholdings for each of her 20 employees. Since her liability is less than $50,000, she deposits these withholdings monthly. At the end of the year, she must complete 20 Forms W-2 to report wages, tips, and other compensation paid to each employee. Small businesses also report health care and retirement information. The information reported for these areas depends on a business’s number of employees. The entity type also plays a role in the information reported about health care. Under the Patient Protection and Affordable Care Act, employers report the cost of coverage under an employer-sponsored group health plan on Form W-2. Beginning in January 2016, employers with 50 or more full-time employees will need to provide employees with a Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. Some employers decide to offer pension plans and are responsible for reporting this information. While businesses must maintain records about these plans, most pension plans do not have any separate filing or reporting requirements with IRS. However, certain retirement plans offer small employers and self-employed individuals a deduction for contributions, and allows them to defer tax on income paid into the plan. To receive deductions, the small businesses must report this information to IRS using certain forms. Many businesses, including small businesses, are required to report on certain transactions they enter into with other entities. This is a form of third-party reporting. IRS uses this information to verify compliance by comparing the income or expenses reported by third parties to the income or expenses reported by small businesses on tax returns. Using Form 1099-MISC, small businesses report items such as rent payments and payments to nonemployees for services of at least $600, subject to certain exceptions. The burden created by this requirement grows with the size of the business because larger businesses would need to file more 1099-MISC forms. However, while a larger business may have more transactions, it may also have an accounting system designed to identify transactions of more than $600 that a smaller business might not have. Another characteristic that affects third-party reporting requirements is entity type. For example, partnership entities are required to report the distributive shares of their partners on Schedule K-1. However, other entity types such as sole proprietorships do not have similar requirements. Additionally, a small business may have many industry-specific requirements related to excise taxes. IRS administers several broad categories of excise taxes, including environmental taxes, communications taxes, fuel taxes, retail sale of heavy trucks and trailers, luxury taxes on passenger cars, and manufacturers’ taxes on a variety of different products. For example, a small business in the trucking industry that makes deliveries over public highways is required to file Form 2290, Heavy Highway Vehicle Use Tax Return. IRS has developed several models to provide information for assessing the impact of the tax code and IRS programs on taxpayers. These models also help IRS assess the role of compliance burden and comply with requirements by the Office of Management and Budget for information on burden under the Paperwork Reduction Act. In the past 15 years, IRS has developed a number of burden models for individual and business taxpayers—both small and large. Estimates of business compliance burdens that IRS’s models have produced over the years indicate that burdens increase with the size of businesses, whether measured in terms of assets, receipts, or employment; however burden per dollar of assets or receipts or per employee decline with size due to economies of scale. For example, a small business owner who does his own taxes may create a spreadsheet to compute the business’s taxes and keep track of the employment taxes he owes for each employee. The effort the small business owner makes to build that spreadsheet is a fixed cost—a cost that does not change with an increase or decrease in the amount of goods or services that are produced. As the small business owner’s sales grow and as he hires more employees, he doesn’t have to repeat that effort; he just has the small additional cost of adding new data on income and employees to the spreadsheet. As this business grows, its total compliance costs decline both as a proportion of sales and on a per-employee basis. For these reasons, the costs per dollar of receipts or per employee are larger for small businesses than for larger ones. IRS measured money and time burden as a portion of total business receipts, total assets, and burden per employee. Across all three measures, IRS results are consistent with the assumption that small businesses face significant fixed compliance costs combined with decreasing marginal costs as the business grows (see appendix III, tables 9 through 11).businesses, estimated total monetized business compliance costs by business entity type varied depending on the type of entity and the entity’s gross receipts. This variation is one reason why compliance burden on small businesses is a concern (see appendix III, table 12). When looking at total receipts and asset size across all Figure 7 shows IRS’s estimates of compliance costs per employee for S corporations, C corporations, and partnerships. According to the estimates, costs for corporations and partnerships with 1 to 5 employees range from $4,308 to $4,746, compared to $182 to $191 per employee for businesses with 50 or more employees. IRS conducted this research using 2002 taxpayer data. Estimates using more recent data have not been produced. A number of factors would likely affect these estimates if they were produced using current data, including inflation, accounting software improvements, and tax law changes. Estimates from IRS’s compliance burden models also show that burdens vary by industry. According to IRS, the retail trade industry incurs the largest pre-filing and filing time burden—businesses in this industry spent an average of between 325 and 331 hours per year on such activities. Manufacturing incurred the largest pre-filing and filing monetary burden, with businesses spending an average of $2,740 to $2,813 per year on these activities. Agriculture, forestry, and fisheries incurred the smallest average time spent on tax compliance activities (180 to 184 hours) and second smallest average compliance costs ($1,489 to $1,590). Some industries have higher time and monetary compliance costs because the nature of those businesses may affect the complexity of tax activities. For additional information on industry burden, see table 13 in appendix III. IRS and Treasury researchers have used both the business and individual taxpayer burden models to estimate the influence of specific business characteristics on compliance burdens. Their estimates suggest that recordkeeping and filing burdens increase as the volume of complex compliance activities undertaken by businesses increases, regardless of the size or other characteristics of those businesses. The results for the full population of individual taxpayers were similar. categorized into varying levels of complexity based on an overall complexity of extracting information from the entity’s financial books, items that may require a separate recordkeeping system or a process with potentially separate rules for each item, and tracking records across years. These results are presented in Rosemary Marcuss, et.al., “Income Taxes and Compliance Costs: How Are they Related?”, National Tax Journal, December 2013, 66 (4), pp. 833-854 and George Contos, et.al., “Taxpayer Compliance Costs for Small Businesses: Evidence from Corporations, Partnerships, and Sole Proprietorships,” (2009) Proceedings of the One Hundred Second Annual Conference on Taxation pp. 50-59, National Tax Association, Washington, D.C. forms to about $2 per form for 100 forms, with one of them charging about $.80 per form for 100,000 forms. IRS has not conducted research to estimate the compliance costs of audits and other post-filing compliance contacts for small businesses. However, IRS conducted preliminary research on compliance costs for individual filers that can provide some insights into the sources of burden that would affect some small businesses that report business income on individual tax returns. From the taxpayer perspective, post-filing begins when the taxpayer receives notice of an issue with an already filed tax return and concludes when the issue has been resolved. Post-filing compliance costs include any time spent on resolving an issue or money spent on things ranging from postage to paying a tax professional. IRS’s preliminary data on individual post-filing compliance costs provide information on the time and money spent on post-filing activities such as an audit—a review of accounts and financial information to ensure information is being reported correctly—or collections—receiving a bill for not paying taxes in full when a tax return was filed. For individual filers, IRS research indicates that the level of compliance costs are highly dependent on the approach IRS takes in how it contacts the taxpayer to address potential underreporting or underpayment of tax obligations. IRS’s preliminary estimates, based on survey data from 2011, indicate that the average post-filing compliance costs were the highest for a field exam—an audit conducted at an individual’s home or place of business—at $4,800, followed by office exam—an audit conducted at an IRS office—at $2,165. A notice informing the taxpayer that they did not report all of their earnings had the lowest estimated average post-filing compliance costs at $230. IRS’s research on the magnitude of audit costs for individual filers likely includes individual filers who are small business owners. Those businesses are likely to have more complicated returns and, as a consequence, their burden is likely to be at least as great as the averages show for individual filers. For more details concerning post-filing compliance costs, see figure 13 in appendix III. According to IRS, the audit rate for small business taxpayers is higher than the rate across all individual taxpayers because small businesses historically have higher noncompliance than other taxpayers. Table 2 provides detailed information on the audit rates across small business types. While we did not examine post-filing costs, in a past report on correspondence audits, we found a number of issues which contribute to taxpayer compliance burden. These issues included IRS backlogs in responding to taxpayers who provide documentation in response to IRS’s audit notices and unrealistic audit time frames set by IRS. One of IRS’s goals in its strategic plan is to deliver high quality and timely service to reduce taxpayer burden and encourage voluntary compliance. Under this goal, IRS has identified seven objectives that further define how it intends to achieve the goal. One objective is to reduce taxpayer burden and increase return accuracy at filing through timely and efficient tax administration processing. IRS outlined performance measures for each strategic goal and objective in a supplement to its financial statement for fiscal years 2013 and 2014.this supplement, IRS describes some of the initiatives launched or continued and progress made in achieving performance goals. IRS also includes a discussion of goals missed. Several of these goals, if achieved, could have a positive impact on reducing small business compliance burden. For example, responding more quickly to telephone calls, correspondence, and requests for in-person service, as well as enhancing the online experience for customers, could benefit small businesses by requiring them to expend less time and fewer resources for IRS outreach. In addition to the goals and objectives that focus on burden reduction in the strategic plan, IRS listed general guiding principles for reducing burden in the Internal Revenue Manual 22.24.1 - IRS Servicewide Burden Reduction Activities. The guiding principles are intended to support the consideration of compliance burden as part of tax administration. According to the manual, IRS carries out its mission to achieve significant reduction in unnecessary burden by considering taxpayer burden when implementing and reviewing policies and procedures. See table 3 for a list of the guiding principles. According to the Internal Revenue Manual, the mission to reduce taxpayer burden and improve service is embedded in the IRS culture and a responsibility of all divisions. Though staffed to the Small Business and Self-Employed division, a senior advisor serves as the single point of contact for taxpayer burden reduction initiatives across all divisions. The manual states that this arrangement is intended to provide a link across the agency to ensure burden reduction is incorporated within decision- making frameworks. The advisor also acts as a liaison with external stakeholders. IRS officials provided examples of efforts made to engage with internal and external stakeholders to reduce small business tax compliance burden. To engage internal stakeholders, employees can suggest ways to reduce burden by using Form 13285, Taxpayer Burden Reduction Referral. This form allows employees to note an issue causing taxpayer burden, describe the affected population, and propose a solution. Employees can also explain who needs to be involved in making the change, the resources needed, taxpayer benefits, compliance risks, and suggestions for how to measure burden reduction savings (e.g., reduced costs to the taxpayer or reduced costs to IRS). One notable example of a burden reduction initiative at IRS was developing a simplified method for determining the Office in the Home tax deduction. Simplified Office in the Home Deduction Illustrates How IRS Considers Burden When Implementing Initiatives IRS officials offered an example of how the agency considered compliance burden principles when implementing new or changed tax laws or administrative procedures with the introduction of a simplified method for small businesses to calculate their Office in the Home Deduction. This method was introduced in 2013 and generally allows filers to receive a deduction of $5 per square foot of office space, up to a maximum area of 300 square feet. The alternative method involves a more complex calculation of property depreciation. Although the Department of the Treasury (Treasury) and IRS officials reported considering this proposal as early as 2006, in July 2012, Treasury and IRS redoubled their efforts in response to an Office of Management and Budget request to identify initiatives that would eliminate at least 2 million hours in annual burden. To meet this request, IRS reached out to employees and Senior Executive staff, and also reviewed prior submissions, form burden statistics, and other suggestions that had been considered in the past. The group reviewed the proposals and made a final determination that this initiative should be implemented. IRS officials told us that they considered burden and compliance risk within this decision-making process and discussed tradeoffs of their decisions. IRS received external stakeholder input from representatives of the small business community, such as the U.S. Chamber of Commerce and the National Federation of Independent Business, who have recognized this as a positive development. IRS said the process of working collaboratively across the organization, with external parties, and with Treasury allowed them to consider the interests and concerns of all parties. This helped IRS weigh tradeoffs of decisions that could affect both compliance and compliance burden. Other internal activities include providing employees with an online burden risk estimator tool designed to aid employees in determining whether certain decisions about the design of tax forms for individuals (Form 1040 and associated schedules and forms) could impose significant burdens on taxpayers. This tool is an Excel spreadsheet that uses some of the data used in the more elaborate burden estimation models discussed previously in this report. The tool provides staff with an estimate of the number of taxpayers who would be affected by a specific potential tax form change, as well as a rough indication of whether the effect on compliance burden would be significant. Divisions can use this tool to identify decisions that merit more in-depth evaluations, potentially involving the full burden estimation model. IRS undertakes a number of activities to engage external stakeholders such as providing information on its website and holding forums with small business representatives. IRS has a website page that defines taxpayer burden, provides links to submit ideas for burden reduction, and outlines how IRS selects burden reduction initiatives. Another example of IRS outreach to the small business community is the quarterly Small Business Forum. IRS officials told us that they use the information from these forums to inform their decision-making process for practices and policies that affect small businesses. For example, IRS used feedback from forum participants to refine the language used in burden surveys it administers to the business community, and used what was learned to inform its current burden models. Similar to internal stakeholders, external stakeholders can make burden reduction suggestions using Form 13285- A, Reducing Tax Burden on America’s Taxpayers (Referral Form for Use by the Public), which allows them to describe the issue causing taxpayer burden, the affected population, and the proposed solution. We also interviewed small business representatives (external stakeholders) who acknowledged IRS’s external stakeholder outreach efforts and how they have been effective in identifying opportunities to reduce compliance burden. However, they also described a number of areas where small business compliance burden could be further reduced. These areas include issues related to IRS customer service, filing requirements, lack of or delayed official guidance, and compliance contacts. According to these representatives, when they call IRS, they can have long wait times, be disconnected, or be directed to IRS staff who are unable to provide the needed assistance. We have recently reported on these issues as well. Further, several representatives shared the perspective that complex filing requirements contribute to compliance burden. While small businesses sometimes anticipate significant tax relief through tax credits and deductions such as the small employer health care credit and mileage and vehicle deductions, some small businesses may not be claiming these credits due to the time, cost, and complexity associated with claiming them. One concern we heard from small business representatives was that after a tax practitioner expends resources to compile the necessary documentation and calculate the credit, their client (the small business) is ineligible to claim the credit. This could result in additional taxpayer burden if tax preparers bill their clients for calculating the credit when it is not claimed. In addition to facing burdens due to new and complex tax provisions, representatives we spoke with also expressed concern over the compliance burden associated with delayed or missing official guidance, particularly for the Patient Protection and Affordable Care Act employer Representatives also noted that deadlines for responding to mandate.certain IRS notices can be difficult for small businesses when the requested information is not readily available. We recognize that IRS is aware of many of these concerns and, through various initiatives, has made efforts to address these issues. However, continued attention to these areas will be key to effectively reducing burden. We routinely issue reports on aspects of IRS’s enforcement and administrative operations, some of which may impact small business tax compliance burden. In many cases we have made recommendations that, if implemented, could help to reduce these burdens. Selected recommendations that have yet to be implemented are listed in appendix IV. Beginning in tax year 2011, payment settlement entities were required to send IRS Forms 1099-K to report gross merchant payments in which a payment card or a third-party payment network was used as the form of payment. Payment settlement entities report the gross amount of all reportable transactions a merchant made through them, for the calendar year, without regard to adjustments for credits, cash equivalents, discounts, fees, refunds, or other deductions. A copy of the 1099-K is also sent to the taxpayer. The reporting of this information to both IRS and the taxpayer can encourage voluntary compliance by small businesses in at least two ways. First, since taxpayers know IRS is also receiving this income information, they are more likely to include it on their tax return. Second, taxpayers have another source of information they can use to help calculate or verify business income. Payment card reporting also provides IRS with an information source it can use to compare against the income reported by small business taxpayers on their tax returns. As such, it can serve as a tool for identifying noncompliant taxpayers, including those who failed to file a tax return at all and those who underreported their income. This type of comparison is a common IRS enforcement technique. For example, IRS can directly compare information it receives on a taxpayer’s Form W-2, Wage and Tax Statement, against a tax return to determine if the taxpayer reported earnings and withheld taxes correctly. However, matching is more complicated for Forms 1099-K than Forms W- 2 because IRS cannot directly match the line items on 1099-Ks to line items on tax returns. The Form 1099-K reports the gross amount of payment card and third party network transactions made through a payment settlement entity. This does not match the gross receipts line on tax returns because Form 1099-K transactions may include items like sales tax, gratuities, and cash back, all of which are not income. Furthermore, tax return gross receipts can include cash and check revenue, which is not captured on Form 1099-K. To leverage Form 1099- K data, IRS researched and tested ways in which the new data can be used to most effectively and efficiently improve voluntary compliance, detect noncompliance, and identify those who did not file returns. The Payment Card Pilot includes six activities to test three methodologies for selecting cases, as described in table 4. In all of the pilot activities, IRS uses taxpayer identification numbers to first match Forms 1099-K with the correct tax returns. IRS then compares Form 1099-K information with business income reported on individual and business tax returns. This process is detailed in figure 8. In the two underreporter pilot activities, IRS compares line by line the gross dollar amount of payments listed on Form 1099-K to gross receipts reported on the tax return to identify potential underreporting of payment card and third-party network revenue. The payment mix methodology aims to identify potential underreporting of gross receipts from both card and cash sources. For this methodology, IRS first calculates a payment mix—the relative ratio of cash and card revenues of similar businesses. IRS determines this ratio by dividing the gross payment amount on Form 1099-K by gross receipts on the tax return. IRS then computes the amount of potential underreporting by comparing this payment mix to that of similar businesses based on variables including industry type and size, population density, per capita income, and average transaction sizes. As part of the test and learn process, IRS has expanded the number of variables to refine identification of possible underreporting taxpayers. One example of this is illustrated in figure 9. If implemented successfully and properly evaluated, the payment card pilot could allow IRS to determine which, if any, pilot activities are effective enough to justify broader expansion, including integration with or replacement of other compliance enforcement efforts. To assess IRS’s plan for evaluating the payment card pilot we used our previously developed guidance to identify key elements for designing quality evaluations. Addressing each element at the overall pilot and pilot activity levels can provide program managers with objective information to iteratively assess program performance. The five key elements we identified for quality evaluation design are described in table 5. IRS’s evaluation plan for pilot activities integrated many characteristics of a well-designed evaluation. As a result, IRS was able to make rapid, ongoing assessments of pilot activities and continually incorporate changes based on what was learned. This approach allowed IRS to test many hypotheses simultaneously while limiting the number of small business taxpayers affected by the pilot. However, the overall evaluation plan for the pilot lacked characteristics of each element that are necessary to ensure a quality evaluation. If IRS does not address these gaps, it risks not having the evidence needed to effectively decide whether, how, and when to integrate pilot activities into broader small business compliance improvement efforts. IRS clearly defined the overall pilot goal, which is to use Form 1099-K data to identify and reduce underreported and unreported income. IRS outlined and detailed the specific program activities it tested and documented pilot planning and results in a strategic planning document and several other executive-level updates. These documents detailed various actions, including internal meetings, assessments, outreach, training, and information technology activities, during the early stages of the pilot. IRS’s strategic planning document also provided a conceptual representation of the different stages of the pilot and the growth of compliance case volume at each stage, as seen in figure 10. IRS has generally documented the expected short-, medium- and long- term impacts of the pilot. One important short-term impact included learning about the small business population to improve identification of noncompliant taxpayers. For example, IRS realized an issue was arising because some small businesses—such as high-end restaurants—have lower cash revenue than other similar businesses. To address this issue, IRS added a line to Form 1099-K to collect data about the number of payment transactions (see figure 11). IRS uses this information to determine the average payment card transaction amount. In the medium term, IRS sees the potential for improved taxpayer voluntary compliance. After the first year of the pilot, IRS tested compliance levels of taxpayers before and after the introduction of the pilot and found that almost half of taxpayers increased their reported gross receipts, and about 60 percent of those contacted reported their income more accurately the following year. In the long term, IRS sees these activities helping to reduce the tax gap. While IRS has defined high-level pilot goals, such as improving voluntary compliance and reducing the tax gap, it did not establish performance measures for these goals and has not decided on a time frame for developing them. IRS has defined broad stages for pilot implementation, but has not clearly identified measures or indicators to determine when the pilot has moved or will move from one stage to the next. IRS identified pilot staffing needs. In June 2012, IRS estimated the number of full-time equivalents (FTE) it would need to conduct field exams. IRS officials also said they track resources for some of the pilot activities, including the implementation of the payment mix methodology pilots. However, IRS’s evaluation plan has not fully identified and tracked resource needs or use, including the actual numbers of FTEs hired or management resources to design and monitor test and learn pilots. IRS identified external factors that could affect the progress or effectiveness of the overall pilot. It identified potential hurdles, including possible litigation and access to necessary technology solutions. However, IRS has not articulated how these factors affect the future of the pilot and what decisions it will make to address them under different scenarios. IRS evaluated pilot activity results, but there is no clear documentation of its evaluation questions or analysis plan. However, these can be inferred based on the evaluation results. According to IRS officials, one of the evaluation goals was to learn why some compliant taxpayers were identified as potential underreporters of income. IRS examined the results of closed cases to learn how to better identify compliant and noncompliant taxpayers. An example of this analysis and resulting change is described in more detail in the text box. IRS Test and Learn Approach to Improve Identification of Noncompliant Taxpayers One IRS pilot learning goal is to test a new case selection methodology called the payment mix methodology. IRS is learning how to improve this methodology to better identify noncompliant taxpayers. When analyzing results of the first year of the pilot program, IRS found that a significant percentage of online-only businesses—which do not accept cash—were falsely identified by the payment mix methodology as potential underreporters of cash income. To decrease the likelihood that compliant online-only businesses were selected in future years, IRS added a line to Form 1099-K that allows the payment settlement entity to specify the aggregate gross amount of all reportable payment transactions during the calendar year where the card was not present at the time of the transaction or the card number was keyed into the terminal. Typically, this relates to online sales, phone sales, or catalogue sales. Because IRS reduces the probability that compliant small business taxpayers are identified as potential underreporters of income, the overall burden for compliant taxpayers is reduced. IRS evaluated the results of all pilot activities. IRS compared the average time to complete an audit and the average dollars assessed in additional tax for each case against existing compliance and enforcement efforts. IRS could use this information to decide which pilot activities to implement in a full compliance program. IRS did not have evaluative questions and criteria to assess whether the overall pilot or the pilot activities achieved the intended goals or produced the intended results. Understandably, as IRS tests and adapts different approaches, it has learned and will continue to learn which approaches demonstrate the most promise in efficiently and effectively identifying noncompliant taxpayers. Clearly articulated evaluative questions and related analysis plans would allow IRS to determine whether the overall pilot and pilot activities are achieving results that would signal what next steps should be taken. These may include deciding the pilot can move beyond the learning stage, be expanded, or, ultimately, moved from pilot to full implementation as a compliance program. Conversely, the determination could be that the pilot and pilot activities are not achieving the intended results and should be discontinued or modified. During the early stages of the pilot, part of IRS’s evaluation of pilot activities involved assessing Form 1099-K data quality. IRS monitored potential errors that payment settlement entities could make when filling out the form, including invalid or missing taxpayer identification numbers. Such data entry errors could negatively affect IRS’s efforts to compare the data with information reported on small business taxpayer returns. When errors were identified IRS contacted the payment settlement entities to make corrections. IRS officials told us that because of this effort, accuracy rates for matching rose from 90.3 percent for tax year 2011 to 95.4 percent for tax year 2013. IRS officials have told us that analysis of Form 1099-K data is ongoing. Since IRS lacks evaluative questions and an analysis plan for assessing the overall pilot, it does not have complete descriptions of the information or data and sources needed to assess the overall pilot against evaluation criteria, how that information will be gathered, and an assessment of data reliability. Because IRS addressed the relevance and quality of data sources in some of the early evaluations of some pilot activities, this information could feed into the development of the broader evaluation plan. IRS documented certain assumptions of its analysis. For example, in the alternative notice pilot, IRS sent assessments to taxpayers who did not respond to the notice and those who admitted to underreporting. IRS referred cases to IRS field work when taxpayers sent insufficient responses or communicated that a review of books and records was necessary. Furthermore, in the early stages of the pilot, IRS showed evidence that it checked that data were free of errors. In the first year of the pilot, officials took steps to ensure that compliance examiners understood and consistently applied decision rules to determine compliance results. IRS provided evidence that it estimated timelines and relative resource needs to move from the test and learn phase to a full compliance program. IRS outlined three scenarios to achieve a given level of compliance at program implementation. However, these scenarios were developed without a program level evaluation. Until IRS conducts an evaluation, it will not have the information it needs to determine which approach to take. Although IRS showed evidence that data, scope, and methodology limitations were considered and addressed for certain pilot activities, these limitations were not fully addressed for the overall pilot. IRS would first need to develop evaluative questions, assessment criteria, and an analysis plan for the overall pilot before it could clearly assess data, scope, and methodology considerations. An assessment of design limitations would include stating any limitations of pilot scope, determining comparisons against which to assess pilot results, and assessing whether the evaluation fits available time and resources. Asking these questions would help clarify the potential impact of any project design limitations when determining whether to move pilot activities toward full program implementation. IRS provided evidence that leadership from multiple offices across the agency—the Small Business and Self-Employed Division, Office of Compliance Analytics, and the Information Technology Organization— demonstrated commitment to using evaluation data to inform pilot decision making for the beginning of the pilot. Senior officials from each of these offices met weekly during the early stages of the pilot. The leadership actively engaged internal stakeholders and developed strategies to internally communicate information about pilot program activities. These strategies included organizing employee focus groups, training, and leadership updates on pilot progress. For example, in October and November of 2012, IRS provided an update on project communication status to communication directors across all operating divisions. In addition, IRS leadership engaged with external stakeholders before launching the pilot. In October 2011, IRS addressed small business representatives’ concerns about paperwork burdens by announcing that it would not require taxpayers to reconcile gross receipts and merchant card transactions. IRS also worked to address tax practitioner questions about the use of the payment mix methodology for case selection. As a result of the outreach, for example, IRS developed and tested a tool to help tax practitioners determine if their clients would be at risk for underreporting cash transactions. IRS’s payment card matching program has the potential to enhance the agency’s ability to identify noncompliant small business taxpayers. Better identification of noncompliance would reduce the burden placed on honest taxpayers because the likelihood they would be selected for costly and time-consuming audits or other compliance contacts could be reduced. Further, more effective identification of noncompliant taxpayers means IRS can more efficiently use limited resources. IRS’s Payment Card Pilot shows promise in producing these results. However, IRS has a long road ahead to figure out whether and how the pilot, and its many activities, can be fully implemented. IRS has not clearly defined the stages of the pilot or measurable goals that it can use to determine when the pilot has moved from one stage to the next, or if it should. Without defining the stages and establishing related metrics, IRS will not be able to articulate the pilot’s status at critical points in time. Further, it will not be able to justify the investment of additional resources if it cannot demonstrate progress toward those goals. In addition, IRS has not developed a full evaluation plan that will allow for a systematic assessment of the overall pilot against evidence-based criteria. Such a plan is necessary so IRS can ensure that it is making informed decisions about moving forward. Following key elements of evaluation design will help ensure that the results of the evaluation are valid and reliable. Finally, documenting the plan’s limitations will reduce the risk that IRS will draw conclusions that are beyond what can be supported. To improve the evaluation of the payment card pilot, the Commissioner of Internal Revenue should take the following actions: Clearly define the stages of the payment card pilot and establish measurable goals for determining when the pilot advances from one stage to the next. Develop an evaluation plan for the overall pilot and building on pilot activities to inform decisions about whether, how, and when to integrate pilot activities into overall enforcement efforts. This plan should include evaluation questions, evidence-based evaluative criteria, an analysis plan, a complete description of data to be collected, a data reliability assessment, and documentation of evaluation limitations. We provided a draft of this report to the Commissioner of Internal Revenue and the Secretary of the Treasury for their review and comment. IRS’s Deputy Commissioner for Services and Enforcement provided written comments, which expressed appreciation to GAO for recognizing IRS’s efforts to consider taxpayer burden when implementing processes and procedures. In its response to the draft, IRS agreed to incorporate an evidence-based assessment of the payment card pilot that includes identifying clearly defined pilot stages and implementing an evaluation plan with measurable goals. IRS stated it will provide a more detailed response to our recommendations after this report has been released. These comments are reprinted in appendix V. IRS also provided us with technical comments, which we incorporated into the report as appropriate. Treasury did not provide 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 Secretary of the Treasury, the Commissioner of Internal Revenue, and other interested parties. In addition, this report will be available at no charge on GAO’s 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 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 key contributions to this report are listed in appendix VI. The objectives of this report are to: (1) describe the characteristics of the small business population; (2) describe how characteristics of a small business affect compliance burden; (3) describe how the Internal Revenue Service (IRS) integrates small business compliance burden considerations in decision making; and (4) assess IRS’s plan for evaluating its payment card pilot. To describe general characteristics of the small business population such as the number of small businesses and total income, we reviewed taxpayer data from IRS Statistics of Income (SOI) and studies with access to taxpayer data. We reviewed SOI documents about data reliability and sampling methodology, and interviewed officials in SOI. We reviewed reports from researchers at the U.S. Department of Treasury, Office of Tax Analysis (OTA). We interviewed two of the OTA authors about their methodology for identifying the small business population. We performed data reliability tests by comparing OTA estimates for all filers against SOI estimates and by comparing OTA estimates for tax year 2007 and 2010. We found the estimates from researchers at OTA were sufficiently reliable for our purposes of describing general characteristics of the small business population. See appendix II for a more detailed discussion of OTA researchers’ methodology and assumptions. To describe how characteristics of a small business affect compliance burden, we conducted a literature review where we reviewed IRS research papers and conference presentations, academic studies, and our prior work on taxpayer compliance burden. We searched relevant databases such as ProQuest, Accounting & Tax, EconLit, ABI/Inform, Nexis.com, and Tax Notes. We identified and reviewed selected IRS studies on tax compliance burden conducted over the last 11 years. We also asked IRS officials from the Research, Analysis, and Statistics (RAS) division to identify any additional IRS research assessing small business tax compliance burden and post-filing burden. To obtain information related to federal small business tax requirements, we reviewed IRS taxpayer guidance found on the IRS website including the 2015 tax calendar. We interviewed relevant IRS officials to clarify our understanding of the research and models, and to verify our analysis. To describe how IRS integrates small business compliance burden considerations in decision making, we examined IRS’s strategic plan and relevant goals and objectives related to taxpayer burden. We also reviewed IRS’s Internal Revenue Manual, which outlines, among other things, guiding principles for considering burden reduction. We interviewed IRS officials in the Small Business and Self-Employed division (SB/SE), RAS, and the Office of Taxpayer Burden Reduction about other activities IRS conducts related to taxpayer burden reduction, tools it uses to manage burden reduction efforts, and initiatives it implemented. In addition, we interviewed tax practitioners, associations, and other liaisons to the small business community to identify areas of burden associated with interactions between IRS and the small business community, and discuss what might alleviate burden. We conducted unstructured interviews with a non-generalizable sample of 12 organizations based on their knowledge of small business tax policy resulting from historical involvement and relationships with the small business community and IRS. We reviewed supporting documentation, where available. We selected these organizations to represent a variety of perspectives and groups within the small business community. To assess IRS’s plan for evaluating the payment card pilot, we reviewed and summarized documentation that included IRS’s Information Reporting and Document Matching Strategic Roadmap; Communication, Outreach, and Education Strategic Plan; and IRS internal presentations to the IRS Commissioner. We interviewed IRS officials from SB/SE and Office of Compliance Analytics divisions on the pilot to link IRS’s test and learn approach to defining strategic goals, evaluation questions, an analysis plan, and the ability to track benefits of the pilot efforts. We compared these efforts to our guidance on program evaluation design and applied criteria adapted from the guidance to both the overall pilot and pilot activities. We conducted this performance audit from July 2014 to June 2015 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. For our analysis, we use estimates from researchers at the U.S. Department of the Treasury, Office of Tax Analysis (OTA), to describe the characteristics of the small business population, such as the number of small businesses and total income. There are no universally accepted criteria for defining the small business population. OTA estimates address some of the limitations of describing the small business population using estimates based solely on the type of tax return that is filed by excluding certain tax returns that may not be actual businesses. Not all tax returns that report business income represent business entities with the principal purpose to generate revenue or to engage in substantive business activity. For example, some C corporations can serve as investment vehicles that engage in little or no business activity. Further, partnerships may be created to redistribute profits generated by another partnership and may not generate income themselves. Filers of Form 1040, Schedule C, may be independent contractors who may more closely resemble employees than small businesses. Additionally, rental income for some individuals may be incidental and not represent business activities. Uncertainty within OTA estimates can come from: (1) assumptions that were made to distinguish small businesses engaged in substantial and substantive business activities from other entities that file the same tax return; and (2) that the estimates are based on sampled taxpayer data and subject to sampling error. Consequently, results that are slightly higher or lower than those reported in this particular analysis may be equally valid for describing the numbers of businesses in each subgroup and the size of their incomes. We found the estimates from the researchers at OTA were sufficiently reliable for our purposes of describing general characteristics of the small business population. Throughout this report, we refer to the estimated number of small business filers as the number of small businesses. Using these estimates may understate the number of small businesses where individual taxpayers can own multiple small businesses. For example, individual taxpayers can file multiple schedules to report business activity (profit, loss, and supplemental income and loss from rental real estate activity) from different lines of business. The number of schedules filed is greater than the number of Form 1040 tax returns to which these schedules are attached due to some returns having multiple schedules. The total income estimates are the sum of all business income reported on tax returns, including gross receipts, rents, dividends, capital gains, royalties, and interest. Total income for Schedule E filers is limited to rental real estate activity from Part I of that schedule to avoid attributing income from pass-through entities or from royalties to these businesses. The OTA analysis had access to taxpayer data made available by IRS Statistics of Income (SOI). Available data from SOI samples indicate that the sampling errors for the total number of filers and total business receipts for each type of taxpayer is less than +/- 6 percent at the 95 percent confidence level. Sampling errors of subpopulations may be higher where tax returns have been sampled at lower rates. Data were not available to determine sampling errors for the OTA total income measure; however, business receipts make up such a substantial portion of the OTA total income that we would not expect the sampling error to be significantly greater for the OTA total income estimates than it is for the SOI estimates for business receipts. For C corporations, S corporations, partnerships, and sole proprietorships in 2010, the OTA number of filers is within +/- 2 percent of SOI estimates of the number of filers. OTA total income estimates are higher (within + 20 percent) of SOI total receipts estimates for these filers because OTA’s total income measure includes types of income other than business receipts. The estimates used in this report are based on thousands of returns from the 2010 SOI Individual, Corporate, and Partnership Studies. Although we do not know the exact number of records used for each estimate, the Individual sample has 50,464 Form 1040 returns with a Schedule C with a sample selection amount of less than $10 million and 5,804 Form 1040 returns with Schedule F but without a Schedule C. The sample selection amount is the greater of indexed negative income and indexed positive income. The Corporate sample has 20,085 Form 1120 returns with total assets less than $10 million and size of proceeds less than $2.5 million where proceeds is defined as the larger of the absolute value of net income (deficit) or absolute value of cash flow (which includes net income, depreciation, and depletion). The Corporate sample also has 15,741 Form 1120S returns that have total assets less than $10 million and size of proceeds less than $2.5 million. The Partnership sample has 35,744 returns with total assets or current activity measure less than $10 million. Current activity measure is the maximum of the absolute value of receipts and income/loss. In this situation, receipts is the sum of the net receipts, rental income, gross income, portfolio interest income, dividend interest income, royalty income, and net long-term capital gain/loss. Income/loss is the sum of ordinary income, net income, net income from the balance sheet, portfolio interest income, royalty income, and net long- term capital gain/loss. Table 6 shows SOI estimates for the total number of filers and total income by type of tax return for tax year 2010 (as reported by Prisinzano et al.). The OTA analysis and Prisinzano et al. apply two tests to exclude tax returns filed that do not represent filers that generate substantial income or engage in substantive business activity. The first test is a de minimis activity test that requires taxpayers to report total income or total deductions greater than $10,000, or that their sum be greater than $15,000. The second test requires total deductions be greater than $5,000, which indicates substantive business activity based on expenses related to employees, inventories, and investment, among other things. The application of these two tests results in the exclusion of 46.7 percent of the 44.6 million total tax returns, but only 0.6 percent of the total $33.3 trillion in total income represented by these tax returns. Using this threshold of $10 million or less in both total income and total deductions, small businesses represent 99 percent of tax returns generating substantial income and engaged in substantive business activities (and more than 95 percent of tax returns for each type of tax return). Small businesses account for 17.8 percent of the total income for these tax returns (and more than 91 percent of total income for each type of individual filer and between 5 and 40 percent of total income for each type of corporation and partnership). Table 7 shows the OTA small business estimates are consistent across the years 2007 and 2010, and are similar to corresponding estimates for all filers. In addition to the measurement errors discussed above, OTA estimates for these tax years are affected by other factors, including changing economic conditions. In spite of these factors, small business estimates for 2010 are within +/- 11 percent of 2007 values for number of filers and within +/- 18 percent of 2007 values for total income. For each type of filer, the percent change from 2007 to 2010 for small businesses is similar to the percent change for all filers (the difference in percent change is within +/- 10 percentage points). We found similar relationships for other subpopulations reported within this report. While we do not have sampling errors for these estimates, we consider estimates of percentages that differ by more than 30 percentage points or totals that differ by more that 100 percent to be different. The figures and tables in this appendix supplement those in the second objective providing additional information on small business tax-related activities, IRS burden model methodology, and results from IRS burden models. Table 8 provides a detailed description of tax-related activities that may create burden for small businesses. These activities are grouped by income taxes, employer-related taxes, and third-party information reporting and industry-specific tax activities. Figure 12 illustrates a simplified depiction of IRS pre-filing and filing burden models. Essentially, IRS uses the data from its compliance burden surveys, combined with data that IRS obtains from the tax returns of survey respondents in econometric models. These models estimate the relationship between taxpayer characteristics and reported burden; the models can then be used to estimate total compliance burden. IRS then uses estimates of these relationships in simulation models to predict how potential IRS administrative decisions, such as those relating to tax form design and recordkeeping requirements, may affect taxpayer burden. Although such simulation results may provide useful insights, it is difficult to assess the reliability of those results; consequently they should be used with caution. We found IRS research estimates were reliable for our purposes of obtaining an overview of small business tax compliance costs. One difficulty is that to be able to simulate the effect of burden, IRS needed to develop a complicated methodology for apportioning aggregate burden across all of the different types of pre-filing and filing activities. There are no formal statistical tests to estimate the margins of error around the ultimate simulation results. The following tables and figure are results from IRS burden models. The data were taken from IRS studies concerning how small business characteristics such as size and industry affect small business compliance costs. Tables 9 through 11 examine the estimated pre-filing and filing monetized burden per employee, as a percentage of total receipts, and as a percentage of total assets. Table 12 provides information on total monetized business compliance costs by business entity type and total gross receipts across all businesses. Table 13 shows the estimated average pre-filing and filing time and money burden by industry. Figure 13 provides the estimated post-filing compliance costs for individual filers. Appendix IV: Selected Open GAO Recommendations to IRS That May Affect Small Business Taxpayer Burden Open recommendations The Commissioner of the Internal Revenue should direct the appropriate officials to take the following three actions: (1) Systematically and periodically compare its telephone service to the best in business to identify gaps between actual and desired performance. (2) Include specific countermeasures or options in risk management plans that could guide a response when an adverse event occurs. (3) Develop outcomes that are measurable and plans to analyze service changes that allow valid conclusions to be drawn so that information can be conveyed to Congress, IRS management, and others about the effectiveness of IRS’s service changes and impact on taxpayers. Status (1) IRS disagreed with this recommendation, noting in February 2015 that it is difficult to identify comparable organizations with a size or scope similar to that of the IRS to identify performance gaps, and that such efforts would not yield improved results over the benchmarking process currently used by IRS. We disagree that IRS’s telephone operations cannot be compared to others. We believe this recommendation remains valid and should be implemented. Report: Tax Filing Season: 2014 Performance Highlights the Need to Better Manage Taxpayer Service and Future Risks, GAO-15-163 (Washington, D.C.: Dec.16, 2014). (2) IRS agreed with this recommendation and, in February 2015, reported it has already included specific countermeasures or options in risk management plans for those risks ranked highest in likelihood and impact. IRS also reported it considers such efforts to be ongoing as it develops new risk management plans over time. (3) IRS agreed with this recommendation and, in February 2015, reported it is developing outcome measures and plans for analysis to identify and report on the effect of service changes during the 2015 filing season. IRS also reported it anticipates completing this analysis by the end of fiscal year 2015. To reduce the need for taxpayer calls, ensure that IRS is providing taxpayers with more realistic time frames on when IRS will respond, and more efficiently use IRS resources, the Commissioner of the Internal Revenue Service should: (1) Collect data to analyze whether IRS is responding within the time frames cited in the revised audit notices. (2) If IRS delays are continuing, further revise the notices to provide more realistic response times based on the data and take other appropriate actions to ensure efficient use of IRS tax examiner resources. According to IRS officials: (1) Correspondence audit program officials analyzed fiscal years 2012-2015 data to provide a monthly breakdown of the volumes of taxpayer correspondence worked in less or more than 75 days. Supporting documentation from IRS is pending. Open recommendations goals on ensuring compliance in a cost-effective way while minimizing taxpayer burden. To better inform decisions being made about the correspondence audit program, the Commissioner of the Internal Revenue Service should: (6) Document how the decisions are to be made about the correspondence audit program using performance information. (7) Track and use other program data that have not been used to provide more complete performance information, such as taxpayer burden and experience. Status their respective inventory levels at the time notices are sent. The notices are expected to be available and implemented in January 2016 after necessary program updates. Supporting documentation from IRS is pending. To better ensure an effective investment of resources in the Correspondence Assessment Program (CEAP) efforts, the Commissioner of the Internal Revenue Service should: (8) Clearly document the intended benefits of ongoing efforts to address identified problems, and the process for measuring and tracking actual benefits. (9) Develop a plan and timeline for implementing the CEAP contractor’s recommendations on possible ways to improve the (a) selection of correspondence audit workload and (b) allocation of resources between providing telephone assistance and reviewing taxpayer correspondence. (3) through (5) IRS will review current documentation and ensure there is a clear link establishing the correspondence audit program objectives and measures with the overall IRS goals and objectives. Officials also said they will update official guidance as warranted. Actions on these three recommendations are due by March 2016. Supporting documentation on timeframes for specific actions related to these recommendations is pending. (6) IRS will thoroughly document the original plan development process. Action on this recommendation is due by March 2016. Supporting documentation on timeframes for specific actions related to these recommendations is pending. Report: IRS Correspondence Audits: Better Management Could Improve Tax Compliance and Reduce Taxpayer Burden, GAO-14-479 (Washington, D.C.: June 5, 2014). Open recommendations agreement data into accounts. Report: 2013 Tax Filing Season: IRS Needs to Do More to Address the Growing Imbalance between the Demand for Services and Resources, GAO-14-133 (Washington, D.C.: Dec. 18, 2013). Status since the agency changed its installment agreement program, it has decided to evaluate those changes before exploring whether adopting our recommendation will yield increased efficiencies and lower costs without adversely impacting tax administration. IRS officials stated they will provide a status update in October 2015. To increase the effectiveness of IRS’s examinations of individual tax returns, the Commissioner of the Internal Revenue Service should: (1) Transcribe data from paper-filed Form 1040 Schedules C and E that are not currently transcribed and make those data available to Small Business and Self- Employed division (SB/SE) examiners for classification. If IRS has evidence that the costs related to transcribing all such data on Schedules C and E are prohibitive, IRS could do one or both of the following actions: (a) transcribe less data by transcribing only the missing data for selected line items, such as certain, large expense line items; or (b) develop a budget proposal to fund an initiative for transcribing Schedule C and E. As of March 2015, IRS agreed to study: (1) whether to increase data transcription of additional tax return information as GAO recommended in May 2013. The agency also agreed to study whether to use more data from electronically-filed returns. IRS's study is scheduled to be completed by November 2015, and is expected to weigh the benefits to the agency and the impacts on taxpayers who file returns electronically. (2) expanding the use of electronic data to enhance return classification while weighing the benefits of increased information against the risks of potential impacts to electronic filing. (2) Make all data collected from electronically submitted Form 1040s available to examiners conducting classification. Report: Tax Administration: IRS Could Improve Examinations by Adopting Certain Research Program Practices, GAO-13-480 (Washington, D.C.: May 24, 2013). The Commissioner of Internal Revenue should: (1) Outline a strategy that defines appropriate levels of telephone and correspondence service and wait time, and lists specific steps to manage service based on an assessment of time frames, demand, capabilities, and resources. (1) IRS has taken steps to modify services provided to taxpayers, but has not yet developed a strategy outlining IRS’s customer service goals. (2) Tailor appropriate and timely interventions with taxpayers who file balance due returns by pilot testing risk-based approaches that could include (a) implementing the Advanced Consolidated Data Analytics plan, and (b) using more data-driven methods to identify the most appropriate method for contacting a taxpayer. Report: 2012 Tax Filing: IRS Faces Challenges Providing Service to Taxpayers and Could Collect Balances Due More Effectively, GAO-13-156 (Washington, D.C.: Dec. 18, 2012). (2) IRS agreed with our December 2012 recommendation to pilot more risk-based approaches for contacting taxpayers who have a balance due. However, IRS has reported that because that project was not funded, it used an alternative model to conduct analysis. IRS implemented its updated model in late April 2014. In October 2014, IRS reported that better (more productive) cases will be assigned to select work streams. Further, in January 2015, IRS officials said they will be placing revised models into production in fiscal year 2015. Open recommendations To help ensure that IRS uses its examination resources efficiently, the Commissioner of the Internal Revenue Service should: (1) Document and analyze the results of examinations involving the Small Employer Health Insurance Tax Credit to identify how much of those results are related to the credit versus other tax issues being examined, what errors are being made in claiming the credit, and when the examinations of the credit are worth the resource investment. Status (1) As of October 2014, SB/SE analyzed a statistical sample of 2010 examination results for the Small Employer Health Insurance Tax Credit. As a result of the research, SB/SE concluded that the findings do not justify selecting a specific number of returns for examination with the Credit as the primary issue. Instead, they will identify issues as part of the normal classification process, and prepare guidelines for classifiers to reference when selecting returns for examination. (2) Related to the above analysis of examination results on the credit, identify the types of errors with the credit that could be addressed with alternative approaches, such as soft notices. Report: Small Employer Health Tax Credit: Factors Contributing to Low Use and Complexity, GAO-12-549 (Washington, D.C.: May 14, 2012). (2) As of October 2014, IRS told us that Math Error Authority, fully implemented in January 2014, addresses many of the common errors claiming the Credit. Therefore, there is not an immediate need for alternative approaches, such as soft notices. However, IRS will still consider alternatives. The Commissioner of the Internal Revenue Service should: (1) Develop a new refund timeliness measure and goal to more appropriately reflect current capabilities. (1) As of October 2014, IRS has yet to develop a new refund timeliness measure. However, IRS has taken steps to identify the number of days it takes to issue a refund in addition to the percentage of refunds received in daily increments from 5 to 60 days. (2) Complete an Internet strategy that (a) provides a justification for the implementation of online self-service tools, and includes an assessment of providing online self-service tools that allow taxpayers to access and update elements of their account online; (b) acknowledges the cost and benefits to taxpayers of new online services; (c) sets the time frame for when the online service would be created and available for taxpayer use; and (d) includes a plan to update the strategy periodically. (2) IRS has made progress in improving its Internet online services strategy. In September 2012, IRS provided us with an updated version of that strategy. However, IRS still needs to take a number of steps to more fully develop its long-term online strategy. As of February 2015, IRS officials reported that it does not have a separate online services strategy. Report: 2011 Tax Filing: Processing Gains, but Taxpayer Assistance Could Be Enhanced by More Self- Service Tools, GAO-12-176 (Washington, D.C.: Dec. 15, 2011). Open recommendations questions, upcoming outreach, and description of the letter ruling process. Status coordination. However, IRS officials said they share with external stakeholders the general timeframes for upcoming guidance. Report: Information Reporting: IRS Could Improve Cost Basis and Transaction Settlement Reporting Implementation, GAO-11-557 (Washington, D.C.: May 19, 2011). To gain efficiencies and improve taxpayer service, the Commissioner of Internal Revenue should direct the appropriate officials to: (1) Determine a customer service telephone standard, and the resources required to achieve this standard based on input from Congress and other stakeholders. (2) Assess business units’ needs for holding Contact Analytics calls beyond 45 days and store calls for this period or document that the costs of doing so exceed the benefits. (1) As of August 2014, IRS’s position remained that its measure of telephone service does not need to be revised and the current process for establishing IRS telephone plans is sufficient. However, we continue to believe that a telephone standard would serve as a means of communicating to Congress and others what IRS believes would constitute good service. (3) Establish a performance measure for taxpayer correspondence that includes providing timely service to taxpayers. Report: 2010 Tax Filing Season: IRS’s Performance Improved in Some Key Areas, but Efficiency Gains Are Possible in Others, GAO-11-111 (Washington, D.C.: Dec. 16, 2010). (2) IRS disagreed with this recommendation. As of August 2014, IRS officials continue to maintain that increasing the recorded call storage beyond 45 days would not be a low cost effort. However, we continue to believe that storing calls for extended periods would allow IRS to better identify trends and taxpayer concerns, thus offsetting the costs. (3) IRS agreed with this recommendation and started using more detailed performance measures that includes an overaged/timeliness measure for its correspondence beginning in fiscal year 2011. However, in April 2014, we reported that overaged correspondence increased from 25 to 47 percent; thus, we continue to believe that elevating this measure to IRS’s suite of balanced measures would help provide more visibility and ultimately better service. Open recommendations To gauge the extent of 1099-MISC payer noncompliance and its contribution to the tax gap, we recommend that the Commissioner of the Internal Revenue Service, as part of future research studies: (1) Develop an estimate of 1099-MISC payer noncompliance. Status (1) According to IRS, developing such an estimate requires a multi-pronged approach and a large amount of coordinated effort. As of September 2014, IRS estimates results will be available in December 2015. (2) Determine the nature and characteristics of those payers that do not comply with 1099-MISC reporting requirements so that this information can be factored into an IRS-wide strategy for increasing 1099-MISC payer compliance. (2) IRS researchers are collecting data on 1099-MISC reporting as part of its National Research Program study on employment taxes, a program that involves examinations of a sample of tax returns expected to culminate in 2015. As of September 2014, IRS estimates results will be available in December 2015. Report: Tax Gap: IRS Could Do More to Promote Compliance by Third Parties with Miscellaneous Income Reporting Requirements, GAO-09-238 (Washington, D.C.: Jan. 28, 2009). In addition to the contact named above, Brian James, Assistant Director; Sonya Phillips, Analyst-in-Charge; Courtney Liesener, Robert MacKay, James R. White, and Nell Williams made major contributions to the report. Robert Gebhart, Kirsten Lauber, Donna Miller, Edward Nannenhorn, Karen O’Conor, Andrew Stephens, and James Wozny also provided assistance.

A challenge IRS faces is balancing efforts to minimize taxpayer burden with efforts to ensure compliance with the tax code. Small businesses are a vital source of economic growth in the United States. Reducing their costs for complying with the tax code may free up resources to expand, hire new employees, and contribute to the growth of the U.S. economy. GAO was asked to examine small business tax compliance burden and IRS's payment card pilot that addresses taxpayer non-compliance. This report: (1) describes characteristics of the small business population (2) describes how characteristics of a small business affect compliance burden; (3) describes how IRS integrates small business compliance burden considerations in decision-making; and (4) assesses IRS's plan for evaluating its payment card pilot. To answer these objectives, GAO analyzed Treasury and IRS data, research, and other documentation and interviewed agency officials. GAO used its guidance on program design evaluation to assess IRS's payment card pilot evaluation plan. According to estimates produced by government tax researchers using 2010 taxpayer data, small businesses (defined in the research as individuals or entities with substantive business activity but with less than $10 million in total income and deductions) make up 99 percent of all businesses. Approximately 69 percent of small businesses (about 16 million) are individual taxpayers who report business income and the remaining 31 percent (or roughly 7.3 million) are partnerships or corporations. Small businesses with at least one employee make up about 20 percent of the small business population, but produce about 71 percent of total small business income. Small businesses undertake a number of tax compliance-related activities that create burden. These activities can be grouped into general categories such as income tax activities, employer-related tax activities, and third-party information reporting activities. The tax compliance burden associated with these activities varies depending on the businesses' asset size, filing entity type (e.g., sole proprietor, partnership), number of employees, and industry type. According to IRS research, compliance burden increases with the size of businesses, whether measured in terms of assets, receipts, or employment. IRS also measured money and time burden as a portion of total business receipts, total assets, and burden per employee. Across all three measures, IRS results were consistent with the assumption that small businesses face significant fixed compliance costs combined with decreasing marginal costs as the business grows. IRS's decision-making framework for administering the tax system includes consideration of small business compliance burden. For example, IRS's strategic plan identifies reducing taxpayer burden as a strategic goal. IRS provided examples of how it works with internal and external stakeholders to reduce taxpayer burden on small businesses. For example, IRS collaborated with Treasury and external stakeholders to develop a simplified method for some small businesses to calculate a home office deduction, which was introduced in January 2013. Previously, businesses had to complete a complex property depreciation calculation. To improve tax compliance among small businesses, in 2012, IRS began piloting a program that compares payment data from payment settlement entities (such as credit card companies) with income reported by small businesses. IRS is testing ways to use payment data to detect underreporting of taxable income while minimizing small business taxpayer burden. While IRS's plans for evaluating the pilot include many key evaluation elements that GAO identified, other elements are missing. For example, IRS has defined high level pilot goals such as improving voluntary compliance and reducing the tax gap, but has not established measures for determining progress against these goals. Additionally, the plan did not adequately document evaluative questions, data collection needs, or the evaluative criteria necessary to assess whether pilot activities produced the intended results. Without these and other elements, IRS cannot ensure it is making evidence-based decisions about expanding and integrating pilot activities into broader small business compliance improvement efforts. To improve the evaluation of the payment card pilot, GAO recommends that IRS clearly define the stages of the pilot and establish measurable goals for determining when the pilot progresses from one stage to the next and develop an evaluation plan for the overall pilot that includes evaluation questions, complete descriptions of needed data, and evaluation criteria. IRS agreed to take the recommended actions.

You are an expert at summarizing long articles. Proceed to summarize the following text: Ex-Im is an independent agency operating under the Export-Import Bank Act of 1945, as amended. Its mission is to support the export of U.S. goods and services, thereby supporting U.S. jobs. Ex-Im’s charter states that it should not compete with the private sector. Rather, Ex-Im’s role is to assume the credit and other risks that the private sector is unable or unwilling to accept, while still maintaining a reasonable assurance of repayment. When private-sector lenders reduced the availability of their financing after the 2007 to 2009 financial crisis, demand for Ex-Im products correspondingly increased. According to Ex-Im data, the amount of financing Ex-Im authorized increased from $12.2 billion in fiscal year 2006 to $35.8 billion in fiscal year 2012, before declining to $27.3 billion in fiscal year 2013 and $20.5 billion in fiscal year 2014. Though smaller than the fiscal year 2012 peak, Ex-Im’s fiscal year 2014 total authorizations are a 68 percent increase in nominal terms over its total authorizations in fiscal year 2006. Over the same period, Ex-Im’s financial exposure (outstanding financial commitments) increased from $57.8 billion to $112 billion, or by 94 percent in nominal terms. According to U.S. budget documents, Ex-Im’s number of full-time equivalent employees grew from 380 to 397 from fiscal year 2006 through fiscal year 2014, an increase of about 4.5 percent. Ex-Im offers export financing through direct loans, loan guarantees, and insurance. Ex-Im’s loan guarantees cover the repayment risk on the foreign buyer’s loan obligations incurred to purchase U.S. exports. Loan guarantees are classified as short, medium, or long term. Although the number of Ex-Im’s short-term (working capital) guarantees greatly exceeds the number of its medium- and long-term loan guarantees, long- term loan guarantees account for the greatest dollar value of Ex-Im loan guarantees. Ex-Im is one of several ECAs worldwide that provide export financing support. Other countries’ ECAs range from government agencies to private companies contracted by governments. Most, including Ex-Im, are expected to supplement, not compete with, the private market. An international agreement, the Organisation for Economic Co-operation and Development (OECD) Arrangement on Officially Supported Export Credits, governs various aspects of U.S. and other member countries’ ECAs, but increasing activity of nonmembers threatens its ability to provide a level playing field for exporters. Several agreements have been made that decrease subsidies and increase transparency among ECAs. However, these agreements apply to participant ECAs, and important emerging countries, including China, are not part of the OECD arrangement. Ex-Im faces multiple risks when it extends export credit financing, including: Credit risk: the risk that an obligor may not have sufficient funds to service its debt or be willing to service its debt even if sufficient funds are available. Political risk: the risk of nonrepayment resulting from expropriation of the obligor’s property, war, or inconvertibility of the obligor’s currency into U.S. dollars. Market risk: the risk of loss from declining prices or volatility of prices in the financial markets. Concentration risk: risk stemming from the composition of a credit portfolio, for example through an uneven distribution of credits within a portfolio. Foreign-currency risk: the risk of loss as a result of appreciation or depreciation in the value of a foreign currency in relation to the U.S. dollar in Ex-Im transactions denominated in that foreign currency. Operational risk: the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. During underwriting, Ex-Im reviews a transaction and assigns it a risk rating based on its assessment of the creditworthiness of the obligors and to establish whether there is a reasonable assurance of repayment. Ex-Im also manages risks through (1) monitoring and restructuring—updating risk ratings and restructuring individual transactions with credit weaknesses to help prevent defaults and increase recoveries and (2) recovery of claims—collecting on the assets of the obligors or the collateral for a transaction that defaults. While demand for its services generally drives Ex-Im’s business, Congress has mandated that Ex-Im support specific objectives and operate within certain parameters. For example, since the 1980s, Congress has required that Ex-Im make available a percentage of its total export financing each year for small business. In 2002, this requirement increased from 10 percent to 20 percent of total authorizations. Congress further instructed that Ex-Im promote the expansion of its financial commitments in sub-Saharan Africa. In annual appropriation acts, Congress has directed that “not less than 10 percent of the aggregate loan, guarantee, and insurance authority available to …should be used for renewable energy technologies or end-use energy efficiency technologies”—which we refer to as the renewable energy mandate. Congress has also imposed a limit, currently $140 billion, on Ex-Im’s total aggregate outstanding amount of financing, referred to as the exposure limit. In addition, Ex-Im must provide financing on a competitive basis with other export credit agencies, minimize competition in government- supported export financing, and submit annual reports to Congress on its actions. In six reports on Ex-Im issued since March 2013, we presented findings and made 16 recommendations to improve Ex-Im’s operations, summarized in this testimony in three broad areas: (1) portfolio risk management, (2) underwriting and fraud prevention processes, and (3) exposure forecasting and reporting on estimates of its impact on U.S. jobs. Our recent work has produced several findings and recommendations about how Ex-Im manages risks related to the overall size and composition of its portfolio. Our March 2013 report on risk management and our May 2013 report on exposure, risk, and resources made a total of six recommendations in this area. Ex-Im agreed with all of these recommendations and has taken action to implement them. Ex-Im calculates credit subsidy costs and loss reserves and allowances with a loss estimation model that uses historical data and takes credit, political, and other risks into account. Consistent with industry practices, Ex-Im added qualitative factors to the model in 2012—including a factor to account for changes in global economic conditions— to adjust for circumstances that may cause estimated credit losses to differ from historical experience. However, in March 2013, we concluded that the short-term forecast Ex-Im used to account for global economic changes might not be appropriate for adjusting estimated defaults for longer-term products and could lead to underestimation of credit subsidy costs and loss reserves and allowances. We recommended that Ex-Im assess whether it was using the best available data for adjusting its loss estimates. In November 2013, Ex-Im incorporated a longer-term forecast of global economic change into its loss estimation model. As a result, we consider this recommendation implemented and closed. In our March 2013 report, we also found that Ex-Im was not maintaining the data it needed to compare the performance of newer transactions with older transactions at comparable points in time, a type of analysis recommended by federal banking regulators. This analysis, known as vintage analysis, can help evaluate the credit quality of recent transactions by comparing their early performance with the early performance of older transactions. As such, it can provide early warning of potential performance problems in newer business. Ex-Im’s default rate declined steadily from about 1.6 percent as of September 30, 2006, to 0.29 percent as of September 30, 2012, and, more recently, Ex-Im reported a further decline to 0.17 percent as of the end of December However, we concluded that this downward trend should be 2014.viewed with caution because Ex-Im’s portfolio contained a large volume of recent transactions that had not reached their peak default periods. We recommended that Ex-Im retain point-in-time performance data to compare the performance of newer and older business and enhance loss modeling. Ex-Im began retaining such data in 2013. We therefore consider this recommendation implemented and closed. GAO-13-303. Ex-Im is not bound by federal banking regulator guidance, but it faces risk- Office of the Inspector General, Export-Import Bank of the United States, Report on Portfolio Risk and Loss Reserve Allocation Policies, OIG-INS-12-02 (Washington, D.C.: September 2012). oversight and be consistent with federal internal control standards for effective external communication. We also found that Ex-Im had begun to implement stress testing and recommended that Ex-Im report its stress test scenarios and results to Congress. Ex-Im began reporting its scenarios and results in quarterly reports to Congress on default rates, beginning with the report for the fourth quarter of 2013. In that report, Ex- Im described the stress test scenarios and provided some information about results. Hence, we consider this recommendation implemented and closed. In our May 2013 report, we found that Ex-Im had not routinely reported the performance or risk ratings of its subportfolios for the congressional mandates on small business, sub-Saharan Africa, and renewable energy, though these transactions generally were more risky than Ex-Im’s overall portfolio. We recommended that Ex-Im routinely report to Congress the financial performance of subportfolios supporting congressional mandates. Ex-Im began reporting this information in its default rate report to Congress for the quarter ending June 30, 2013. As a result, we consider this recommendation implemented and closed. GAO-13-620. reorganized to improve efficiency. Additionally, Ex-Im has agreed to implement, and in some cases has begun implementing, suggestions by the contractor to mitigate risks of future workload increases. As a result, we consider this recommendation implemented and closed. In our May 2013 report, we found that Ex-Im expected that administrative resource constraints might prevent it from meeting its congressionally mandated target for small business export financing. The target is fixed to a percentage of the dollar value of Ex-Im’s total authorizations. Although Ex-Im has dedicated resources to support the mandate, as Ex- Im authorizations have grown, the corresponding growth in the value of the target has outpaced Ex-Im’s increasing support. According to Ex-Im officials, processing small business transactions and bringing in new small business customers is resource-intensive. We concluded that it was important for Ex-Im to communicate to Congress the effect of percentage- based mandates on its operations, as well as the potential impacts such mandates might have on Ex-Im’s resources and operations. We recommended that Ex-Im provide Congress with additional information on the resources associated with meeting its percentage-based mandates. Ex-Im agreed and told us it planned to provide information on resources associated with meeting such mandates in its fiscal year 2016 budget submission. Ex-Im’s fiscal year 2016 Congressional Budget Justification includes both information on the resources associated with these mandates and Ex-Im’s plans to hire additional staff to help meet them. As a result, we consider this recommendation implemented and closed. GAO-14-642R. deliveries of 789 Boeing large commercial aircraft, while European ECAs supported deliveries of 821 Airbus large commercial aircraft. Buyers of large commercial aircraft have also used a number of non-ECA financing options for procuring wide-body jets. From 2008 through 2013, Ex-Im and European ECAs supported 26 percent of large commercial aircraft deliveries. Our most recent mandated report, in September 2014, found that Ex-Im had implemented many key aspects of its underwriting process but identified weaknesses in certain procedures.recommendations to Ex-Im to enhance its loan guarantee underwriting process and further document aspects of its underwriting and processes to detect, prevent, and investigate fraud. Our August 2014 report on Ex- Im’s monitoring of dual-use exports also found weaknesses in Ex-Im’s procedures. Our review of a statistical sample of loan guarantees indicated that Ex-Im had implemented many key aspects of the underwriting process as required by its Loan, Guarantee, and Insurance Manual. However, the manual did not (1) include certain procedures or sufficiently detailed instructions to verify compliance with Ex-Im’s requirements and consistency with federal guidance, such as a procedure to verify that applicants did not have delinquent federal debt; (2) include instructions for loan officers to use credit reports and for the inclusion of all required documents and analyses in the loan file prior to approval; and (3) call for assessments of collateral, as required by federal guidance, for certain loan guarantee transactions prior to approval. Furthermore, Ex-Im did not have mechanisms to verify compliance with certain established procedures, including documenting certain loan guarantee eligibility procedures. We recommended that Ex-Im take the following actions: Develop and implement procedures, prior to loan guarantee approval, for (1) verifying that transaction applicants are not delinquent on federal debt and (2) performing assessments of collateral for nonaircraft medium- and long-term loan guarantee transactions. Establish mechanisms to oversee compliance with Ex-Im’s existing procedures, prior to loan guarantee approval, for (1) obtaining credit reports for borrowers or documenting why they were not applicable, (2) documenting certain eligibility procedures, and (3) documenting the analysis of country exposure. Develop and implement detailed instructions, prior to loan guarantee approval, for (1) preparing and including all required documents or analyses in the loan file and (2) using credit reports in the risk assessment and due diligence process. Update the Character, Reputational, and Transaction Integrity review process to include the search of databases to help identify transaction applicants with delinquent federal debt that would then not be eligible for loan guarantees. As of April 2015, Ex-Im has revised its Loan, Guarantee, and Insurance Manual in response to the first three recommendations from our September 2014 report. We consider the second and third of these recommendations to be implemented and are taking actions to close them. With respect to the first of these recommendations, we are continuing to review Ex-Im’s actions. In addition, Ex-Im officials have stated that they have been working with the Department of the Treasury on the fourth recommendation to determine the technical feasibility of an automated method to access a Treasury database to verify that applicants are not delinquent on federal debt. We are currently reviewing Ex-Im’s actions related to this recommendation. Our September 2014 report additionally found weaknesses in Ex-Im’s documentation of aspects of its underwriting and overall procedures related to fraud. We found that Ex-Im had not documented its risk-based approach for scheduling examinations to monitor lenders with delegated authority to approve guaranteed loans. In addition, while Ex-Im had processes to prevent, detect, and investigate fraud, it had not documented its overall fraud processes. Such documentation is recommended by several authoritative auditing and antifraud organizations. We therefore recommended that Ex-Im document: its risk-based approach for scheduling delegated authority lender examinations, and its overall fraud-prevention process, including the roles and responsibilities of Ex-Im divisions and officials that are key participants in Ex-Im’s process. As of April 2015, Ex-Im has revised its Loan, Guarantee, and Insurance Manual to further document its approach and has documented its overall processes related to fraud, including describing the roles and responsibilities of Ex-Im divisions and officials that are key participants in these processes. Therefore we consider these recommendations to be implemented and are taking actions to close them. Our August 2014 annual report on Ex-Im’s monitoring of dual-use exports also found weaknesses in Ex-Im’s documentation of required procedures. We found that Ex-Im had received some but not all of the information it required in its credit agreements regarding the three dual- use transactions it financed in fiscal year 2012, and that some of the information it had received was late. As a result, we found that Ex-Im did not have complete and timely information about whether the items were actually being used in accordance with the terms of the agreements and Ex-Im policy. We recommended that Ex-Im establish steps that staff should take in cases where borrowers do not submit required end-use documentation within the time frames specified in their financing agreements and ensure that these efforts are well documented. In response to our recommendation, Ex-Im revised its 1997 memorandum on the implementation of its dual-use policy for military applications to provide more specific guidance and disseminated the revised memo to relevant staff. During our current annual review of Ex-Im’s dual-use financing, we are following up with Ex-Im to see how this revised guidance is being implemented. In two May 2013 Ex-Im reports, we reported weaknesses in how Ex-Im estimated its future exposure, and we reported the limitations in its calculations of the number of jobs its financing supports. We made two recommendations related to how Ex-Im prepares forecasts and one recommendation on its reporting jobs impact reporting. Ex-Im agreed with all three recommendations and took actions to address them. In our May 2013 report on Ex-Im’s exposure and resources, we found weaknesses in the methodology Ex-Im used to forecast future financial Although Ex-Im’s forecast model is sensitive to key exposure levels.assumptions, Ex-Im had not reassessed these assumptions to reflect changing conditions, nor had it conducted sensitivity analyses to assess and report the range of potential outcomes. We made two recommendations to Ex-Im: (1) that Ex-Im compare previous forecasts and key assumptions to actual results and adjust its forecast models to incorporate previous experience and (2) that Ex-Im assess the sensitivity of the exposure forecast model to key assumptions and estimates and identify and report the range of forecasts based on this analysis. Ex-Im put in place new methodologies for its 2015 budget estimates. Specifically, Ex-Im compared the results of its existing authorization forecast method with actual results and enhanced its calculation of expected repayments and authorizations by incorporating historical experience into the methodology. Additionally, Ex-Im created statistical models to validate its forecasts and provide a range of estimates. Therefore, we consider these two recommendations implemented and closed. GAO-13-446. example, the employment data are a count of jobs that treats full-time, part-time, and seasonal jobs equally. In addition, Ex-Im’s calculations assume that the firm receiving Ex-Im support uses the same number of jobs as the industry-wide average, but Ex-Im’s clients could be different from the typical firm in the same industry. Ex-Im did not report these limitations or fully detail the assumptions related to its data or methodology. We recommended that Ex-Im improve reporting on the assumptions and limitations in the methodology and data used to calculate the number of jobs Ex-Im supports through its financing. Ex-Im’s 2013 and 2014 annual reports included greater detail on these issues; therefore, we consider this recommendation implemented and closed. In conclusion, our reviews of Ex-Im since the 2012 Reauthorization Act have identified a number of areas in which Ex-Im could improve its operations. Ex-Im has shown a willingness to reexamine its operations, agreeing with all of our recent recommendations and implementing a number of them. However, managing a large export financing portfolio with its wide variety of associated risks is challenging. Therefore, to sustain the improvements it has made and address emerging challenges, it will be important for Ex-Im to effectively implement remaining audit recommendations and carefully manage risks in the evolving global financial marketplace. Chairmen Jordan and Huizenga, Ranking Members Cartwright and Moore, and Members of the Subcommittees, this concludes my statement. I would be pleased to respond to any questions you may have. For further information about this statement, please contact me at 202- 512-8612 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 testimony include Celia Thomas, Assistant Director; Kathryn Bolduc; Marcia Carlsen; Michael Simon; and Steve Westley. The Chairman of the Export-Import Bank of the United States should direct the appropriate officials to develop and implement procedures, prior to loan guarantee approval, for (1) verifying that transaction applicants are not delinquent on federal debt, including using credit reports to make such a determination, and (2) performing assessments of collateral for nonaircraft medium- and long-term loan guarantee transactions. The Chairman of the Export-Import Bank of the United States should direct the appropriate officials to establish mechanisms to oversee compliance with Ex-Im’s existing procedures, prior to loan guarantee approval, for (1) obtaining credit reports for transaction borrowers or documenting why they were not applicable; (2) documenting certain eligibility procedures, including the Character, Reputational, and Transaction Integrity reviews for medium- and long- term loan guarantee transactions, export item eligibility, and country eligibility; and (3) documenting the analysis of country exposure. The Chairman of the Export-Import Bank of the United States should direct the appropriate officials to develop and implement detailed instructions, prior to loan guarantee approval, for (1) preparing and including all required documents or analyses in the loan file and (2) using credit reports in the risk assessment and due diligence process. The Chairman of the Export-Import Bank of the United States should direct the appropriate officials to Update the Character, Reputational, and Transaction Integrity review process to include the search of databases to help identify transaction applicants with delinquent federal debt that would then not be eligible for loan guarantees. The Chairman of the Export-Import Bank of the United States should direct the appropriate officials to document Ex-Im’s current risk-based approach for scheduling delegated authority lender examinations. The Chairman of the Export-Import Bank of the United States should direct the appropriate officials to document Ex-Im’s overall fraud process, including describing the roles and responsibilities of Ex-Im divisions and officials that are key participants in Ex-Im’s fraud processes. To ensure adequate and consistent oversight for monitoring the end use of dual-use items, the Chairman of the Export-Import Bank of the United States should strengthen Ex-Im guidance for monitoring end use. Specifically, Ex-Im should establish steps staff should take in cases where borrowers do not submit required end-use documentation within the time frames specified in their financing agreements and ensure that these efforts are well documented. To provide Congress with the appropriate information necessary to make decisions on Ex-Im’s exposure limits and targets and to improve the accuracy of its forecasts of exposure and authorizations, the Chairman of the Export-Import Bank of the United States should compare previous forecasts and key assumptions to actual results and adjust its forecast models to incorporate previous experience. To provide Congress with the appropriate information necessary to make decisions on Ex-Im’s exposure limits and targets and improve the accuracy of its forecasts of exposure and authorizations, the Chairman of the Export-Import Bank of the United States should assess the sensitivity of the exposure forecast model to key assumptions and authorization estimates and identify and report the range of forecasts based on this analysis. To help Congress and Ex-Im management understand the performance and risk associated with its subportfolios of transactions supporting the small business, sub-Saharan Africa, and renewable energy mandates, Ex-Im should routinely report financial performance information, including the default rate and risk rating, of these transactions at the subportfolio level. To better inform Congress of the issues associated with meeting each of the bank’s percentage-based mandated targets, Ex-Im should provide Congress with additional information on the resources associated with meeting the mandated targets. To ensure better understanding of its jobs calculation methodology, the Chairman of Ex-Im Bank should increase transparency by improving reporting on the assumptions and limitations in the methodology and data used to calculate the number of jobs Ex-Im supports through its financing. To help improve the reliability of its loss estimation model, the Chairman of the Export-Import Bank of the United States should assess whether it is using the best available data for adjusting loss estimates for longer-term transactions to account for global economic risk. To conduct future analysis comparing the performance of newer and older business and to make future enhancements to its loss estimation model, the Chairman of the Export-Import Bank of the United States should retain point-in-time, historical data on credit performance. To help Congress better understand the financial risks associated with Ex-Im’s portfolio, the Chairman of the Export-Import Bank of the United States should report its stress test scenarios and results to Congress when such information becomes available. To help manage operational risks stemming from Ex-Im’s increased business volume, the Chairman of the Export-Import Bank of the United States should develop workload benchmarks at the agencywide and functional area levels, monitor workload against these benchmarks, and develop control activities for mitigating risks when workloads approach or exceed these benchmarks. 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.

As the export credit agency of the United States, Ex-Im helps U.S. firms export goods and services by providing financing assistance, including direct loans, loan guarantees, and insurance. Following the 2007 to 2009 financial crisis, Ex-Im's authorizations and financial exposure both increased rapidly. To strengthen Ex-Im, Congress mandated several reform measures in the Export-Import Bank Reauthorization Act of 2012 and also required certain reviews and reports by GAO and others. Since March 2013, GAO has issued four reports mandated by the act ( GAO-13-303 , GAO-13-446 , GAO-13-620 , and GAO-14-574 ). In addition, in August and July 2014, GAO reported on Ex-Im's financing of exports with potential dual military and civilian uses and provided information on aircraft financing by Ex-Im and other countries' export credit agencies, respectively ( GAO-14-719 and GAO-14-642R ). This testimony summarizes the findings and recommendations in those six recent reports, and provides updated information on the status of Ex-Im's actions taken to address GAO's recommendations. To update the status of its recommendations, GAO reviewed Ex-Im's modified and updated procedures and documentation and interviewed Ex-Im officials. GAO is not making any new recommendations in this testimony. In six reports on the U.S. Export-Import Bank (Ex-Im) issued since March 2013, GAO presented findings and made 16 recommendations to improve Ex-Im's operations, summarized in this testimony in three broad areas: (1) risk management, (2) underwriting and fraud prevention, and (3) forecasting its exposure and reporting on its estimates of its impact on U.S. jobs. Six of GAO's recommendations focus on improving Ex-Im's management of risks related to its overall portfolio. For example, in March and May 2013, GAO recommended addressing weaknesses in Ex-Im's model for estimating losses, data retained to analyze default risks, reporting of portfolio stress testing, and analysis of staff resources. Ex-Im has implemented all 6 of these recommendations. In September 2014, GAO found that Ex-Im had implemented many key aspects of its underwriting process but identified weaknesses in the design, implementation and documentation of some procedures. For example, GAO found that Ex-Im did not have mechanisms to verify compliance with certain loan guarantee eligibility procedures and had not documented its overall processes related to fraud. Ex-Im has implemented 4 of the 6 recommendations in this report. It has not fully implemented 2 recommendations concerning assessing collateral on certain transactions and verifying that applicants are not delinquent on federal debt. GAO's August 2014 report on Ex-Im's transactions involving exports with potential dual military and civilian uses also found documentation weaknesses and made one recommendation. GAO is reviewing the status of Ex-Im's actions in the context of GAO's ongoing dual use review. Finally, in May 2013, GAO found weaknesses in how Ex-Im forecasts its aggregate outstanding amount of financing (exposure) and how it reports estimates of its impact on U.S. jobs. GAO recommended that Ex-Im (1) adjust its exposure forecast model to incorporate previous experience and (2) assess and report the model's sensitivity to key assumptions. GAO also recommended that Ex-Im improve reporting on the assumptions and limitations in its methodology and data for calculating the number of jobs it supports through its financing. Ex-Im has implemented GAO's 3 recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: GPRAMA is a significant enhancement of GPRA, which was the centerpiece of a statutory framework that Congress put in place during the 1990s to help resolve long-standing management problems in the federal government and provide greater accountability for results. GPRA sought to focus federal agencies on performance by requiring agencies to develop long-term and annual goals—contained in strategic and annual performance plans—and measure and report on progress towards those goals on an annual basis. In our past reviews of its implementation, we found that GPRA provided a solid foundation to achieve greater results in the federal government, but several key governance challenges remained—particularly related to: addressing crosscutting issues; ensuring performance information was useful and used by agency leadership and managers and the Congress; strengthening the alignment between individual performance and agency results as well as holding individuals and organizations responsible for achieving those results; measuring performance for certain types of programs; and providing timely, useful information about the results achieved by agencies. To help address these and other challenges, GPRAMA revises existing provisions and adds new requirements, including the following: Cross-agency priority (CAP) goals: OMB is required to coordinate with agencies to establish federal government priority goals— otherwise referred to as CAP goals—that include outcome-oriented goals covering a limited number of policy areas as well as goals for management improvements needed across the government. The act also requires that OMB—with agencies—develop annual federal government performance plans to, among other things, define the level of performance to be achieved toward the CAP goals. Agency priority goals (APGs): Certain agencies are required to develop a limited number of APGs every 2 years. Both the agencies required to develop these goals and the number of goals to be developed are determined by OMB. These goals are to reflect the highest priorities of each selected agency, as identified by the head of the agency, and be informed by the CAP goals as well as input from relevant congressional committees. Leadership positions: Although most of these positions previously existed in government, they were created by executive orders, presidential memoranda, or OMB guidance. GPRAMA established these roles in law, provided responsibilities for various aspects of performance improvement, and elevated some of them. Chief operating officer (COO): The deputy agency head, or equivalent, is designated COO, with overall responsibility for improving agency management and performance. Performance improvement officer (PIO): Agencies are required to designate a senior executive within the agency as PIO, who reports directly to the COO and has responsibilities to assist the agency head and COO with performance management activities. Goal leader: For each CAP goal, OMB must identify a lead government official—referred to by OMB as a goal leader— responsible for coordinating efforts to achieve each of the goals. For agency performance goals, including APGs, agencies must also designate a goal leader, who is responsible for achieving the goal. Performance Improvement Council (PIC): Originally created by a 2007 executive order, GPRAMA establishes the PIC in law and included additional responsibilities. The PIC is charged with assisting OMB to improve the performance of the federal government and achieve the CAP goals. Among its other responsibilities, the PIC is to facilitate the exchange among agencies of useful performance improvement practices and work to resolve government-wide or crosscutting performance issues. The PIC is chaired by the Deputy Director for Management at OMB and includes agency PIOs from each of the 24 CFO Act agencies as well as other PIOs and individuals designated by the chair. Quarterly performance reviews (QPR): For each APG, agencies are required to conduct QPRs to review progress towards the goals and develop strategies to improve performance, as needed. These reviews are to be led by the agency head and COO and include the PIO, relevant goal leaders, and other relevant parties both within and outside the agency. Performance.gov: OMB is required to develop a single, government- wide performance website to communicate government-wide and agency performance information. The website—implemented by OMB as Performance.gov—is required to make available information on APGs and CAP goals, updated on a quarterly basis; agency strategic plans, annual performance plans, and annual performance reports; and an inventory of all federal programs. Performance management capacity: The Office of Personnel Management (OPM) is charged with three responsibilities under the act. OPM is to (1) in consultation with the PIC, identify key skills and competencies needed by federal employees to carry out a variety of performance management activities; (2) incorporate these skills and competencies into relevant position classifications; and (3) work with agencies to incorporate these key skills into agency training. Since GPRAMA’s enactment in January 2011, OMB and agencies have taken a number of important steps to implement key provisions related to the act’s planning and reporting requirements. In February 2012, OMB identified 14 interim CAP goals concurrent with the submission of the President’s Budget. Nine of the goals related to crosscutting policy areas and 5 covered management improvements. In addition, at the same time, 24 agencies selected by OMB developed 103 APGs for 2012 and 2013, and OMB published information about these goals as well as the CAP goals on Performance.gov, which OMB considers to comprise the federal government performance plan. In December 2012, OMB expanded the information available on the site by providing an update on fiscal year 2012 performance for both sets of goals, and in March 2013, quarterly updates of the site began. All 24 CFO Act agencies are conducting QPRs, according to our survey of PIOs at these agencies. Our 2013 survey indicates that approximately one-third (33 percent) of federal managers across the government are at least somewhat familiar with the QPRs. These and related efforts were based on OMB guidance on implementing the act issued in 2011 and 2012. As another positive development, OMB and agencies have also put into place key aspects of the act’s performance management leadership roles. We recently reported that, at the agency level, all 24 CFO Act agencies have assigned senior-level officials to the COO, PIO, and goal leader roles. Furthermore, OMB guidance directed agencies with PIOs who are political appointees or other officials with limited-term appointments to appoint a career senior executive to serve as deputy PIO. Nearly all (22) of the CFO Act agencies have assigned officials to the deputy PIO role, according to our PIO survey. PIOs we surveyed reported that most performance management officials (COOs, PIOs, deputy PIOs and goal leaders) had large involvement in four primary tasks that summarize the performance management responsibilities required by GPRAMA: (1) strategic and performance planning and goal setting, (2) performance measurement and analysis, (3) communicating agency progress toward goals, and (4) agency quarterly performance reviews. At the government-wide level, the PIC has taken steps to meet its requirement to facilitate the exchange of useful practices and tips and tools to strengthen agency performance management. For example, it established the Goal Setting Working Group to help agencies set their 2012 to 2013 APGs; the Internal Agency Reviews Working Group to share best practices for QPRs; and the Business Intelligence Working Group to share tools for data analytics. PIOs we surveyed reported that, in general, they found the PIC helpful and that there was strong agency participation in the PIC and its working groups. However, in April 2013 we reported that the PIC has not routinely assessed its performance and recommended that OMB work with the PIC to conduct formal feedback on the PIC’s performance from member agencies on an ongoing basis; and update the PIC’s strategic plan and review the PIC’s goals, measures, and strategies for achieving performance, and revise them if appropriate. OMB staff agreed with these recommendations. In addition, OPM has completed its work identifying key skills and competencies needed by performance management staff and incorporating those skills and competencies into relevant position classifications. OPM identified 15 competencies for performance management staff and published them in a January 2012 memorandum from the OPM Director. It also identified relevant position classifications that are related to the competencies for performance management staff and worked with a PIC working group to develop related guidance and tools for agencies. Furthermore, OPM has taken steps to work with agencies to incorporate the key competencies into agency training. However, we reported in April 2013 that these efforts have been broad- based and not informed by specific assessments of agency training needs. We recommended that, in coordination with the PIC and the Chief Learning Officers Council, OPM (1) identify competency areas needing improvement within agencies, (2) identify agency training that focuses on needed performance management competencies, and (3) share information about available agency training on competency areas needing improvement. OPM agreed with these recommendations and reported that it will take actions to implement them. Many of the meaningful results that the federal government seeks to achieve, such as those related to protecting food and agriculture and providing homeland security, require the coordinated efforts of more than one federal agency, level of government, or sector. However, agencies face a range of challenges and barriers when they attempt to work collaboratively. The need for improved collaboration has been highlighted throughout our work over many years, in particular in two bodies of work. First, our reports over the past 3 years identified more than 80 areas where opportunities exist for executive branch agencies or Congress to reduce fragmentation, overlap, and duplication. Figure 1 defines and illustrates these terms. We found that resolving many of these issues requires better collaboration among agencies. Second, collaboration and improved working relationships across agencies are fundamental to many of the issues that we have designated as high risk due to their vulnerabilities to fraud, waste, abuse, and mismanagement, or most in need of transformation. For almost 2 decades we have reported on agencies’ missed opportunities for improved collaboration through the effective implementation of GPRA. In our 1997 assessment of the status of the implementation of GPRA, we reported that agencies faced challenges addressing crosscutting issues, which led to fragmentation and overlap. Again, we reported in 2004—10 years after the enactment of GPRA—that there was still an inadequate focus on addressing issues that cut across federal agencies. On a government-wide level, we reported that OMB did not fully implement a government-wide performance plan, as was required by GPRA. Additionally, few agency strategic and performance plans addressed crosscutting efforts and coordination. At that time, almost half of federal managers in our 2003 survey reported that they coordinated program efforts to a great or very great extent with other internal or external organizations. Now, almost 20 years since GPRA’s passage, our work continues to demonstrate that the needed collaboration is not sufficiently widespread. Accordingly, in 2012 we developed a guide on key considerations for implementing collaborative mechanisms. The results of our 2013 survey of federal managers show that the percentage of managers reporting that they use information obtained from performance measurement when coordinating program efforts with other internal or external organizations to a great or very great extent has not increased since 1997. Based on this survey, an estimated 23 percent of the managers reported that they coordinated program efforts to a small extent or not at all. The following three examples, among many, highlight the need for improved collaboration to help address crosscutting issues: Food safety: One area that has been identified in both bodies of work is the fragmented nature of federal food safety oversight. The U.S. food safety system is characterized by inconsistent oversight, ineffective coordination, and inefficient use of resources; these characteristics have placed the system on our high-risk list since 2007 and in all three of our annual reports on fragmentation, overlap, and duplication. We have reported that the U.S. Department of Agriculture (USDA) and the Food and Drug Administration (FDA), the two primary agencies responsible for food safety, have taken some steps to increase collaboration. However, agencies have not developed a government-wide performance plan for food safety that includes results-oriented goals and performance measures, as we recommended when we put federal oversight of food safety on the high-risk list in January 2007. In the absence of this plan, we have reported cases of fragmentation, overlap, and duplication. The 2010 nationwide recall of more than 500 million eggs because of Salmonella contamination highlights a negative consequence of this fragmentation. Several agencies have different roles and responsibilities in the egg production system. Through the Food Safety Working Group, federal agencies have taken steps designed to increase collaboration in some areas that cross regulatory jurisdictions. For example, both USDA and FDA set goals to reduce illness from Salmonella within their own areas of egg safety jurisdiction by the end of 2011 and developed a memorandum of understanding on information sharing regarding egg safety. While such actions are encouraging, without a government-wide performance plan for food safety, fragmentation, overlap, and duplication is likely to continue. Climate change: Climate change is a complex, crosscutting issue that poses risks to many environmental and economic systems— including agriculture, infrastructure, ecosystems, and human health— and presents a significant financial risk to the federal government. Among other impacts, climate change could threaten coastal areas with rising sea levels, alter agricultural productivity, and increase the intensity and frequency of severe weather events such as floods, drought, and hurricanes. Weather-related events have cost the nation tens of billions of dollars in damages over the past decade. For example, in 2012, the administration requested $60.4 billion for Superstorm Sandy recovery efforts. However, the federal government is not well positioned to address the fiscal exposure presented by climate change, partly because of the complex, crosscutting nature of the issue. Given these challenges and the nation’s precarious fiscal condition, we added “Limiting the Federal Government’s Fiscal Exposure to Climate Change” to our high-risk list in 2013. In adding climate change to this list, we reported that the federal government would be better positioned to respond to the risks posed by climate change if federal efforts were more coordinated and directed toward common goals. In October 2009, we recommended that the appropriate entities within the Executive Office of the President, in consultation with relevant federal agencies, state and local governments, and key congressional committees of jurisdiction, develop a strategic plan to guide the nation’s efforts to adapt to climate change, including the establishment of clear roles, responsibilities, and working relationships among federal, state, and local governments. In written comments, the Council on Environmental Quality generally agreed with the report’s recommendations, noting that leadership and coordination is necessary within the federal government to ensure an effective and appropriate adaptation response and that such coordination would help to catalyze regional, state, and local activities. Some actions have subsequently been taken to improve the coordination of federal adaptation efforts, including the development of an interagency climate change adaptation task force. Federal disability programs: In June 2012, we identified 45 programs in nine agencies that helped people with disabilities obtain or retain employment, reflecting a fragmented system of services and supports. Many of these programs overlapped in whom they served and the types of services they provided. Such fragmentation and overlap may frustrate and confuse program beneficiaries and limit the overall effectiveness of the federal effort. Having extensive coordination and overarching goals can help address program fragmentation. Although we identified promising coordination efforts among some programs, most reported not coordinating with each other, and some officials told us they lacked funding and staff time to pursue coordination. Coordination efforts can be enhanced when programs work toward a common goal; however, the number and type of outcome measures used by the 45 programs varied greatly. To improve coordination, efficiency, and effectiveness, we suggested that OMB consider establishing government-wide goals for employment of people with disabilities. Consistent with this suggestion, OMB officials stated that the Domestic Policy Council began an internal review intended to improve the effectiveness of some disability programs through better coordination and alignment. However, as we noted in our 2013 high-risk update, OMB still needs to maintain and expand its role in improving coordination across programs—such as the 45 we identified—that support employment for those with disabilities, and ultimately work with all relevant agencies to develop measurable government-wide goals to spur further coordination and improved outcomes for those who are seeking to find and maintain employment. On the other hand, we have recently highlighted progress that the executive branch and Congress have made in addressing areas that we previously identified as being at risk of fragmentation, overlap, and duplication. For example, the nation’s surface transportation system is critical to the economy and affects the daily life of most Americans. However, in our 2011 annual report on fragmentation, overlap, and duplication, we reported that over the years federal surface transportation programs grew increasingly fragmented. At the core of this fragmentation was the fact that federal goals and roles for the programs were unclear or conflicted with other federal priorities, programs lacked links to the performance of the transportation system or of the grantees, and programs did not use the best tools to target investments in transportation to the areas of greatest benefit. Accordingly, since 2004, we have made several recommendations and matters for congressional consideration to address the need for a more goal-oriented approach to surface transportation, introduce greater performance and accountability for results, and break down modal stovepipes. As we reported in February 2013, there was progress in clarifying federal goals and roles and linking federal programs to performance when the Moving Ahead for Progress in the 21st Century Act was enacted in July 2012. The act addressed fragmentation by eliminating or consolidating programs, and made progress in clarifying federal goals and roles and linking federal programs to performance to better ensure accountability for results. The challenge of collaboration has also been highlighted in our reviews of related GPRAMA requirements, such as those for CAP goals, APGs, and QPRs. While agencies have implemented some of these provisions, these efforts have not included all of the relevant agency, program, and other contributors. When agencies do not include all relevant contributors, they may miss important opportunities to work with others who are instrumental to achieving intended outcomes. Including all contributors is also a requirement of GPRAMA. At the government-wide level, OMB is required to list all of the agencies, organizations, program activities, regulations, tax expenditures, policies, and other activities that contribute to each CAP goal. With relevant stakeholders, OMB is required to review the progress of all contributors towards each goal on a quarterly basis. At the agency level, agencies are required to identify the various federal organizations, programs, and activities—both within and external to the agency—that contribute to each goal, and for APGs, review progress on a quarterly basis with relevant stakeholders. However, as shown in table 1, we have found that agencies are not including all stakeholders as they implement GPRAMA. While we continue to see challenges to collaboration across federal agencies, as a positive development, our survey of federal managers shows that reported collaboration increases when individuals contribute to the CAP goals, APGs, or QPRs. Our 2013 survey data indicate that 58 percent of federal managers reported they were somewhat or very familiar with CAP goals. Among these individuals, federal managers who viewed their programs as contributing to CAP goals to a great or very great extent were more likely to report collaborating outside their program to a great or very great extent to help achieve CAP goals, as figure 2 shows. We saw a similar pattern in responses from managers who were familiar with the APGs and the extent to which their programs contributed to the APGs. Eighty-two percent of federal managers reported they were somewhat or very familiar with APGs. Among these individuals, those who viewed their programs as contributing to APGs to a great or very great extent were more likely to report collaborating outside their program to a great or very great extent to help achieve APGs, as figure 3 shows. While the questions on our survey were designed to examine collaboration outside individual programs, they were not designed to distinguish between collaboration within or outside agency boundaries. As discussed in table 1, we found that collaboration was more common within agencies than between agencies. This may be appropriate in some cases; however, in other cases this might point to a need for broader inclusion of external stakeholders. We found that more managers reported collaborating with officials external to their agency to a great or very great extent when they also reported that their programs were involved in QPRs to a similar extent. Tax expenditures represent a significant federal investment. If the Department of the Treasury (Treasury) estimates are summed, an estimated $1 trillion in revenue was forgone from the 169 tax expenditures reported for fiscal year 2012, nearly the same as discretionary spending that year. For some tax expenditures, forgone revenue can be of the same magnitude or larger than related federal spending for some mission areas. For example, in fiscal year 2010, tax expenditures represented about 78 percent ($132 billion) of federal support for housing. Since 1994, we have recommended greater scrutiny of tax expenditures, as periodic reviews could help determine how well specific tax expenditures work to achieve their goals and how their benefits and costs compare to those of spending programs with similar goals. In November 2012, we issued a guide that identifies criteria for assessing tax expenditures and provides questions for the Congress to ask about a tax expenditure’s effectiveness. However, OMB has not developed a framework for reviewing tax expenditure performance, as we recommended in June 1994 and again in September 2005. Because OMB has not yet established such a framework, little is known about how tax expenditures contribute to broad federal outcomes and how they are related to spending programs seeking the same or a similar outcome. OMB guidance has shown some progress in addressing how agencies should incorporate tax expenditures in strategic plans and annual performance plans and reports, as we first recommended in September 2005. GPRAMA specifically requires OMB to identify tax expenditures among the various federal activities that contribute to each CAP goal, when applicable. Although the act does not explicitly require agencies to identify tax expenditures among the various federal programs and activities that contribute to their performance goals, OMB’s guidance directs agencies to do so for their APGs, which are a small subset of their performance goals. However, our review of the APGs developed for 2012 to 2013 found that only one agency, for one of its APGs, identified two relevant tax expenditures. We recently reported that OMB was missing an opportunity to more broadly identify how tax expenditures contribute to each agency’s overall performance. Even among the CAP goals, OMB and agencies are missing opportunities to identify tax expenditures as contributors. In the original information on Performance.gov in February 2012, OMB included tax expenditures as potential contributors for 5 of the 14 CAP goals (veteran career readiness, entrepreneurship and small businesses, energy efficiency, job training, and improper payments). In the December 2012 and March 2013 updates to Performance.gov, only two goals (veteran career readiness and improper payments) discussed two tax expenditures, which represent $2.7 billion or 0.3 percent of the $1 trillion sum across the tax expenditures listed by Treasury. Tax expenditures were no longer mentioned as contributing to the entrepreneurship and small businesses, energy efficiency, and job training CAP goals. For example, under the energy efficiency CAP goal, OMB originally listed both spending programs and tax expenditures that contribute to the goal. However, in the December 2012 update to Performance.gov, OMB had deleted all of the tax expenditures even though many of these tax expenditures remained unchanged. In one case, OMB deleted the credit for energy efficiency improvements to existing homes (estimated at $780 million for fiscal year 2012), but highlighted the Department of Energy’s (DOE) weatherization assistance spending program (estimated at $68 million in obligations for fiscal year 2012), even though both fund residential energy efficiency. Overall, we identified eight tax expenditures, totaling $2.4 billion in forgone revenue, which share the purpose of achieving energy efficiency, but are no longer identified as potential contributors. When asked about these changes, OMB staff shared that for the entrepreneurship and small business CAP goal the goal leaders narrowed the focus of the goal, which resulted in an updated list of contributing programs and activities that no longer included tax expenditures. For the energy efficiency and job training CAP goals, OMB staff told us that the exclusion of tax expenditures from the December 2012 and March 2013 updates was an oversight. OMB staff told us they planned to add the appropriate tax expenditures as contributors to those goals in the next quarterly update to Performance.gov, which occurred in June 2013. However, none were added to the job training CAP goal update, and as of June 19, 2013, the energy efficiency CAP goal had not yet been updated. However, these examples raise concerns as to whether OMB previously ensured all relevant tax expenditures were identified as contributors to the 14 CAP goals when they were published in February 2012, especially since only 5 CAP goals listed tax expenditures as contributors at that time. We have previously reported that, as with spending programs, tax expenditures represent a substantial federal commitment to a wide range of mission areas. Given the lack of scrutiny tax expenditures receive compared to spending programs—especially absent a comprehensive framework for reviewing them—it is possible that additional tax expenditures should have been identified and included as contributors to one or more of the other 9 CAP goals. Moreover, for the 2 CAP goals where tax expenditures were listed as contributors and mistakenly removed, it is unclear if OMB and the goal leaders assessed the contributions of those tax expenditures toward the CAP goal efforts, since they were not listed in the December 2012 and March 2013 updates. Without information about which tax expenditures support these goals and measures of their performance, Congress and other decision makers will not have the needed information to assess overall federal contributions towards desired results, and the costs and relative effectiveness associated with those contributions. We have previously reported that data-driven decision making leads to better results. Moreover, we have reported that if agencies do not use performance measures and performance information to track progress toward goals, they may be at risk of failing to achieve their goals. The textbox illustrates this problem in the high risk area of the Department of Defense’s (DOD) approach to business transformation. DOD Is Not Regularly Reviewing Performance Information to Assess Progress towards Goals in Transforming Its Business Operations In 2005, we identified DOD’s approach to business transformation as high-risk because DOD had not established clear and specific management responsibility, accountability and control over its business transformation and it lacked a plan with specific goals, measures, and mechanisms to monitor progress. We subsequently reported that DOD made improvements to strengthen its management approach, but we also identified additional steps that are needed. For example, DOD has broadly outlined a performance management approach, and established governance structures, such as the Defense Business Council, to help monitor progress in its business transformation efforts. However, we found the Council had not regularly reviewed performance data and when reviews did occur, it did not have sufficient information to assess progress. To enhance DOD’s ability to set strategic direction for its business transformation efforts, better assess overall progress toward business transformation goals, and take any necessary corrective actions, we recommended in February 2013 that DOD take a number of steps to improve its approach to performance management. DOD agreed with this recommendation and said it would continue to improve and institutionalize the Council’s operations. In the first 4 months of 2013 alone, we issued numerous testimonies and reports that illustrate how performance management weaknesses can hinder agencies’ abilities to achieve critical results. This work also illustrates that the scope of these problems is widespread, affecting agencies such as DOD, Treasury, the Departments of Transportation (DOT), Homeland Security (DHS), Health and Human Services, Housing and Urban Development (HUD), and State. The impact of these weaknesses is far reaching as well: These agencies are responsible for performing functions that affect every aspect of Americans’ lives, from education, healthcare, and housing to national security and illicit drug use, as described in the textbox. Office of National Drug Control Policy Has Established a Performance Monitoring System to Address Illicit Drug Use, but Not Yet Reported on Results The public health, social, and economic consequences of illicit drug use, coupled with the nation’s constrained fiscal environment, highlight the need for federal programs to use resources efficiently and effectively to address this problem. However, we reported in March 2013 that the Office of National Drug Control Policy and federal agencies have not made progress toward achieving most of the goals in the 2010 National Drug Control Strategy, although they reported to be on track to implement most Strategy action items in support of these goals. In April 2012, the Office established the Performance Reporting System, a monitoring mechanism intended to provide specific, routine information on progress toward Strategy goals and help identify factors for performance gaps and options for improvement. We reported that this could help increase accountability for improving results and identify ways to bridge the gap that existed between the lack of progress toward the Strategy’s goals and the strong progress made on implementing the Strategy’s actions. While this was promising, the Office does not plan to report on results until later in 2013, and until then, operational information is not available to evaluate its effectiveness. GAO, Office of National Drug Control Policy: Office Could Better Identify Opportunities to Increase Program Coordination, GAO-13-333, (Washington, D.C.: Mar. 26, 2013). Our prior work has shown that performance information can be used across a range of management functions to improve results, from setting program priorities and allocating resources to taking corrective action to solve program problems. Since our 2007 survey there was statistically significant improvement on two survey items related to use of performance information. More managers reported in 2013—after GPRAMA’s enactment and initial implementation—that they used performance information to a great or very great extent in developing program strategy and refining program performance measures. However, the 2013 improvement on the refining program performance measures item followed an earlier decline and does not represent an improvement in comparison to our 1997 survey results. While there was also a statistically significant change between 1997 and 2013 in the percentage of managers who reported to a great or very great extent that they used performance information in adopting new program approaches or changing work processes, the initial decline on this item occurred between our 1997 and 2000 surveys with no significant changes since then. Overall, our periodic surveys of federal managers since 1997 indicate that with the few exceptions described above, the use of performance information has not changed significantly at the government- wide level, as shown in figure 4. In addition, we introduced an item in the 2013 survey on streamlining programs, a performance management activity that can help address the overlap and duplication challenges and opportunities described earlier in this report. Less than half of federal managers (44 percent) reported to a great or very great extent that they used performance information for “streamlining programs to reduce duplicative activities.” Our prior work has identified practices that can promote the use of performance information for management decision making, such as leadership demonstrating commitment to using performance information, communicating performance information frequently and effectively, ensuring that performance information is useful, and building capacity to use performance information. Moreover, many of the requirements put in place by GPRAMA reinforce the importance of these practices. Our past government-wide surveys of federal managers indicated that these key practices were not always being employed across various agencies. Our 2013 survey suggests that effectively adopting these practices continues to be a substantial weakness across the government as described below. Demonstrating leadership commitment: Our prior work has shown that the demonstrated commitment of leadership and management to achieving results and using performance information can encourage the federal workforce to apply the principles of performance management. GPRAMA requires top leadership involvement in performance management, such as requiring agency leadership to routinely review performance information and progress toward APGs during the QPRs. However, results from our 2013 survey show almost no statistically significant changes in managers’ perceptions of their leaders’ and supervisors’ attention and commitment to the use of performance information since our last survey in 2007. The only statistically significant change from 2007 to 2013 was a decline in the percentage of managers that agreed to a great or very great extent that their agencies’ top leadership demonstrates a strong commitment to achieving results, from 67 percent to 60 percent. Moreover, less than two-thirds of managers agreed to a great or very great extent with other survey items related to leadership commitment and attention to performance information, as shown in figure 5. Communicating performance information: Our prior work showed that communicating performance information frequently and effectively throughout an agency can help managers to inform staff and other stakeholders of their commitment to achieve the agency’s goals and to keep these goals in mind as they pursue their day-to-day activities. Frequently reporting progress toward achieving performance targets also allows managers to review the information in time to make improvements. GPRAMA includes requirements for communicating performance information, such as sharing performance information at least quarterly and directing agencies to update performance indicators on their websites at least annually. However, there was no statistically significant change between 2007 and 2013 in the percentage of federal managers agreeing to a great or very great extent that agency managers at their level effectively communicate performance information on a routine basis (41 percent in 2013 and 43 percent in 2007). Our analysis suggests that easy access to performance information is related to the effective communication of performance information. Of the 49 percent of federal managers who agreed to a great or very great extent that performance information is easily accessible to managers at their level, 62 percent also agreed that agency managers at their level effectively communicate performance information on a routine basis to a great or very great extent. Conversely, of the 19 percent that agreed to only a small or no extent that performance information is easily accessible to managers at their level, only 9 percent also agreed that agency managers at their level effectively communicate performance information on a routine basis to a great or very great extent. Ensuring performance information is useful: As we previously reported, to facilitate the use of performance information, agencies should ensure that information meets various users’ needs for completeness, accuracy, consistency, timeliness, validity, and ease of use. GPRAMA introduced several requirements that could help to address these various dimensions of usefulness. For example, agencies must disclose more information about the accuracy and validity of their performance data and actions to address limitations to the data. Without useful performance information, it is difficult to monitor agencies’ progress toward critical goals, such as improving veterans’ access to health care provided by the Department of Veterans Affairs (VA), as illustrated in the textbox. Performance Information on Veterans’ Wait Times for Medical Appointments Was Unreliable The Veterans Health Administration (VHA), within the VA, provided nearly 80 million outpatient medical appointments to veterans in fiscal year 2011. Although access to timely medical appointments is important to ensuring veterans obtain needed care, long wait times and inadequate scheduling processes have been persistent problems. VHA is implementing a number of initiatives to improve veterans’ access to medical appointments such as use of technology to interact with patients and provide care. However, we testified in March 2013 that certain aspects of VHA’s policies and policy implementation contributed to unreliable performance information on veterans’ wait times. VA concurred with our recommendations and identified actions planned or under way to address them. GAO, VA Health Care: Appointment Scheduling Oversight and Wait Time Measures Need Improvement, GAO-13-372T (Washington, D.C.: Mar. 14, 2013). Responses to four survey items on hindrances related to the usefulness of performance information indicate some limited improvement. There was a statistically significant improvement between the 2007 and 2013 surveys on two of these four items (shown as declines because they concern hindrances), but no significant change otherwise, as illustrated in figure 6. In addition, related survey items introduced after 1997 showed no significant change between 2007 and 2013, with about 40 percent of managers agreeing to a great or very great extent that “agency managers at my level take steps to ensure that performance information is useful and appropriate” and 36 percent agreeing to the same extent that “I have sufficient information on the validity of the performance data I use to make decisions.” Despite these limited improvements, the overall picture from the 2013 results—with about one-fifth to nearly one-third of managers reporting hindrances, as indicated in figure 6, and less than half agreeing with most of the positive statements about the format, timeliness, and accessibility of their performance information in figure 7—remains a major concern. Building capacity to use performance information: We have previously reported that building the capacity to use performance information is critical to using performance information in a meaningful fashion, and that inadequate staff expertise, among other factors, can hinder agencies from using performance information. GPRAMA lays out specific requirements for OPM to identify skills and competencies for performance management functions, among other actions, which reinforce the importance of staff capacity to use performance information. Managers’ survey responses and our recent work indicate areas of weakness in agencies’ analysis and evaluation tools and staff’s skills and competencies, both of which are critical components of performance management capacity. About a third (36 percent) of managers reported in 2013 that they agreed to a great or very great extent that their agencies have sufficient analytical tools for managers at their levels to collect, analyze, and use performance information. Furthermore, less than a third of managers reported that their agencies were investing resources to improve the use and quality of performance information. Thirty percent of managers reported that they agree to a great or very great extent that the programs they are involved with have sufficient staff with the knowledge and skills needed to analyze performance information. Additionally, our recent work found gaps in performance management competencies among agency staff. Although PIOs we surveyed at 24 agencies in 2012 for our April 2013 report on performance management leadership roles reported that their staff generally possessed core competencies identified by OPM for performance management staff, certain competencies—performance measurement, information management, organization performance analysis, and planning and evaluating—were present to a lesser extent. Training is one way agencies can address a lack of staff capacity to use performance information, as illustrated in the sidebar. Between 1997 and 2013, there was a statistically significant increase in the percentage of managers reporting that their agencies made training available in the past 3 years on most of the performance management tasks we asked about. However, between 2007 and 2013, there was either no significant change or a decline in the percentage of managers responding positively to the same items, as shown in figure 8. Our prior work has indicated that effective data-driven reviews can serve as a leadership strategy, requiring leadership and other responsible parties to come together to review performance information and progress toward results and identify important opportunities to drive performance improvements. According to our 2012 survey of PIOs at 24 agencies, the majority (21 of 24) reported that actionable opportunities for performance improvement are identified through the reviews at least half the time. In addition, most officials we interviewed at DOE, Treasury, and the Small Business Administration (SBA) attributed improvements in performance and decision making to their QPRs. The textbox presents one such improvement described by officials at Treasury. Treasury Credits QPRs with Decision to Stop Minting $1 Coins for Circulation and Saving U.S. Government Millions Treasury’s Deputy Secretary said that it was a performance review session with the U.S. Mint that first led him to question the direction they had been taking with the $1 coin. Performance data he reviewed for the meeting indicated that the Mint was producing 400 million new $1 coins annually, while the Federal Reserve already had 1.4 billion existing ones in storage. Digging deeper, he learned that the Federal Reserve had previously estimated that there were enough $1 coins to meet demand for more than a decade. This estimate was based on the assumption that demand would remain at 2012 levels. While our case studies and survey of PIOs indicated the benefits of QPRs, our 2013 government-wide federal managers’ survey indicated that the majority of federal managers are not familiar with the QPRs at their agencies, although a greater percentage of Senior Executive Service (SES) managers reported that they were familiar with the QPRs, as shown in figure 9. Our analysis suggests that, while familiarity with QPRs may be somewhat limited government-wide, it is positively related to managers’ perceptions of their leadership’s demonstrated commitment to using performance information. Of the 12 percent of all federal managers who reported they were very familiar with QPRs, 76 percent agreed that their top leadership demonstrates a strong commitment to using performance information to guide decision making to a great or very great extent. In contrast, of the 66 percent who reported they were not familiar with QPRs, 36 percent agreed to a great or very great extent with the same statement. Similarly, our analysis suggests that being the subject of a QPR is positively related to the extent to which managers view the QPRs as being used to accomplish certain purposes to a great or very great extent. For example, federal managers who reported that their programs have been the subject of a QPR to a great or very great extent were more likely to report that their agencies use QPRs to identify problems or opportunities than those who reported that their programs have been the subject of a QPR to a moderate or small or no extent. Figure 10 shows this trend, along with a similar one for federal managers’ ratings of agency leadership use of QPRs to help achieve performance goals. Our analysis also suggests that being the subject of a QPR may be positively related to managers’ perceptions of their agencies employment of key practices that we have previously reported can promote successful data-driven performance reviews. For example, federal managers who reported that their programs have been the subject of a QPR to a great or very great extent were more likely to report that the reviews included key practices, such as leadership actively participating in reviews, than those who reported that their programs have been the subject of QPRs to a moderate or small or no extent. This trend and similar ones for other key practices are shown in figure 11. Federal managers’ responses to items about other key practices—holding QPRs on a regular, routine basis and having a process for following up on QPRs—were similarly related to the extent to which managers’ programs were the subject of a QPR. It is important for individuals to see a connection between their daily operations and results to help understand how individual performance can contribute to organizational success. While our past work has shown that agencies have encountered challenges linking individual performance with broader organizational results, progress has been made over the last decade in establishing this linkage and holding individuals accountable for organizational results through performance management systems. For example, while agencies have been required to hold senior executives accountable for their individual and organizational performance by linking performance expectations with GPRA-required goals since 2000, OPM and OMB have continued to reinforce the importance of this alignment in improvements in SES performance management. Most recently, in January 2012, OPM and OMB released a government-wide performance appraisal system for senior executives that provides agencies with a standard framework for managing the performance of its executives. While striving to provide greater clarity and equity in the development of performance standards and link to compensation, among other things, the Directors of OPM and OMB stated that the new system is intended to provide agencies with the necessary flexibility and capability to customize the system in order to meet their needs. As part of this framework, agencies are to identify expectations for the senior executives that focus on measurable outcomes from the strategic plan or other measurable outputs and outcomes clearly aligned to organizational goals and objectives. In addition, the Goals-Engagement-Accountability-Results (GEAR) model, established in 2011, focuses on aligning employee performance with organizational performance, creating a culture of engagement, and implementing accountability at all levels, among other things. The GEAR model outlines a series of recommended actions for agencies to adopt in order to help improve employee and organizational performance. We reported in September 2012 that DOE’s GEAR implementation plan includes aligning employee performance management with organizational performance management and developing training to support these goals, which along with initiating knowledge-sharing activities, will promote improvement of DOE’s organizational performance, according to DOE officials. We have ongoing work looking at GEAR implementation in the five pilot agencies and plan to issue the results of our work later in 2013. To further institutionalize individual accountability for achieving results, GPRAMA established in law several mechanisms that help individuals and agencies see this connection and hold them accountable for their contributions to agency and government-wide goals. As we recently reported, 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 including improvements in the quality of the data to help ensure they are sufficient for decision making. For example, PIOs are responsible for, among other things, assisting the agency head and COO in developing and using performance measures specifically for assessing individual performance in the agency. QPRs offer an opportunity for organizational performance to be assessed and responsible officials to be held accountable for addressing problems and identifying strategies for improvement. As agencies implement the accountability provisions of GPRAMA, they will need to ensure managers have decision-making authority commensurate with the responsibility to identify and address performance problems as they arise. Since our 1997 government-wide survey of federal managers, SES managers have reported improvements in accountability for agency goals and results and the decision-making authority to help achieve agency goals. However, there has been a gap between SES managers’ perceptions of their accountability for program performance as opposed to their decision-making authority since our initial survey in 1997. In 2013, 80 percent of SES managers reported that they are held accountable for the results of the programs for which they are responsible to a great or very great extent, while 61 percent reported that they have the decision-making authority they need to help the agency achieve its strategic goals, a 19 percentage point difference. See figure 12. Using performance information in employee performance management helps individuals track their performance and progress toward achieving organizational goals and can help emphasize the importance of individual contributions to organizational success. However, the percentage of federal managers reporting use of performance information in employee performance management to a great or very great extent has stagnated with no statistically significant change in reported use from 1997 to 2013. See figure 13. A fundamental element in an organization’s efforts to manage for results is its ability to set meaningful goals for performance and to measure progress toward those goals. In our 1996 Executive Guide, we underscored the importance of taking a balanced approach to setting goals and measuring performance. If a balance across an organization’s various priorities does not exist, the measures in place can overemphasize some goals and create skewed incentives. This need for agencies to have a balanced set of performance measures was reinforced in GPRAMA, which calls for agencies to develop a variety of measures, such as output, outcome, customer service, and efficiency, across program areas. As we have previously reported, based on our government-wide federal managers surveys, federal managers reported a statistically significant increase in the presence of different types of performance measures for their programs to a great or very great extent following initial implementation of GPRA. Despite this early progress in establishing a variety of performance measures, since our 2003 federal managers survey, there generally has been no statistically significant increase in the reported presence of these measures to a great or very great extent. More recently, as illustrated in figure 14, the only statistically significant increase between 2007 and 2013 is in the percentage of managers reporting the presence of quality measures. We have further found over the years and through our more recent work that there has been uneven development of outcome-oriented performance measures across federal programs, even though agencies have been responsible for measuring program outcomes, among other things, since the passage of GPRA in 1993. As demonstrated in the textbox, outcome-oriented performance measures help agencies determine if the program is achieving its intended purpose. Additionally, these performance measures are essential for assessing the vast number of results of federal efforts that span multiple agencies and organizations. GAO Has Reported on Agency Difficulties in Developing and Using Outcome Measures In May 2006, we recommended that USDA and DHS adopt meaningful performance measures for assessing the effectiveness of the Agriculture Quarantine Inspection (AQI) program at intercepting foreign pests and disease on agricultural materials entering the country by all pathways and posing a risk to U.S. agriculture. We reported in March 2013 that the Federal Emergency Management Agency has not yet established clear, objective, and quantifiable capability requirements and performance measures to identify capability gaps in a national preparedness assessment, as recommended in our March 2011 report. We reported in April 2013 that the Federal Communications Commission, DHS, DOD, and Department of Commerce had taken a variety of actions to support the security of the nation’s communications networks, including ones related to developing cyber policy and standards, securing Internet infrastructure, sharing information, supporting national security and emergency preparedness, and promoting sector protection efforts. GAO, Homeland Security: Management and Coordination Problems Increase the Vulnerability of U.S. Agriculture to Foreign Pests and Disease, GAO-06-644 (Washington, D.C.: May 19, 2006). GAO, Homeland Security: Agriculture Inspection Program Has Made Some Improvements, but Management Challenges Persist, GAO-12-885 (Washington, D.C.: Sept. 27, 2012). GAO-11-318SP. GAO, Communications Networks: Outcome-Based Measures Would Assist DHS in Assessing Effectiveness of Cybersecurity Efforts, GAO-13-275 (Washington, D.C.: Apr. 3, 2013). Our work over the last 20 years has identified difficulties agencies face in measuring performance across various program types, such as regulations and grants. Some commonly reported difficulties that cut across the various program types include: accounting for factors that are both outside of an agency’s control and impact the results of a program; developing appropriate performance measures, especially for programs without a clearly defined purpose or that require a long time period to achieve intended results; and obtaining complete, timely, and accurate performance information of the program. Illustrative examples from our recent work that show how agencies have experienced difficulties in measuring program performance are provided in table 2. In our 2013 annual report on fragmentation, overlap, and duplication, we identified the need for improving the measurement of performance and results—including program evaluation—as a theme that cuts across our suggested actions to address fragmentation, overlap, and duplication in federal agencies. While some agencies have faced difficulties in measuring program performance, some progress has been made in developing performance measures and using the resulting performance information to measure performance in the applicable program area. For example: HUD has made progress in measuring grant program performance. As we reported in November 2011, HUD measured progress toward some green building goals by collecting energy consumption data for participating properties receiving grants or loans under its Green Retrofit Program for Multifamily Housing before and after the properties are retrofitted and planned to use this data to calculate savings and evaluate effectiveness. In January 2011, we reported that the Federal Railroad Administration (FRA) has created a set of performance goals and measures that address important dimensions of program performance related to its regulatory safety activities. In its proposed fiscal year 2011 budget, FRA included specific safety goals to reduce the rate of train accidents caused by various factors, including human errors and track defects. These goals were quantitative, with a targeted accident rate per every million train miles. Collecting such accident data equips FRA with a clear way to measure whether or not those safety goals are met. FRA’s budget request has also linked FRA’s performance goals and measures with DOT’s strategic goals. Moving forward, we will continue to examine the availability and use of performance measures across a variety of program types and update our work in this area. Given that we have found that agencies across the federal government have experienced similar difficulties in measuring the performance of different program types and have not made consistent progress in addressing them, a comprehensive examination of these difficulties is needed. The PIC could help facilitate this examination. As discussed earlier, GPRAMA requires the PIC, in part, to resolve crosscutting performance issues and facilitate the exchange of practices that have led to performance improvements within specific programs or agencies or across agencies. Although measuring the performance of different program types is a significant and long-standing challenge, the PIC has not yet addressed this issue in a systematic way, such as through a working group to identify common difficulties in developing and using performance measures to assess program performance and share best practices from instances in which agencies have overcome these difficulties. Without a comprehensive examination, it will be difficult for the PIC and agencies to fully understand these measurement issues and develop a crosscutting approach to help address them, which will likely result in agencies experiencing difficulties in measuring program performance in the future. According to our 2013 survey of federal managers, 34 percent reported that performance information is easily accessible to agency employees to a great or very great extent, while 17 percent reported that their agency’s performance information is easily accessible to the public to a great or very great extent. Survey data also indicate that agencies are not communicating to their employees about contributions to CAP goals or their progress toward achieving APGs. In fact, of the 58 percent of federal managers who indicated they were familiar with CAP goals, 22 percent reported that their agency has communicated to its employees on those goals to a great or very great extent. Of the 82 percent of federal managers who indicated familiarity with APGs, 40 percent reported that their agency has communicated on progress toward achieving them to great or very great extent. We recently reported that Performance.gov, as the central repository for federal government performance information, can assist in oversight and lead to a greater focus within government on the activities and efforts necessary to improve performance. OMB’s stated goals for Performance.gov include, among others, providing both a public view into government performance to support transparency as well as providing executive branch management capabilities to enhance senior leadership decision making. According to OMB staff, OMB will maintain responsibility for the website, but going forward, the plans are that the effort will be driven more by the General Services Administration (GSA) and the PIC, with GSA continuing to provide technological support. For future development of Performance.gov, OMB, the PIC, and GSA are working with federal agencies to develop the Performance Management Line of Business that, according to OMB staff, will standardize the collection and reporting of performance information by agencies. Performance.gov has the potential to increase the accessibility of performance information for users both inside and outside the federal government. An analysis of statements from OMB and GSA staff, agency officials, and feedback we obtained from potential users, however, indicates that there are varying expectations regarding the primary uses of Performance.gov. For example, OMB and GSA staff emphasized that they have viewed Performance.gov as a tool for agencies to support cross-agency coordination and efforts to achieve agency goals. Consistent with this, OMB staff said that Performance.gov has been used to facilitate conversations between OMB examiners and agency managers about progress on APGs. While most officials we interviewed said that OMB had collected feedback from the agencies in the development of Performance.gov, officials from most of these agencies also said that Performance.gov is not being used as a resource by agency leadership or other staff, as they have information sources tailored to meet their needs, and Performance.gov does not contain critical indicators or the ability to display some visualizations used for internal agency performance reviews. In addition, a performance management practitioner and other potential users of the website noted that the detailed, technical nature of Performance.gov seemed primarily oriented toward a government rather than a public audience. According to OMB staff, the specific legal requirements of GPRAMA have been the primary framework used to guide efforts to develop Performance.gov thus far. They noted that they have been focused on working to comply with these requirements by providing information on CAP goals and APGs, and by establishing a phased development plan for the integration of additional information from agency strategic plans, performance plans, and performance reports. OMB and GSA staff members have said, however, that the leading practices for developing federal websites will be helpful in guiding the future development of Performance.gov. OMB and GSA staff have also noted that as the phased development of Performance.gov unfolds, they expect to use broader outreach to, and usability testing with, a wider audience, including members of the public, to make Performance.gov more “public- facing” and “citizen-centric.” In accordance with this transition, we recommended in June 2013 that OMB work with GSA and the PIC to clarify the specific ways that intended audiences could use the information on Performance.gov. HowTo.gov, a leading source of best practices and guidance on the development of federal government websites, recommends identifying the purposes of a website, and the ways in which specific audiences could use a website to accomplish various tasks, and then structuring information and providing tools to help visitors quickly complete these tasks. With greater clarity about the intended uses of Performance.gov, OMB and GSA should have sufficient direction to design Performance.gov to make it a relevant and accessible source of information for a variety of potential users including those specified under GPRAMA—members and committees of Congress and the public. In the same report, we also recommended that OMB should work with GSA and the PIC to systematically collect information on the needs of intended audiences and collect recommended performance metrics that help identify improvements to the website. For example, HowTo.gov practices recommend that a website use consistent navigation. Although users we interviewed had mixed opinions on the organization and navigation of Performance.gov, simplifying the website’s navigation, adding an effective internal search engine, and providing an appropriate level of detail and information for intended audiences could increase the overall usability of Performance.gov. Outreach and testing on the ease of navigation and searching would help OMB systematically collect information on the needs of various audiences and how these could be addressed through Performance.gov. With performance goals and measures for the website, it would also be possible for the developers of Performance.gov to identify the gap between current capabilities and what is needed to fulfill stated goals and to identify and set priorities for improvements. OMB staff agreed with these recommendations. Congressional support has played a critical role in sustaining interest in management improvement initiatives over time. As we have previously reported, Congress has served as an institutional champion for many government-wide management reform initiatives over the years, such as the CFO Act and GPRA in the 1990s and more recently GPRAMA. Further, Congress has often played an important role in performance improvement and management reforms at individual agencies. Congress has also provided a consistent focus on oversight and has reinforced important policies. As we have previously reported, having pertinent and reliable performance information available is necessary for Congress to adequately assess agencies’ progress in making performance and management improvements and ensure accountability for results. However, our work has found that the performance information that agencies provided to Congress was not always useful for congressional decision making because the information was not clear, directly relevant, or sufficiently detailed. As stated earlier, in order for performance information to be useful, it should meet the needs of different users— including Congress—in terms of completeness, accuracy, consistency, timeliness, validity, and ease of use. GPRA required agencies to consult with Congress and obtain the views of interested stakeholders as a part of developing their strategic plans. However, according to the Senate committee report that accompanied the bill that ultimately became GPRAMA, agencies did not adequately consider the input of Congress in developing strategic plans, often because the agencies waited until strategic plans were substantially drafted and reviewed within the executive branch before consulting with Congress. In doing so, agencies limited the opportunities for Congress to provide input on their strategic plans and related goals, as well as the performance information that would be most useful for congressional oversight. To help ensure agency performance information is useful for congressional decision making, GPRAMA strengthens the consultation requirement. The act requires agencies to consult at least once every two years with relevant appropriations, authorization and oversight committees, obtaining majority and minority views, when developing or updating strategic plans—which include APGs. Subsequently, agencies are to describe how congressional input was incorporated into those plans and goals. Similarly, OMB is required to consult with relevant committees with broad jurisdiction at least once every two years when developing or updating CAP goals, and describe how that input was incorporated into those goals. At the request of Congress, in June 2012, we developed a guide to assist Members of Congress and their staffs in ensuring the consultations required under GPRAMA are useful to the Congress. The guide outlines general approaches for successful consultations, including creating shared expectations and engaging the right people in the process at the right time. The guide also provides key questions that Members and congressional staff can ask as part of the consultation process to ensure that agency performance information reflects congressional priorities. However, it is unclear if agencies incorporated congressional input on their updated strategic plans and APGs published in 2012, and therefore if this information will be useful for congressional decision making. In our recent review of APGs, we found that agencies reported engaging Congress during the development of their strategic plans and goals to varying degrees, and only 1 of the 24 agencies we reviewed explained how congressional input was incorporated into its APGs, as required by GPRAMA. We recommended in April 2013 that OMB ensure that agencies adhere to OMB’s guidance for website updates by providing a description of how input from congressional consultations was incorporated into each goal. OMB staff concurred with our recommendation. In addition, our recent work indicated that the performance information provided on Performance.gov also may not be meeting congressional needs. We found that outreach from OMB to congressional staff was limited, as were opportunities for staff to provide input on the development of Performance.gov. According to OMB staff, they met several times with staff from the Senate Homeland Security and Governmental Affairs Committee, House Oversight and Government Reform Committee, and the Senate Budget Committee to discuss the development of Performance.gov, and used this outreach to identify several specific website modifications. Of the three congressional staff that we spoke to that said they had received briefings on the development of Performance.gov, however, only one told us she had been consulted on website input. In addition, since 2010, OMB staff has not held meetings on the development of Performance.gov with staff from other committees in the House or Senate that might use the website to inform their oversight of federal agencies. As previously mentioned, we also found that OMB has not articulated how various intended audiences, including Congress, can use the site to accomplish specific tasks, such as supporting coordination and decision making to advance shared goals. At the request of the Congress, in December 2011 and June 2012, we highlighted several instances in which Congress has used agency performance information in various oversight and legislative activities, including (1) identifying issues that the federal government should address; (2) measuring the federal government’s progress toward addressing those issues; and (3) identifying better strategies to address the issues when necessary. For example, to help promote the use of e- filing of tax returns with the IRS, Congress used performance information to set clear expectations for agency performance, support oversight activities, and inform the development of additional legislation to help IRS achieve its goals. For further information, see the textbox. Congressional Use of Performance Information to Promote E-filing of Tax Returns Congress sought to promote the use of e-filing, which allows taxpayers to receive refunds faster, is less prone to errors, and provides IRS significant cost savings. Congress took the following actions to increase the use of e-filing:  Setting Expectations: As part of the Internal Revenue Service Restructuring and Reform Act of 1998, Congress established a performance goal of having 80 percent of individual tax returns e-filed by 2007.  Oversight: Congress monitored IRS’s progress in meeting the established goal for e- filings; held 22 hearings related to IRS filing seasons and e-filings; and requested annual GAO reports to Congress on filing season performance, including e-filing.  Additional Legislation: Congress saw the need for further actions to help IRS achieve the goal, and subsequently passed legislation to require tax return preparers who file more than 10 returns per year to do so electronically. Although IRS did not meet the 80 percent e-filing target by 2007 (58 percent were e-filed that year), increased use of e-filing has substantially reduced IRS’s cost to process returns. IRS subsequently met this goal for individual tax returns as of the 2012 tax filing season, with 82 percent of individual returns e-filed. IRS has yet to reach the 80 percent e-file goal for some types of returns other than individual income tax returns. See GAO, 2012 Tax Filing: IRS Faces Challenges Providing Service to Taxpayers and Could Collect Balances Due More Effectively, GAO-13-156 (Washington, D.C.: Dec. 18, 2012). Moving forward, the federal government will need to make tough choices in setting priorities as well as reforming programs and management practices to address the pressing and complex economic, social, security, sustainability, and other issues the nation confronts. GPRAMA provides a number of tools that could help address these challenges. Since enactment in 2011, the executive branch has taken a number of important steps to implement key provisions of the act, by developing interim CAP goals and APGs, conducting quarterly reviews, assigning key performance management roles and responsibilities, and communicating results more frequently and transparently through Performance.gov. However, the executive branch needs to do more to fully implement and leverage the act’s provisions to address these challenges. Our recent work reviewing federal performance issues and implementation of the act has pointed to several areas where improvements are needed and, accordingly, we recommended a number of actions. In addition, examples from our past work along with the most recent results from our survey of federal managers show that the executive branch has made little progress addressing long-standing governance challenges related to improving coordination and collaboration to address crosscutting issues, using performance information to drive decision making, measuring the performance of certain types of federal programs, and engaging Congress in a meaningful way in agency performance management efforts to ensure the resulting information is useful for congressional decision making. Of particular concern, OMB has yet to develop a framework for reviewing the performance of tax expenditures, which represented approximately $1 trillion in forgone revenue in fiscal year 2012. In some areas, forgone revenue due to tax expenditures is nearly equal to or greater than spending for federal outlay programs. Since 1994 we have recommended OMB take this action, and the act puts into place explicit requirements for the CAP goals that OMB identify related tax expenditures and measure their contributions to broader federal outcomes. While early implementation of CAP goals showed some promise, with tax expenditures being identified as contributing to 5 of the 14 goals, many of those tax expenditures were subsequently removed. For example, our work shows that eight tax expenditures, representing about $2.4 billion in forgone revenue, should be listed as contributing to the energy efficiency CAP goal. The few tax expenditures that continue to be listed as contributors to a CAP goal only represent about $2.7 billion in forgone revenue—approximately 0.3 percent of the total estimate of forgone revenue from tax expenditures. While OMB staff told us the removal of these tax expenditures was an oversight and that they will be added as contributors in the near future, it raises concerns as to whether OMB previously ensured all relevant tax expenditures were identified as contributors to the 14 CAP goals when they were published in February 2012. Tax expenditures represent a substantial federal commitment to a wide range of mission areas, but do not receive the same scrutiny as spending programs. Therefore, it is possible that additional tax expenditures should have been identified and included as contributors to one or more of the other 9 CAP goals. Moreover, for the 2 CAP goals where tax expenditures were mistakenly removed, it is unclear if OMB and the goal leaders assessed the contributions of those tax expenditures toward the CAP goal efforts, since they were not listed in the December 2012 and March 2013 updates. Without information about which tax expenditures support these goals and measures of their performance, Congress and other decision makers will not have the needed information to assess overall federal contributions towards desired results and the costs and relative effectiveness associated with those contributions. OMB took another promising action in 2012 by directing agencies to identify tax expenditures among the various federal programs and activities that contribute to their APGs—above and beyond what the act requires for all performance goals, which include APGs. However, the 103 APGs developed for 2012 to 2013 at 24 agencies represent only a small subset of all performance goals across the government. In addition, our review of the APGs for 2012 to 2013 found that only one agency, for one of its APGs, identified two relevant tax expenditures. OMB and agencies are missing important opportunities to more broadly identify how tax expenditures contribute to each agency’s overall performance. In addition to measuring the contributions of tax expenditures to their goals, our work has found that agencies have experienced common issues in measuring the performance of various other types of programs and have not made consistent progress in addressing them in the last 20 years. As such, a comprehensive and concerted effort to address these long-standing difficulties needs to be taken. With responsibilities to resolve crosscutting performance issues and facilitate the exchange of proven practices, the PIC should lead such an assessment. The PIC has not yet addressed this issue in a systematic way, and without a comprehensive examination, it will be difficult for the PIC and agencies to fully understand these measurement issues and develop a crosscutting strategy to address them. That would likely result in agencies continuing to experience difficulties in measuring program performance in the future. The PIC’s upcoming strategic planning effort provides a venue for developing an approach for tackling this issue by putting in place the necessary plans and accountability. The PIC’s strategy should detail specific actors and actions to be made within set time frames to ensure that these persistent measurement challenges are adequately addressed. To improve implementation of GPRAMA and help address pressing governance issues, we make the following four recommendations. To help ensure that the contributions made by tax expenditures toward the achievement of agency goals and broader federal outcomes are properly recognized, we recommend that the Director of OMB take the following three actions: Revise relevant OMB guidance to direct agencies to identify relevant tax expenditures among the list of federal contributors for each appropriate agency goal. Review whether all relevant tax expenditures that contribute to a CAP goal have been identified, and as necessary, include any additional tax expenditures in the list of federal contributors for each goal. Assess the contributions relevant tax expenditures are making toward the achievement of each CAP goal. Given the common, long-standing difficulties agencies continue to face in measuring the performance of various types of federal programs and activities—contracts, direct services, grants, regulations, research and development, and tax expenditures—we also recommend the Director of OMB work with the PIC to develop a detailed approach to examine these difficulties across agencies, including identifying and sharing any promising practices from agencies that have overcome difficulties in measuring the performance of these program types. This approach should include goals, planned actions, and deliverables along with specific time frames for their completion, as well as the identification of the parties responsible for each action and deliverable. We provided a draft of this report for review and comment to the Director of OMB. Via e-mail, staff from OMB’s Office of Performance and Personnel Management agreed with the recommendations in this report. The staff also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Director of OMB as well as interested congressional committees and other interested parties. This report will also 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) 512-6806, or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of our report. Key contributors to this report are listed in appendix III. The GPRA Modernization Act of 2010 (GPRAMA) lays out a schedule for gradual implementation of its provisions during a period of interim implementation—from its enactment in January 2011 to February 2014 when a new planning and reporting cycle begins. GPRAMA also includes provisions requiring us to review implementation of the act at several critical junctures and provide recommendations for improvements to its implementation. This report is the final in a series responding to the mandate to assess initial implementation of the act by June 2013, and pulls together findings from our recent work related to the act, the results of our periodic survey of federal managers, and our related recent work on federal performance and coordination issues. Our specific objectives for this report were to assess the executive branch’s (1) progress in implementing the act and (2) effectiveness in using tools provided by the act to address challenges the federal government faces. To address both objectives, we reviewed GPRAMA, related congressional documents and Office of Management and Budget (OMB) guidance, and our past and recent work related to managing for results and the act. We also interviewed OMB staff. In addition, to further address the second objective, we administered a web-based questionnaire on organizational performance and management issues to a stratified random sample of 4,391 persons from a population of approximately 148,300 mid-level and upper-level civilian managers and supervisors working in the 24 executive branch agencies covered by the Chief Financial Officers (CFO) Act of 1990, as amended. The survey results provided information about the extent to which key performance management practices are in place to help address challenges. The sample was drawn from the Office of Personnel Management’s (OPM) Central Personnel Data File (CPDF) as of March 2012, using file designators indicating performance of managerial and supervisory functions. In reporting the questionnaire data, when we use the term “government-wide” and the phrases “across the government” or “overall” we are referring to these 24 CFO Act executive branch agencies, and when we use the terms “federal managers” and “managers” we are referring to both managers and supervisors. The questionnaire was designed to obtain the observations and perceptions of respondents on various aspects of results-oriented management topics such as the presence and use of performance measures, hindrances to measuring performance and using performance information, agency climate, and program evaluation use. In addition, to address implementation of GPRAMA, the questionnaire included a section requesting respondents’ views on various provisions of GPRAMA, such as cross-agency priority goals, agency priority goals, and quarterly performance reviews. For the agency priority goal questions, we directed the federal managers from the Nuclear Regulatory Commission to not answer these questions since OMB did not require the agency to develop agency priority goals for 2012 to 2013. This survey is comparable to surveys we have conducted four times previously at the 24 CFO Act agencies—1997, 2000, 2003, and 2007. The 1997 survey was conducted as part of the work we did in response to a GPRA requirement that we report on implementation of the act. The 2000, 2003, and 2007 surveys were designed to update the results from each of the previous surveys. The 2007 survey also included a section requesting the respondent’s view on OMB’s Program Assessment Rating Tool and the priority that should be placed on various potential improvements to it. The 2000 and 2007 surveys, unlike the other two surveys, were designed to support analysis of the data at the department and agency level as well as government-wide. For this report, we focus on comparing the 2013 survey results with those from the 1997 baseline survey; and with the results of the 2007 survey, which is the most recent survey conducted before GPRAMA was enacted in 2011. We noted the results from the other two surveys—2000 and 2003—when statistically significant trends compared to 2013 occurred. Similar to the four previous surveys, the sample was stratified by agency and by whether the manager or supervisor was a member of the Senior Executive Service (SES) or non-SES. The management levels covered general schedule (GS) or equivalent schedules at levels comparable to GS-13 through GS-15 and career SES or equivalent. Similar to our 2000, 2003, and 2007 surveys, we also incorporated managers or supervisors in other pay plans at levels generally equivalent to the GS-13 through career SES levels into the population and the selected sample to ensure at least a 90 percent coverage of all mid- to upper-level managers and supervisors at the departments and agencies we surveyed. Most of the items on the questionnaire were closed-ended, meaning that depending on the particular item, respondents could choose one or more response categories or rate the strength of their perception on a 5-point extent scale ranging from “to no extent” at the low end of the scale to “to a very great extent” at the high end. On most items, respondents also had an option of choosing the response category “no basis to judge/not applicable.” A few items had yes, no, or do not know options for respondents. Many of the items on the questionnaire were asked in our earlier surveys; the sections of the questionnaire asking about GPRAMA, program evaluations, and availability of performance information are new. For these new questions, we conducted pretests with federal managers in several of the 24 CFO Act agencies. For the 2013 survey, based on feedback we obtained from our pretests with managers, we moved the placement of question 8 in the survey to accommodate the insertion of a new question. In previous surveys, only those respondents who answered yes to question 5—that they had performance measures available for their programs—were asked to answer question 8—a series of items about the extent to which they used information obtained from performance measurement when participating in certain activities. Respondents answering “no” or “do not know” to question 5 could skip past the question 8 items. For the 2013 survey, all respondents were asked to answer question 8 given the new question added. To maintain the consistency and comparability with how we have previously analyzed and reported question 8 results, we applied the skip pattern used in prior surveys to question 8 by removing those individuals who did not answer yes to question 5 (and in the past would have been directed to skip out of answering the question). However, in the e-supplement we report the results as the federal managers answered the questionnaire, regardless of how they had answered question 5. To administer the survey, an e-mail was sent to managers in the sample that notified them of the survey’s availability on the GAO website and included instructions on how to access and complete the survey. With the exception of the managers at the Department of Justice (DOJ), which is discussed below, managers in the sample who did not respond to the initial notice were sent up to four subsequent e-mail reminders and follow- up phone calls asking them to participate in the survey. In our prior surveys, we worked with OPM to obtain the names of the managers and supervisors in our sample as selected through the CPDF. However, since our last survey in 2007, some agencies had requested from OPM that the names of individuals within selected subcomponents be withheld from the CPDF. We worked with officials at these agencies to attempt to gain access to these individuals to maintain continuity of the population of managers surveyed from previous years. Due to DOJ’s national security concerns about providing identifying information (e.g., names, e-mail addresses, phone numbers) of federal agents to us, we administered the current survey to all DOJ managers in our sample through a DOJ official. To identify the sample of managers whose names were withheld from the CPDF, we provided DOJ with the last four digits of Social Security numbers, the subcomponent, duty location, and pay grade information. To ensure that DOJ managers received the same survey administration process as the rest of the managers in our sample to the extent possible, we provided DOJ with copies of the notification, activation (including the web link to our survey), and follow-up e-mails that managers at other agencies received from us. DOJ administered the survey to its managers and conducted follow-up with the nonrespondents. We administered the survey to all 24 agencies from November 2012 through February 2013. To help determine the reliability and accuracy of the CPDF data elements used to draw our sample of federal managers, we checked the data for reasonableness and the presence of any obvious or potential errors in accuracy and completeness. For example, we identified cases where the managers’ names were withheld and contacted OPM to determine the reason and extent of this issue. We also checked the names of the managers in our selected sample provided from OPM with the applicable agency contacts to verify these managers were still employed with the agency in the role. We noted discrepancies when they occurred and excluded them from our population of interest, as applicable. We also reviewed our past analyses of the reliability of the CPDF data. On the basis of these procedures, we believe the data we used from the CPDF are sufficiently reliable for the purpose of this report. Of the 4,391 managers selected for this survey, we found that 266 of the sampled managers had retired, separated, died, or otherwise left the agency or had some other reason that excluded them from the population of interest. We received usable questionnaires from 2,762 sample respondents, or about 69 percent of the remaining eligible sample. In addition, there were 29 persons that we were unable to locate and therefore unable to request that they participate in the survey. The response rate across the 24 agencies ranged from 57 percent to 88 percent. The overall survey results are generalizable to the population of managers as described above at each of the 24 agencies and government-wide. The responses of each eligible sample member who provided a usable questionnaire were weighted in the analyses to account statistically for all members of the population. All results are subject to some uncertainty or sampling error as well as nonsampling error. 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. This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. The percentage estimates presented in this report based on our sample for the 2013 survey have 95 percent confidence intervals within plus or minus 5 percentage points of the estimate itself, unless otherwise noted. An online e-supplement shows the questions asked on the survey along with the percentage estimates and associated 95 percent confidence intervals for each item for each agency and government-wide. Because a complex survey design was used in the current survey as well as the four previous surveys, and different types of statistical analyses are being done, the magnitude of sampling error will vary across the particular surveys, groups, or items being compared due to differences in the underlying sample sizes, usable sample respondents, and associated variances of estimates. For example, the 2000 and 2007 surveys were designed to produce agency-level estimates and had effective sample sizes of 2,510 and 2,943, respectively. However, the 1997 and 2003 surveys were designed to obtain government-wide estimates only, and their sample sizes were 905 and 503, respectively. Consequently, in some instances, a difference of a certain magnitude may be statistically significant. In other instances, depending on the nature of the comparison being made, a difference of equal or even greater magnitude may not achieve statistical significance. We note in this report when we are 95 percent confident that the difference is statistically significant. Also, as part of any interpretation of observed shifts in individual agency responses between the 2013 and the 2000 surveys, it should be kept in mind that components of some agencies and all of the Federal Emergency Management Agency became part of the Department of Homeland Security. In addition to sampling errors, the practical difficulties of conducting any survey may also introduce other types of errors, commonly referred to as nonsampling errors. For example, difficulties in how a particular question is interpreted, in the sources of information available to respondents, or in how the data were entered into a database or were analyzed can introduce unwanted variability into the survey results. With this survey, we took a number of steps to minimize these nonsampling errors. For example, our staff with subject matter expertise designed the questionnaire in collaboration with our survey specialists. As noted earlier, the new questions added to the survey were pretested to ensure they were relevant and clearly stated. When the data were analyzed, a second independent GAO analyst independently verified the analysis programs to ensure the accuracy of the code and the appropriateness of the methods used for the computer-generated analysis. Since this was a web-based survey, respondents entered their answers directly into the electronic questionnaire, thereby eliminating the need to have the data keyed into a database, thus avoiding a source of data entry error. We conducted this performance audit from August 2012 to June 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. Status OMB staff agreed with our recommendations. clarify the ways that intended audiences could use the information on the Performance.gov website to accomplish specific tasks and specify the design changes that would be required to facilitate that use; seek to more systematically collect information on the needs of a broader audience, including through the use of customer satisfaction surveys and other approaches recommended by HowTo.gov; and seek to ensure that all performance, search, and customer satisfaction metrics, consistent with leading practices outlined in HowTo.gov, are tracked for the website, and, where appropriate, create goals for those metrics to help identify and prioritize potential improvements to Performance.gov. OMB staff agreed with our recommendations. provide a definition of what constitutes “data of significant value;” direct agencies to develop and publish on Performance.gov interim quarterly performance targets for their agency priority goal performance measures when the above definition applies; direct agencies to provide and publish on Performance.gov completion dates, both in the near- term and longer-term for their milestones; and direct agencies to describe in their performance plans how the agency’s performance goals— including priority goals—contribute to any of the cross-agency priority goals. When such revisions are made, the Director of OMB should work with the PIC to test and implement these provisions. Status OMB staff agreed with our recommendations. complete information about the organizations, program activities, regulations, policies, tax expenditures, and other activities—both within and external to the agency—that contribute to each goal; and a description of how input from congressional consultations was incorporated into each goal. To improve performance management staff capacity to support performance management in federal agencies, the Director of OPM should, in coordination with the PIC and the Chief Learning Officer Council, work with agencies to: identify competency areas needing improvement within agencies; identify agency training that focuses on needed performance management competencies; and share information about available agency training on competency areas needing improvement. OPM agreed with our recommendations, and explained that it will work with agencies, and in particular with PIOs, to assess the competencies of the performance management workforce. OPM also stated that it will support the use of the PIC’s performance learning website to facilitate the identification and sharing of training related to competencies in need of improvement. OMB staff agreed with our recommendations. conduct formal feedback on the performance of the PIC from member agencies, on an ongoing basis; and update its strategic plan and review the PIC’s goals, measures, and strategies for achieving performance, and revise them if appropriate. To better leverage agency quarterly performance reviews as a mechanism to manage performance toward agency priority and other agency-level performance goals, the Director of OMB should—working with the PIC 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. OMB staff agreed with our recommendation. Summary of related recommendations The Director of OMB, in considering additional programs with the potential to contribute to the crosscutting goals, should review the additional departments, agencies, and programs that we have identified, and consider including them in the federal government performance plan, as appropriate. Status OMB staff agreed with our recommendation. In December 2012 and March 2013, OMB updated information on Performance.gov on the CAP goals. OMB included some of the agencies and programs we identified for select goals, but in other instances eliminated key contributors that were previously listed. In addition to the above contact, Elizabeth Curda (Assistant Director) and Benjamin T. Licht supervised this review and the development of the resulting report. Tom Beall, Peter Beck, Mallory Barg Bulman, Virginia Chanley, Laura Miller Craig, Sara Daleski, Karin Fangman, Stuart Kaufman, Don Kiggins, Judith Kordahl, Jill Lacey, Janice Latimer, Adam Miles, Kathleen Padulchick, Mark Ramage, Daniel Ramsey, Marylynn Sergent, Megan Taylor, Sarah Veale, Kate Hudson Walker, and Dan Webb made significant contributions to this report. Pawnee Davis, Shannon Finnegan, Quindi Franco, Ellen Grady, Robert Gebhart, Tom James, Donna Miller, Michael O’Neill, Robert Robinson, and Stephanie Shipman also made key contributions.

The federal government faces significant and long-standing fiscal, management, and performance challenges. The act’s implementation offers opportunities for Congress and the executive branch to help address these challenges. This report is the latest in a series in which GAO, as required by the act, reviewed the act’s initial implementation. GAO assessed the executive branch’s (1) progress in implementing the act and (2) effectiveness in using tools provided by the act to address key governance challenges. To address these objectives, GAO reviewed the act, related OMB guidance, and past and recent GAO work related to federal performance management and the act; and interviewed OMB staff. In addition, to determine the extent to which agencies are using performance information and several of the act’s requirements to improve agency results, GAO surveyed a stratified random sample of 4,391 federal managers from 24 agencies, with a 69 percent response rate which allows GAO to generalize these results. The executive branch has taken a number of steps to implement key provisions of the GPRA Modernization Act (the act). The Office of Management and Budget (OMB) developed interim cross-agency priority (CAP) goals, and agencies developed agency priority goals (APG). Agency officials reported that their agencies have assigned performance management leadership roles and responsibilities to officials who generally participate in performance management activities, including quarterly performance reviews (QPR) for APGs. Further, OMB developed Performance.gov, a government-wide website, which provides quarterly updates on the CAP goals and APGs. However, the executive branch needs to do more to fully implement and leverage the act’s provisions to address governance challenges. OMB and agencies have identified many programs and activities that contribute to goals, as required, but are missing additional opportunities to address crosscutting issues. For example, few have identified tax expenditures, which represented about $1 trillion in forgone revenue in fiscal year 2012, due to a lack of OMB guidance and oversight. Therefore, the contributions made by tax expenditures towards broader federal outcomes are unknown. Ensuring performance information is useful and used by federal managers to improve results remains a weakness. GAO found little improvement in managers’ reported use of performance information or practices that could help promote this use. There was a decline in the percentage of managers that agreed that their agencies’ top leadership demonstrates a strong commitment to achieving results. However, agencies’ QPRs show promise as a leadership strategy for improving the use of performance information in agencies. Agencies have taken steps to align daily operations with agency results, but continue to face difficulties measuring performance. Agencies have established performance management systems to align individual performance with agency results. However, agencies continue to face long-standing issues with measuring performance across various programs and activities. The Performance Improvement Council (PIC) could do more to examine and address these issues, given its responsibilities for addressing crosscutting performance issues and sharing best practices. Without a comprehensive examination of these issues and an approach to address them, agencies will likely continue to experience difficulties in measuring program performance. Communication of performance information could better meet users’ needs. Federal managers and potential users of Performance.gov reported concerns about the accessibility, availability, understandability, and relevance of performance information to the public. Further outreach to key stakeholders could help improve how this information is communicated. Agency performance information is not always useful for congressional decision making. Consultations with Congress are intended, in part, to ensure this information is useful for congressional decision making. However, GAO found little evidence that meaningful consultations occurred related to agency strategic plans and APGs. GAO also found that the performance information provided on Performance.gov may not fully be meeting congressional needs. GAO recommends OMB improve implementation of the act and help address challenges by ensuring that the contributions of tax expenditures to crosscutting and agency goals are identified and assessed, and developing a detailed approach for addressing long-standing performance measurement issues. OMB staff agreed with these recommendations. GAO also reports on the status of existing recommendations related to CAP goals, APGs, QPRs, the PIC, agency performance management training, and Performance.gov.

You are an expert at summarizing long articles. Proceed to summarize the following text: PPACA required the establishment of individual health insurance exchanges, as well as small business exchanges, within each state by 2014. PPACA does not require issuers to offer plans through these exchanges, but instead generally relies on market incentives to encourage issuer participation. Issuers seeking to offer a health plan in an individual exchange or small business exchange must first have that plan approved by the exchange in the state. We previously reported that most of the largest issuers holding the majority of the market in the 2012 individual and small-group markets participated in the 2014 exchanges, although most of the numerous smaller issuers in those markets did not. In addition, some issuers that participated in the 2014 individual or small business exchanges had not participated in that respective market in 2012. While some of these issuers had previously provided coverage in other markets in 2012, other issuers were newly established through the federally supported Consumer Oriented and Operated Plans (CO-OP) program. As I mentioned above, PPACA also changed, as of 2014, how insurers determine health insurance premiums and how consumers shop for health insurance plans. As part of this, PPACA required that health plans be marketed based on information that helps consumers compare the relative value of each plan. Specifically, plans must be marketed by specific categories—including four “metal” tiers of coverage (bronze, silver, gold, and platinum)—that reflect out-of-pocket costs that may be incurred by an enrollee. These changes occurred at the same time that PPACA required the establishment of health insurance exchanges for each state, through which consumers could compare and select from among QHPs. Finally, beginning January 1, 2014, premium tax credits and cost-sharing subsidies became available under PPACA for qualified individuals who purchased QHPs sold through an exchange. In 2016, we examined enrollment in private health-insurance plans in the years leading up to and through 2014, the first year of the exchanges established by PPACA, and found that in each year, markets were concentrated among a small number of issuers in most states. On average, in each state, 11 or more issuers participated in each of three types of markets—individual, small group, and large group—from 2011 through 2014. However, in most states, the 3 largest issuers in each market had at least an 80 percent share of the market during the period. (See fig. 1.) Not all issuers in the individual and small group markets participated in the exchanges in 2014, and several exchanges had fewer than 3 participating issuers. Enrollment through the exchanges was generally more concentrated among a few issuers than was true for the individual and small group markets overall in 2014. For our examination of issuer participation in the first year of the exchanges, we reported that fewer issuers participated in most state health insurance markets in 2014 compared to 2013, though exiting issuers generally had small market shares in that prior year. Specifically, we found that from 2013 to 2014, the number of issuers participating in individual markets decreased in 46 states, while fewer states’ small-group and large-group markets had decreased participation (28 and 22 states, respectively). (See fig. 2.) However, across the three types of markets, those issuers exiting each state market before 2014 generally had less than 1 percent of the market in the prior year. There were also issuers that newly entered state markets in 2014. Their market shares in 2014 varied across the three types of markets, with some newly entering issuers in the individual market capturing a market share of over 10 percent. Most newly entering issuers in 2014 participated in the exchanges and they generally had a larger share of the enrollment sold through the exchanges than through the overall markets. In addition, some newly entering issuers captured a majority of their exchange market, with CO-OPs having a higher proportion. Since 2014, there have been additional changes to the number of issuers entering and exiting the individual and small group markets. For example, most of the CO-OPs that offered coverage in the exchanges in 2014 have since discontinued offering coverage. In addition, in an analysis of data from exchanges in states that used the FFE and state-based exchanges, where available, HHS has since reported that the number of issuers offering health plans through the exchanges decreased from 2016 to 2017, reflecting multi-state withdrawals by a few large insurers. In 2015, we reported that individual market consumers generally had access to more health plans in 2015—a year after the initial implementation of key PPACA provisions—than in 2014. Consumers in most of the counties analyzed in the 28 states for which we had sufficiently reliable data for plans offered either on or off an exchange had six or more plans from which to choose in three of the four health plan metal tiers (bronze, silver, and gold) in both 2014 and 2015. The percentage of counties with six or more plans in those metal tiers increased from 2014 to 2015. Specifically, in 2014, six or more bronze-, silver-, and gold-tier plans were available to consumers in the individual market (either on or off an exchange) in at least 95 percent of the 1,886 counties and were available on an exchange in at least 59 percent of the 2,613 of the counties for which we had sufficiently reliable data for plans offered on an exchange. In 2015, the percentage of these same counties with six or more bronze-, silver-, and gold-tier plans available in the individual market increased to 100 percent, and at least 71 percent had six or more of these plans available on an exchange. (See table 1.) In our 2015 report, we also found that premiums varied among states and counties, the lowest cost plans were typically available on an exchange, and in most states premiums increased from 2014 to 2015. Specifically, we found that: The range of premiums available to consumers in 2014 and 2015 varied among the states and counties we analyzed. For example, in Arizona, the premium for the lowest-cost silver plan option for a 30- year-old in 2015 was $147 per month, but in Maine, the lowest-cost silver plan for a 30-year-old in 2015 was $237. We also found that the range of premiums—from the lowest to highest cost—differed considerably by state. For example, in Rhode Island, 2015 premiums for silver plans available to a 30-year-old either on or off an exchange ranged from a low of $217 per month to a high of $285 per month, a difference of 32 percent. By contrast, in Arizona, 2015 premiums for these plans ranged from a low of $147 per month to a high of $545 per month, a difference of 270 percent. The lowest cost plans were typically available on an exchange. Specifically, in both years, taking into account plans available through an exchange and those only available off an exchange, the lowest cost plans were available through an exchange in most of the 1,886 counties we analyzed in the 28 states. In most states, the costs for the minimum and median premiums for silver plans increased from 2014 to 2015. For example, in the 28 states included in our analysis, from 2014 to 2015 the minimum premiums for silver plans available to a 30-year-old increased in 18 states, decreased in 9 states, and remained unchanged in 1 state. At the county level, we found that premiums for the lowest cost silver option available for a 30-year-old increased by 5 percent or more in 51 percent of the counties in the 28 states. While our 2015 report examining the numbers of health plans and ranges of health plan premiums available to individuals in 2014 and 2015 was our most recent examination of these two issues, HHS has examined more recent data. For example, in 2016, HHS reported that despite a decline in the number of issuers participating in the FFE from 2016 to 2017, all consumers were able to choose among various plan options for 2017, although the options for about 21 percent of consumers were among choices of plans offered by a single insurer. HHS also conducted analyses focused on the premiums for the second-lowest cost silver plan in states that used the FFE and estimated that average premiums for these plans increased more between 2016 and 2017 (25 percent) than in previous years (2 percent between 2014 and 2015, and 7 percent between 2015 and 2016). In 2016, we reported that most enrollees who obtained their coverage through the health insurance exchanges were satisfied overall with their QHP during the first few years that exchanges operated, according to national surveys of QHP enrollees. For example, most QHP enrollees who obtained their coverage through the exchanges reported overall satisfaction with their plans in 2014 through 2016, according to three national surveys that asked this question. One survey found that most 2015 enrollees re-enrolled in 2016 with the same insurer, and often with the same plan offered by that insurer, and another survey reported that most re-enrollees expressed satisfaction with their QHP. The surveys reported that QHP enrollees' satisfaction with their plans was either somewhat lower than, or was similar to, that of those enrolled in employer-sponsored health insurance in 2015 and 2016. To varying degrees, QHP enrollees expressed satisfaction with specific aspects of their plan, including their coverage and choice of providers, and with plan affordability. We also interviewed stakeholders—including experts, state departments of insurance, and others—and reviewed literature for our 2016 report. These interviews and the literature revealed some concerns about QHP enrollee experiences that were similar to longstanding concerns in the private health insurance market. For example, according to these experts, some enrollees found it too expensive to pay for their out-of-pocket expenses before reaching their deductibles and have reported concerns about affording care or have been deterred from seeking care. Some enrollees have also faced difficulties understanding their QHP's coverage terminology and others have faced problems accessing care after enrollment, according to stakeholders and literature we reviewed. Chairman Jordan, Ranking Member Krishnamoorthi, and Members of the Subcommittee, this concludes my statement. I look forward to answering any questions that you may have. For questions about this statement, please contact John E. Dicken 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. Individuals making key contributions to this statement include John E. Dicken, Director; Gerardine Brennan and William Hadley, Assistant Directors; and Kristen J. Anderson, LaKendra Beard, Sandra George, and Laurie Pachter. 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.

PPACA contained provisions, many of which took effect in 2014, that could affect how issuers determine health insurance coverage and premiums and how they market their plans. For example, PPACA prohibits issuers from denying coverage or varying premiums based on consumer health status or gender. PPACA also requires health plans to generally be marketed based on metal tiers (bronze, silver, gold, and platinum), which allows consumers to compare the relative value of each plan. It also required the establishment of health insurance exchanges in each state, through which consumers can compare and select from among participating health plans. This testimony describes (1) private health-insurance market concentration and issuer participation from 2011 through 2014, the year by which key PPACA provisions took effect, (2) health plans and premiums available to individuals in 2014 and 2015, and (3) the experience of enrollees that obtained coverage through the exchanges from 2014 through 2016. It is based on three GAO reports issued in 2015 and 2016. For these reports, GAO examined data from the Centers for Medicare & Medicaid Services (CMS); reviewed published research; and interviewed stakeholders, including experts and officials from CMS and five states—Colorado, Indiana, Montana, North Carolina, and Vermont—that varied in geography and whether the state or CMS offered the exchange. GAO issued three reports in 2015 and 2016 on the early impact of the Patient Protection and Affordable Care Act (PPACA) on private health insurance markets. Market Concentration In a 2016 report, GAO examined enrollment in private health-insurance plans in the years leading up to and through 2014, the first year of the exchanges established by PPACA, and found that in all years analyzed, markets were concentrated among a small number of issuers in most states. Beginning in 2014, enrollment in PPACA exchange plans was generally more concentrated among a few issuers than was true for the overall markets. Plan Availability and Premiums In a 2015 report, GAO examined the availability of health plans for individual market consumers and found that they generally had access to more health plans in 2015 than in 2014. In both years, most consumers in 28 states for which GAO had sufficiently reliable data had 6 or more plans from which to choose in three of the four health plan metal tiers (bronze, silver, and gold). The range of premiums available to consumers varied considerably by state, and in most states the costs for the minimum and median premiums for silver plans increased from 2014 to 2015. In both years, the lowest cost plans were typically available on an exchange. More recent analyses by the Department of Health and Human Services found that in 2017 all consumers continued to have multiple plan options, and that premiums for exchange plans increased more in 2017 compared to the annual increases for these plans since 2014. Enrollee Experiences In a 2016 report, GAO examined national survey data to examine satisfaction of exchange enrollees. GAO found that, from 2014 through 2016, most enrollees who obtained their coverage through an exchange reported being satisfied overall with their plans. In 2015 and 2016, the satisfaction that exchange enrollees reported with their plans was either somewhat lower than or similar to that of enrollees in employer-sponsored plans. Exchange enrollees reported varying degrees of satisfaction with specific aspects of their plans, including coverage and plan affordability. Stakeholders GAO interviewed and literature GAO reviewed revealed some concerns about exchange enrollee experiences that were generally consistent with longstanding concerns in the private health insurance market—including concerns about affordability of out-of-pocket expenses and difficulties understanding coverage terminology.

You are an expert at summarizing long articles. Proceed to summarize the following text: As shown in figure 1, of the four insular areas addressed in this report, three are located in the Pacific—American Samoa, CNMI, and Guam—and one is located in the Caribbean—the USVI. Each of these insular areas has its own unique culture and historical relationship with the United States. See appendices V, VI, VII, and VIII for detailed descriptions of the history and development of the judicial systems of American Samoa, CNMI, Guam, and USVI, respectively. American Samoa, the only U.S. insular area in the southern hemisphere, is located about 2,600 miles southwest of Hawaii. American Samoa consists of five volcanic islands and two coral atolls, covering a land area of 76 square miles, slightly larger than Washington, D.C. The capital of American Samoa, Pago Pago, is located on the main island of Tutuila, which is mostly rugged terrain with relatively little level land. Agricultural production is limited by the scarcity of arable land, and tourism is impaired by the island’s remote location and lack of tourist-rated facilities. Two tuna canneries constitute the main sources of private sector employment. Most of the economic activity and government operations on Tutuila take place in the Pago Pago Bay area. According to the American Samoa Department of Commerce data, in 2005 the population of American Samoa was about 65,500. Unlike residents born in CNMI, Guam, and USVI, residents born in American Samoa are nationals of the United States, but may become naturalized U.S. citizens. Like residents of the other insular areas, residents of American Samoa have many of the rights of citizens of the 50 states, but cannot vote in U.S. national elections and do not have voting representation in the final approval of legislation by the full Congress. The Delegate from American Samoa has all congressional privileges, including a vote in committee, except a vote in Congress as a whole. Further, according to Census Bureau data for 2000, the median household income in American Samoa was $18,200, less than half of the U.S. median household income of almost $41,000. American Samoa does not have an organic act that formally establishes the relationship between American Samoa and the United States. Two deeds of cession were initially completed between Samoan chiefs, or matai, and the United States in 1900 and 1904 and ratified by the federal government in 1929. In these deeds, the United States pledged to promote peace and welfare, to establish a good and sound government, and to preserve the rights and property of the people. The U.S. Navy was initially responsible for federal governance of the territory. Then, in 1951, federal governance was transferred to the Secretary of the Interior, which continues today. The Secretary exercises broad powers with regard to American Samoa, including “all civil, judicial, and military powers” of government in American Samoa. American Samoa has had its own constitution since 1960, and since 1983, the local American Samoa constitution may only be amended by an act of Congress. The American Samoa Constitution provides for three separate branches of government—the executive, the legislative, and the judicial. Since 1977, a popularly elected Governor heads the American Samoa executive branch for 4-year terms. Nearly 40 American Samoa departments, offices, and other entities within the executive branch of the American Samoa government provide public safety, public works, education, health, commerce, and other services. The Governor has responsibility for appointing the Attorney General, Director of Public Safety, and other executive branch agency leaders. The legislature, or Fono, is comprised of 18 senators and 20 representatives. Each of the senators is elected in accordance with Samoan custom by the city councils of the counties that the senator represents. Each of the representatives is popularly elected from the representative districts. American Samoa exercises authority over its immigration system through its own locally adopted laws. In fiscal year 2007, a total of almost $105 million in federal funds were provided from a variety of federal agencies, including the Departments of the Interior, Education, Agriculture, Transportation, and Health and Human Services. Specifically, DOI provided funds that same year in the amount of $22.9 million for American Samoa government operations, including the High Court of American Samoa. In addition to these federal funds, a portion of the funding for American Samoa government operations comes from local revenues. American Samoa Judiciary The American Samoa judiciary, as provided in the American Samoa Constitution and Samoan Code, consists of a High Court and a local district court under the administration and supervision of the Chief Justice. The High Court consists of four divisions—the trial division; the family, drug, and alcohol division; the land and titles division; and the appellate division. The trial division, which consists of the Chief Justice, the Associate Justice, and associate judges, is a court of general jurisdiction, empowered to hear, among other things, felony cases and civil cases in which the amount in controversy exceeds $5,000. The Chief Justice and the Associate Justice are appointed by the U.S. Secretary of the Interior and are required to be trained in the law. There are six associate judges, who are appointed by the Governor and are not required to have legal training. The associate judges are matai, or chiefs, and they preside over cases in the High Court, playing a more significant role in deciding issues of matai titles and land. There is one local district court judge, who is appointed by the Governor and must also have legal training, who hears matters such as misdemeanor criminal offenses and civil cases in which the matter in controversy does not exceed $5,000. The Chief and Associate Justices, and the local district and associate judges hold office for life with good behavior. The American Samoa judiciary has a public defender, probation officers, translators, and marshals. Since the 1970s the Secretary of the Interior has appointed federal judges, usually from the Ninth Circuit, to serve temporarily as Acting Associate Justices in the appellate division of the High Court of American Samoa. American Samoan customs and traditions have an influence over the local legal system. The distinctive Samoan way of life, or fa’a Samoa, is deeply imbedded in traditional American Samoa history and culture. Fa’a Samoa is organized around the concept of extended family groups—people related by blood, marriage, or adoption—or aiga. Family members acknowledge allegiance to the island leader hierarchy comprised of family leaders, or matai (chiefs). Matai are responsible for the welfare of their respective aiga and play a central role in protecting and allocating family lands. About 90 percent of land in American Samoa is communally owned and controlled by matai, and there are limits in American Samoa law regarding the transfer of property. The concept of fa’a Samoa extends to the governance structures in American Samoa and, thus, most high- ranking government officials, including judges, are matai. Further, Samoan law allows for a custom of ifoga, or ceremonial apology, whereby if a member of one family commits an offense against a member of another family, the family of the offender proceeds to the headquarters of the family of the offended person and asks for forgiveness. After appropriate confession of guilt and ceremonial contrition by the offending family, the family offended against can forgive the offense. If the offender is convicted in court, the court may reduce the sentence of the offender if it finds that an ifoga was performed. The issue of establishing a federal court in American Samoa is not new. This issue has arisen within the larger question of defining the political status of American Samoa and its relationship with the United States. For example, in the 1930s, Congress considered legislation that would provide an avenue of appeal from the High Court of American Samoa to the U.S. District Court of Hawaii, during its deliberation of an organic act for American Samoa. However, this initiative was not enacted by Congress. Further, since 1969, there have been three American Samoa commissions convened to study the future political status of American Samoa. These commissions have studied, among other things, the necessity of an organic act. The most recent commission’s report, published in January 2007, did not recommend any changes in American Samoa’s political status as an unorganized and unincorporated territory of the United States, with the intent that American Samoa could continue to be a part of the United States and also have the freedom to preserve Samoan culture. In addition, in the mid-1990s DOJ proposed legislative options for changing the judicial structure of American Samoa, including establishing a federal court within the territory. These proposals were developed in response to growing concerns involving white-collar crime in American Samoa, which were detailed in a December 1994 DOJ crime assessment report. However, while the House Committee on Resources held hearings on the 1994 DOJ report in August 1995, and judicial committees studied various legislative options, the Congress did not take any actions on the proposals. Then, in February 2006, the Delegate from American Samoa introduced legislation in the U.S. Congress to establish a federal court in American Samoa and later that month, the American Samoa Fono held a joint legislative public hearing to solicit public comments on the bill. No congressional actions were taken on the bill and the Delegate from American Samoa withdrew the legislation after he and others requested this report. The federal courts in the insular areas of CNMI, Guam, and USVI were established under Article IV of the Constitution, whereas U.S. district courts elsewhere in the United States were established under Article III of the Constitution. Article IV courts are similar to Article III courts, but differ in terms of specific jurisdiction and tenure of the judges. As shown in table 1, Article IV courts generally exercise the same jurisdiction as Article III courts and may also exercise jurisdiction over local matters. Article IV judges are appointed by the President, with the advice and consent of the Senate, serve terms of 10 years, and can be removed by the President for cause. Article III judges are appointed by the President, with the advice and consent of the Senate, and serve with Article III protections of life tenure for good behavior and immunity from reductions in salary. Article IV judges hear both federal and bankruptcy cases, whereas Article III courts generally have a separate unit to hear bankruptcy cases. An Article III judge can be designated by the Chief Judge of the Circuit Court of Appeals or the Chief Justice of the United States to sit on an Article IV court. However, an Article IV judge can be designated to sit only as a magistrate judge on an Article III court. The federal courts in CNMI, Guam, and USVI were established at different times, but developed in similar ways. The District Court for the Northern Mariana Islands was established in 1977 as specified in the 1975 agreement, or covenant, between the Northern Mariana Islands and the United States. The District Court of Guam was established when the federal government passed an Organic Act for Guam in 1950. The District Court of the Virgin Islands, as it currently exists, was established by an Organic Act in 1936. Each of these federal courts initially had jurisdiction over federal, as well as local, issues. Over time, however, the federal courts were divested of jurisdiction over local issues, with the exception of the District Court of the Virgin Islands, which maintains jurisdiction over cases involving local offenses that have the same underlying facts as federal offenses. Similarly, each of the federal courts had appellate jurisdiction over the local trial courts until the local government established a local appellate court. CNMI, Guam, and USVI have all established local Supreme Courts, so that the federal courts no longer have appellate jurisdiction over local cases. As such, the jurisdiction of each of the three federal courts currently resembles that of district courts of the United States, which include federal question jurisdiction, diversity jurisdiction, and the jurisdiction of a bankruptcy court. Decisions of the District Court for the Northern Mariana Islands and the District Court of Guam may be appealed to the U.S. Court of Appeals for the Ninth Circuit, and decisions of the District Court of the Virgin Islands may be appealed to the U.S. Court of Appeals for the Third Circuit. An Article IV judge—two Article IV judges in the case of the Virgin Islands—sits on each of the federal courts and is appointed by the President with the advice and consent of the Senate, for a term of 10 years, but may be removed by the President for cause. For the history and development of courts in the CNMI, Guam, and USVI, see appendixes VI, VII, and VIII, respectively. Unlike other insular areas, such as CNMI, Guam, and USVI, American Samoa does not have a federal court. As a result, federal law enforcement officials have pursued violations of federal criminal law arising in American Samoa in the U.S. district courts in Hawaii or the District of Columbia. In the absence of a federal court in American Samoa, federal law has provided federal jurisdiction to the High Court of American Samoa in areas such as food safety and shipping issues, which is quite narrow compared to the comprehensive federal jurisdiction granted to federal courts in other insular areas. With regard to its local judicial structure, American Samoa is different from other U.S. insular areas. The judicial system in American Samoa consists only of local courts that handle limited federal matters, whereas the judicial system in CNMI, Guam, and USVI are composed of local courts and federal courts that operate independently from each other. Also, whereas the justices of the High Court in American Samoa are appointed by the Secretary of the Interior, the judges of the local courts in CNMI, Guam, and USVI are appointed by the Governors of each insular area. Further, although decisions of the appellate division of the High Court of American Samoa have been appealed to the Secretary of the Interior, federal law provides that, 15 years after the establishment of a local appellate court, decisions of the local appellate courts in CNMI, Guam, and USVI may be appealed to the U.S. Supreme Court. Because there is no federal court in American Samoa, matters of federal law arising in American Samoa have generally been adjudicated in either the District of Hawaii (Honolulu, Hawaii) or the District of Columbia (Washington, D.C.), as stated earlier. With regard to criminal matters, although federal criminal law extends to American Samoa, questions surrounding the proper jurisdiction and venue of cases have posed complex legal issues when violations of federal law occurred solely in American Samoa. However, since a 2001 precedent- setting case involving human trafficking, DOJ prosecutors told us that some of the legal issues regarding jurisdiction and venue that had been unsettled in the past have been resolved. For example, federal law provides that the proper venue for a criminal case involving a federal crime committed outside of a judicial district is: (1) the district in which the defendant is arrested or first brought; or (2) if the defendant is not yet arrested or first brought to a district, in the judicial district of the defendant’s last known residence; or (3) if no such residence is known, in the U.S. District Court for the District of Columbia. Prior to this 2001 case, most cases arising in American Samoa were brought in the U.S. District Court for the District of Columbia. In this 2001 case, prosecutors used the “first brought” statute to establish venue in the District of Hawaii, since the defendant was arrested and “first brought” to Hawaii and then indicted in the District of Hawaii. Based on the facts and arguments presented, the Ninth Circuit upheld this application of the “first brought” statute. Following this case, most defendants who have been charged with committing federal offenses in American Samoa have been charged in one of two venues—the U.S. district courts in Hawaii or the District of Columbia, because there is no federal court in American Samoa. In 2006 and 2007, DOJ attorneys prosecuted defendants in the U.S. district courts in both Hawaii and the District of Columbia for civil rights violations and public corruption cases arising in American Samoa. DOJ prosecutors told us that their approach is adjusted depending on the facts of each case, legal challenges presented, and prosecutorial resources available. With regard to certain federal civil matters, when both the plaintiff and the defendant reside in American Samoa, and the events giving rise to the civil action occurred in American Samoa, there may be no proper federal venue, meaning there may be no federal court that may hear the case. However, some civil cases have been brought against the Secretary of the Department of the Interior alleging that the Secretary’s administration of the government of American Samoa violated the U.S. Constitution. In such cases, the U.S. District Court for the District of Columbia has been the appropriate forum, given that DOI is headquartered in Washington, D.C. Bankruptcy relief is not available in American Samoa since federal law has not explicitly extended the U.S. Bankruptcy Code to American Samoa, and there is not a federal court in American Samoa in which bankruptcy claims may be adjudicated. However, U.S. bankruptcy courts may exercise jurisdiction over petitions for relief filed by American Samoan entities under certain circumstances, such as if the entities reside or do business in a judicial district of the United States and the court finds that exercising jurisdiction would be in the best interest of the creditors and the debtors. As discussed above, because American Samoa does not have a federal court, federal officials have had to seek U.S. district courts to adjudicate matters of federal law arising in American Samoa. Despite the absence of a federal court in American Samoa, federal law provides that the local court—the High Court of American Samoa—has limited federal civil jurisdiction. In particular, federal law has explicitly granted the High Court of American Samoa federal jurisdiction for certain issues, such as food safety, protection of animals, conservation, and shipping issues, as shown in table 3. Although the High Court does not keep data on the number of federal cases it handles, the Chief Justice of the High Court official told us that, on occasion, these federal matters, particularly maritime cases, have taken a significant amount of the court's time. The Chief Justice noted that the piecemeal nature of the High Court's federal jurisdiction sometimes creates challenges. For example, although the High Court has jurisdiction to hear certain maritime cases, the High Court does not have the authority under certain federal statutes to enjoin federal court proceedings or to transfer a case to a federal court. Such a situation may lead to parallel litigation in the High Court and a federal court. As shown in table 4, the federal jurisdiction of the High Court of American Samoa is very limited as compared to comprehensive federal jurisdiction in federal courts located in CNMI, Guam, and USVI. In addition to the limits of federal jurisdiction, there are differences in the way federal matters are heard in the High Court from the federal courts in other insular areas. For example, whereas the Secretary of the Interior asserts authority to review High Court decisions under federal law, the U.S. Courts of Appeals have appellate review of decisions of the federal courts in CNMI, Guam, and USVI. Also, as stated earlier, whereas the Justices of the High Court are appointed by the Secretary of the Interior, the judges of the federal courts in CNMI, Guam, and USVI are appointed by the President, with the advice and consent of the U.S. Senate. While various proposals to change the current system of adjudicating matters of federal law in American Samoa have been periodically discussed and studied, controversy remains regarding whether any changes are necessary and, if so, what options should be pursued. In the mid-1990s, various proposals to change the current system were studied by judicial committees and federal officials. Issues that were raised at that time, such as protecting American Samoan culture and traditions, resurfaced during our interviews with federal and American Samoa government officials, legal experts, and in group discussions and public comments we received. Reasons offered for changing the existing system focus primarily on the difficulties of adjudicating matters of federal law arising in American Samoa, along with the goal of providing American Samoans with more direct access to justice in their place of residence. Reasons offered against changing the current system of adjudicating matters of federal law focus largely on concerns about the impact of an increased federal presence on Samoan culture and traditions, as well as concerns regarding the impartiality of local juries. The issue of changing the system for adjudicating matters of federal law in American Samoa has been raised in the past in response to a government audit and subsequent reports, which cite problems dating back to the 1980s. These reports cited problems with deteriorating financial conditions, poor financial management practices, and vulnerability to fraudulent activities in American Samoa. In March 1993, the newly elected Governor of American Samoa requested assistance from the Secretary of the Interior to help investigate white-collar crime in American Samoa in response to a projected $60 million deficit uncovered by a DOI Inspector General audit. As a result of this request, a team from DOJ spent 3 months assessing the problem of white-collar crime in American Samoa and completed its report in December 1994. The report concluded that white-collar crime—in particular, public corruption—was prevalent in American Samoa and provided details on the difficulties with enforcing federal law in American Samoa. The report discussed three possible solutions: (1) establishing a district court in American Samoa, (2) providing the U.S. District Court of Hawaii with jurisdiction over certain matters of federal law arising in American Samoa, or (3) providing the High Court of American Samoa with federal criminal jurisdiction. By August 1995, the U.S. Congress held hearings on the 1994 DOJ report and possible alternatives to provide for the prosecution of federal crimes arising in American Samoa. At the hearing, some American Samoa government officials opposed suggestions for changing the judicial system in the territory and concern was expressed over increased federal presence, the desire to retain self-determination regarding their judicial structure, and the need to protect and maintain the matai title and land tenure system in American Samoa. The American Samoa Attorney General at that time testified that his office and the Department of Public Safety had created a Joint Task Force on Public Corruption that investigated and prosecuted several white-collar offenses, including embezzlement, bribery, fraud, public corruption, forgery, and tax violations. For several months following the 1995 congressional hearings, different legislative options were studied by judicial committees within Congress and federal officials. One bill was drafted that would have given the U.S. District Court of Hawaii limited jurisdiction over federal cases arising in American Samoa. The bill proposed that one or more magistrate judges may sit in American Samoa, but district judges of the U.S. District Court of Hawaii would presumably preside over trials in Hawaii. The bill was opposed by some federal judicial officials citing an unfair burden that would be placed on the District of Hawaii, as well as on defendants, witnesses, and juries, due, in part, to the logistical difficulties in transporting them between American Samoa and Hawaii. By 1996, the proposed legislation was revised to establish an Article IV court in American Samoa with full staff accompaniments and limited federal jurisdiction that would exclude cases that would put into issue the office or title of matai and land tenure. While DOJ sent the legislation to the President of the Senate and Speaker of the House in October 1996, it was never introduced into the 104th Congress or in subsequent congressional sessions. While the mid-1990’s legislative proposals were primarily concerned with white-collar crime in American Samoa, more recently, different types of criminal activities have emerged. Prior to 1999, FBI officials told us that allegations of criminal activity in American Samoa were investigated by agents based in the Washington, D.C. field office and, due to the distance and costs involved, very few investigations were initiated. Around mid- 1999, FBI began to assign Hawaii-based agents to investigations in American Samoa in response to increasing reports of criminal activity. Then, due to growing caseload and a crime assessment, in December 2005 FBI opened a resident agency in American Samoa. According to an FBI official, other than a National Park Service fish and wildlife investigator affiliated with the National Park of American Samoa, the FBI agents were the first federal law enforcement agents to be stationed in American Samoa. FBI’s increased activities over the past 8 years, and establishment of a resident agency, have targeted a growing number of crimes in American Samoa, including public corruption of high-ranking government officials, fraud against the government, civil rights violations, and human trafficking. Among the most notable was U.S. v. Lee, which was the largest human trafficking case ever prosecuted by DOJ, as reported in 2007. This 2001 case involved about 200 Chinese and Vietnamese victims who were held in a garment factory, and in 2003, Lee was convicted in the U.S. District Court of Hawaii of involuntary servitude, conspiring to violate civil rights, extortion, and money laundering. Another federal case in 2006 resulted in guilty pleas from the prison warden and his associate for conspiring to deprive an inmate of rights, by assaulting him and causing him bodily injury. In December 2004, we found that American Samoa’s failure to complete single audits, federal agencies’ slow reactions to this failure, and instances of theft and fraud limited accountability for 12 key federal grants supporting essential services in American Samoa. We recommended, among other things, that the Secretary of the Interior coordinate with other federal agencies to designate the American Samoa government as a high-risk grantee until it completed all delinquent single audits. In June 2005, DOI designated the American Samoa government as a high-risk grantee. The American Samoa government subsequently completed all overdue audits and made efforts to comply with single audit act requirements. Later, in December 2006, we reported that insular area governments, including American Samoa, face serious economic, fiscal, and financial accountability challenges and that their abilities to strengthen their economies were constrained by their lack of diversification in industries, scarce natural resources, small domestic markets, limited infrastructure, and shortages of skilled labor. Again, we cited the long-standing financial accountability problems in American Samoa, including the late submission of the reports required by the Single Audit Act, the inability to achieve unqualified (“clean”) audit opinions on financial statements, and numerous material weaknesses in internal controls over financial reporting and compliance with laws and regulations governing federal grant awards. We made several recommendations to the Secretary of the Interior, including increasing coordination activities with officials from other federal grant-making agencies on issues such as late single audit reports, high-risk designations, and deficiencies in financial management systems and practices. DOI agreed with our recommendations, but we have not yet assessed its progress toward implementing them. In addition to these GAO reviews, FBI and various inspector general agents have conducted a broad investigation into federal grant-related corruption in American Samoa, which yielded guilty pleas in October 2005 from four former American Samoa government officials, including the Director of Procurement of American Samoa, the Director of the Department of Education of American Samoa, the Director of the Department of Health and Social Services for American Samoa, and the Director of the School Lunch Program for American Samoa. Additionally, recent audits and investigations by the Inspector General offices of the Departments of Homeland Security, Education, and the Interior indicate that the American Samoa government has inadequate controls and oversight over federal funds, that federal competitive bidding practices have been circumvented, and that American Samoan officials have abused federal funds for personal benefit. For example, in September 2007, officials from the U.S. Department of Education designated the American Samoa government as a high-risk grantee due to serious internal control issues raised in previous single audits, and cited a number of underlying fiscal and management problems. Due to the department’s concerns about the American Samoa government’s ability to properly administer and provide services with its funds, the department imposed several special conditions, including restrictions on the drawdown of grant funds. Also, the American Samoa legislature, or Fono, has been assisting federal agencies in their efforts to investigate public corruption and other crimes. Specifically, in early 2007, the Fono established a Senate Select Investigative Committee to review and investigate any unlawful, improper, wasteful, or fraudulent operations involving local and federal funds or any other misconduct involving government operations within all departments, boards, commissions, committees, and agencies of the American Samoa government. An official stated the committee reviews and investigates complaints, holds senate hearings with relevant witnesses, and can refer cases to either the American Samoa Attorney General or FBI for investigation and prosecution. As was the case in the 1990s, and was repeated in the interviews we conducted and e-mail comments we received, the reasons offered for changing the American Samoa judicial system principally stem from challenges associated with adjudicating matters of federal law arising in American Samoa and the desire to provide American Samoans with greater access to justice. Federal law enforcement officials have identified a number of issues that limit their ability to pursue matters of federal law arising in American Samoa. These include logistical challenges related to American Samoa’s remote location. Proponents of changing the judicial system of American Samoa also cite reasons, such as providing more direct access to justice as in other insular areas, serving as a possible deterrent to crime, and providing a means to alleviate the shame, embarrassment, and costs associated with being taken away to be tried more than 2,000 miles from American Samoa. While the main areas of concern in the mid-1990s and in our discussions were related to criminal matters arising in American Samoa, there were also concerns regarding civil matters, such as federal debt collection, although these were not addressed in much detail. Without a federal court in American Samoa, investigators and federal prosecutors whom we interviewed said they were limited in their ability to conduct investigations and prosecute cases due to logistical obstacles related to working in such a remote location. In addition to high travel costs, and infrequent flights into and out of American Samoa, DOJ officials said they face difficulties involving effective witness preparation and difficulties communicating with agents during a small window of time each day (due to the 7-hour time difference between Washington, D.C. and American Samoa). In some cases, search warrants or wiretaps were not used by the prosecutors to the extent that they would have been if American Samoa were in closer proximity to Washington, D.C. or Honolulu, Hawaii. Federal prosecutors told us that far fewer witnesses have been called to testify in front of the grand jury, given the burden of high travel costs from American Samoa. Federal prosecutors also told us that they must also rely on witness observations and summaries from federal agents stationed in American Samoa rather than meet key witnesses face to face before bringing charges or issuing subpoenas, as they would typically do. Further, according to DOJ officials, the cost related to managing these cases has limited the number of cases they are able to pursue. Federal law enforcement agents told us that a federal court located in American Samoa could bring additional investigative and prosecutorial resources so that they would be able to pursue more cases. Although some have suggested that judicial and prosecutorial resources from the judicial districts of CNMI and Guam be deployed to American Samoa, the high travel costs and logistical obstacles would not be any less, given that there are no direct flights between American Samoa and Guam or between American Samoa and CNMI. See figure 2 showing the distances between American Samoa and CNMI, Guam, Hawaii, and Washington, D.C. Another key reason offered for changing the system for adjudicating matters of federal law in American Samoa is that a federal court would provide residents with more direct access to justice and the ability to pursue cases in the federal court system. Currently, the ability to adjudicate federal cases exists only in very limited cases through the High Court, at a significant cost of time and money to travel to U.S. District Courts in Hawaii or Washington, D.C.; or not at all, in the case of some civil matters and bankruptcy. Proponents state that the establishment of a federal court would provide American Samoa parity with other insular areas, such as CNMI, Guam, and USVI, which have federal courts. Further, a legal expert said that a federal court in American Samoa would provide the community with an opportunity to see first hand how parties can come together to resolve their differences with regard to federal matters. For example, some have asserted that if public corruption trials were held in American Samoa, they would act as a deterrent to others contemplating fraudulent behavior; increase accountability with regard to government spending; and provide satisfaction in witnessing wrong doers brought to justice. Some stated in the February 2006 public hearing held by the Fono and in e-mail comments we received that they have felt shame and embarrassment when defendants are taken to distant courts and in our group discussions, it was stated that American Samoa is perceived by others as unable to render justice to its own residents. Further, some officials of American Samoa have noted the significant costs that defendants’ families must bear in traveling great distances to provide support during trials. This burden is exacerbated by the comparatively low family incomes in American Samoa, which, as stated earlier, are less than half of the U.S. median household income, according to 2000 Census Bureau data. Finally, some people we met with stated that the current system of holding federal criminal trials outside of American Samoa subjects defendants to possible prejudices by jurors in other locations. They cited the relative unfamiliarity of the judges and jurors in Washington, D.C. or Honolulu, Hawaii regarding American Samoa cultural and political issues and suggested that American Samoans would receive a fairer trial in American Samoa than in these locations. This issue had also been discussed in the mid-1990s. For example, in his testimony during August 1995 congressional hearings, the then-Governor of American Samoa stated that the people of American Samoa have the ability to deliver just verdicts based on the evidence presented. He noted that for almost 20 years prior, the trial division of the High Court had successfully conducted six-person jury trials as evidence that American Samoan customs and family loyalties had not prevented effective law enforcement. Views in support of changing the current system were also reflected in some comments made during the group discussions we held in American Samoa and in some of the e-mail responses we received. Some members of the public expressed discontent over the significant costs associated with American Samoan defendants and their families having to travel to Hawaii or Washington, D.C. for court matters and they expressed the importance of having a jury of their peers deciding their cases. Other members of the public and a local community group expressed their belief that a federal court in American Samoa may act as a deterrent for the abuse of federal funds and public corruption, and provide opportunities for American Samoans to pursue federal legal matters, such as bankruptcy. While there was no consensus opinion, certain members of the local bar association mentioned that having a federal court could be beneficial for economic development, by attracting qualified attorneys and court staff to American Samoa. Additionally, one member stated that a federal court may lighten the workload and reduce the backlog of the High Court by taking over its federal maritime and admiralty matters. One of the key reasons offered against changing the current judicial system is the concern that a federal court would impinge upon Samoan culture and traditions. The most frequent concerns raised were related issues— that the system of matai chiefs and the land tenure system could be jeopardized. In raising these issues, some cited the deeds of cession which specify that the United States would preserve the rights and property of the Samoan people. Further, some law enforcement officials we met with also opposed a change to the current system for prosecuting federal cases arising in American Samoa because they were concerned that, given the close familial ties in American Samoa, it would be difficult to obtain convictions from local jurors. During the February 2006 Fono hearings, in e-mail comments we received, and in statements by American Samoa government officials we interviewed, concerns were voiced that the establishment of a federal court in American Samoa could jeopardize the matai and land tenure system of American Samoa. As noted above, matai hold positions of authority in the community; for example, only matai may serve as senators in the American Samoa legislature, and matai control the use and development of the communal lands and allocate housing to their extended family members. The land tenure system of American Samoa is such that the majority of the land in American Samoa is communally owned, and the sale or exchange of communally owned land is prohibited without the consent of the Governor. Also prohibited is the sale or exchange of communally owned and individually owned property to people with less than one-half Samoan blood. American Samoa government officials assert that the land tenure system fosters the strong familial and community ties that are the backbone of Samoan culture and that limits on the transfer of land are important to preserve the lands of American Samoa for Samoans and protect the Samoan culture. Currently, cases regarding matai titles and land issues, such as disputes over the rightful successor to a matai or land use or improvements, are heard by the land and titles division of the High Court of American Samoa. This division is composed of the Chief Justice and Associate Justice, as well as associate judges, who are appointed based on their knowledge of Samoan culture and tradition. Pursuant to the federalist structure of the U.S. judiciary, if a federal court were established in American Samoa most cases arising under local law, such as matai and land disputes, would likely continue to be heard by the local court. However, some American Samoa officials stated that they are concerned that if a federal court were established in American Samoa, federal judges, without the requisite knowledge of Samoan culture and tradition, would hear land and title cases. They stated that they would like to keep matai title and land tenure issues within the jurisdiction of the High Court. Another concern that was raised by government officials and residents of American Samoa is that the presence of a federal court in American Samoa may generate constitutional challenges to the matai and land tenure system. Though such challenges may be brought in existing venues, some voiced concerns that the establishment of a federal court in American Samoa may make such challenges less costly and perhaps more likely. To this day, our native land tenure system remains at the very core of our existence: our culture, our heritage and our way of life. Without our native land tenure system, our matai or chieftain system will fade over time—along with our language, our customs and our culture….we, as a people, have an overriding desire to keep the fabric of our society (i.e., our Samoan culture) intact. No other U.S. state or territory enjoys the total and complete preservation of its people’s culture as American Samoa. I fear that the imposition of a federal court system in American Samoa may have a destructive impact on our culture. Some have raised concerns regarding the establishment of a federal jury system, given the potentially small pool of U.S. citizens in American Samoa and the extended family ties among American Samoans. Federal law provides that federal jurors must be U.S. citizens. As discussed earlier, American Samoans are U.S. nationals, not U.S. citizens, although they may apply and become U.S. citizens. Neither the U.S. Census Bureau nor the American Samoa Department of Commerce provides data on the number of U.S. citizens in American Samoa. Thus, the proportion of the American Samoa adult population who are U.S. citizens is unknown. If the number of U.S. citizens is fairly small, then the pool from which to select federal jurors would be fairly small without a statutory change. In addition, law enforcement officials have speculated that extended family ties in American Samoa may limit the government’s ability to successfully prosecute cases. Specifically, they raised the issue of jury nullification— the rendering of a not guilty verdict even though the jury believes that the defendant committed the offense—as a potential problem that may occur if jury trials were held in American Samoa, due to the influence of familial ties or other societal pressures on jurors. Federal law enforcement officials we met with added that some witnesses involved in testifying against others in previous federal criminal cases have relocated outside of American Samoa and have lost their jobs and housing as a result of their participation in cases. These officials stated that they believe that similar societal pressures will be imposed on jurors if trials were held in American Samoa. These officials concluded that the current system of federal criminal trials taking place away from American Samoa is the best way to get unbiased juries. Views expressing opposition to changing the current system were also reflected in some comments we received from the group discussions we held in American Samoa and from e-mail responses. Some members of the public expressed concerns over an increased federal presence in American Samoa and the potential legal challenges which could be brought regarding the land tenure system and matai title traditions. Further, some expressed concerns about non-Samoans filing discrimination lawsuits over their inability to own land. Some stated that the current system operates well and they did not see a need for change. Others expressed opposition to a federal court in American Samoa due to their concerns about impartial jurors. They stated that if a federal court were established in American Samoa, jurors may not be able to be impartial because of the close relations through family, culture, church, government, or business. Finally, others expressed concerns about the U.S. government pushing and imposing its will on American Samoa, and their belief that changes to the current system should come not from the federal government but from American Samoans themselves. Based on our review of legislative proposals considered during the mid- 1990s testimonies and reports and through discussions with legal experts and American Samoa and federal government officials, we identified three potential proposals, or scenarios, if a change to the judicial system of American Samoa were to be made. These scenarios are (1) establishing an Article IV district court in American Samoa, (2) establishing a district court in American Samoa that would be a division of the District of Hawaii, or (3) expanding the federal jurisdiction of the High Court of American Samoa. Each scenario would require a statutory change and present unique operational issues to be addressed. To the extent possible, we cited written documents and knowledgeable sources in the discussion of these issues. See appendix I for detailed information on our scope and methodology. Based on our review of past legislative proposals, testimonies, and reports, and through discussions with legal experts and American Samoa and federal government officials, we identified three potential scenarios for establishing a federal court in American Samoa or expanding the federal jurisdiction of the High Court of American Samoa: (1) establishing an Article IV district court in American Samoa, (2) establishing a district court in American Samoa that would be a division of the District of Hawaii, or (3) expanding the federal jurisdiction of the High Court of American Samoa. These scenarios are similar to those discussed in the 1990s, and are described in table 5. Each scenario would require a statutory change and each presents unique operational issues that would need to be resolved prior to implementation. Some issues to be resolved include determining: (1) what jurisdiction would be granted to the court; (2) what type of courthouse facility and detention arrangements would be needed and to what standards, including security standards; and (3) what jury eligibility requirements would apply. The original structure of this scenario came from draft legislation submitted by DOJ to the Speaker of the U.S. House of Representatives and the President of the U.S. Senate in October 1996, which proposed the creation of a new federal court in American Samoa. The legislation specified that the court would have limited jurisdiction that would exclude matters pertaining to matai title and land tenure issues. Under this scenario, federal law would authorize a federal court structure that most closely resembled federal courts in CNMI, Guam, and USVI. It would include an Article IV district court with a district judge, court clerk, and support staff. Below is a description of the key issues under this scenario. Jurisdiction: The statute creating the Article IV district court would specify the court's jurisdiction. It could be limited to criminal cases only, or may or may not include bankruptcy, federal question, and diversity jurisdiction. American Samoa officials and others whom we interviewed were divided on whether the law establishing a district court in American Samoa should explicitly exclude matai and land tenure issues from the court’s jurisdiction. Another possibility is that, as in other insular area federal courts, the federal jurisdiction of the court could grow over time. For example, while the District Court of Guam began with jurisdiction over cases arising under federal law in 1950, subsequent federal laws expanded its jurisdiction to include that of a district court of the United States, including diversity jurisdiction, and that of a bankruptcy court. Appeals process: The process for appealing decisions would be the same as in other Article IV district courts. Appeals would first go to the U.S. Court of Appeals for the Ninth Circuit and then to the U.S. Supreme Court. Judges: The judge would be appointed in the same manner as federal judges for the other insular areas, who are appointed by the President, with the advice and consent of the Senate, for 10-year terms. Associated Executive and Judicial Branch staff: Probation and Pretrial services staff, U.S. Attorney and staff, and U.S. Marshals staff would establish stand-alone offices. Defender services could be provided, at least initially, through the Federal Public Defender Organization personnel based in the District of Hawaii and/or Criminal Justice Act (CJA) panel attorneys. CJA panel attorneys are designated or approved by the court to furnish legal representation for those defendants who are financially unable to obtain counsel. Physical facilities: Under this scenario, a new courthouse facility would need to be built to provide the courtroom, judge’s chambers, office space for federal court staff, and a holding area for detaining defendants during trials. It is not clear if a detention facility for detaining defendants pretrial and presentencing would need to be built or if a portion of the existing local prison could be upgraded to meet federal standards. According to the U.S. Marshals Service, the current local prison in American Samoa does not meet federal detention standards. Operational issues: Several judicial officials and experts we met with stated that this scenario is the most straightforward option because it would be modeled after the federal courts in other insular areas, which would place residents of American Samoa in a position that is equitable with residents of the other insular areas. Other judicial officials we met with stated, however, that this is potentially the most costly scenario of the three, given the relatively small caseload expected. However, the Pacific Islands Committee stated in its 1995 Supplemental Report that new federal courts historically have drawn business as soon as they open their doors, and it is likely that growth in the court caseload would result. This scenario would create a new division of American Samoa within the District of Hawaii. There are potentially several arrangements which could be devised to handle court matters. Since the U.S. District Court of Hawaii is an Article III court, a judge assigned to a Division of American Samoa would also presumably be an Article III judge, which would differ from the Article IV courts in CNMI, Guam, and USVI. Another possibility would be to assign an Article IV judge to American Samoa. Regardless of the arrangement, a clerk of the court and support staff would be needed in American Samoa to handle the work of the court. Jurisdiction: As with scenario 1, the statute creating the division in the District of Hawaii would specify the court's jurisdiction. It could be limited to criminal cases only, or may or may not include bankruptcy, federal question, and diversity jurisdiction. Appeals process: The process for appealing decisions would be the same as the District of Hawaii, to the U.S. Court of Appeals for the Ninth Circuit and then to the U.S. Supreme Court. Judges: An Article III or Article IV judge would be appointed by the President, with the advice and consent of the Senate, and serve either a life term with good behavior (Article III) or a 10-year term (Article IV) as is true in Guam, CNMI, and USVI. Associated Executive and Judicial Branch staff: Probation and Pretrial services, U.S. Attorney, and U.S. Marshals could provide the minimum staff required in American Samoa and share support functions with their offices in the District of Hawaii. Defender services could be provided, at least initially, through Federal Public Defender Organization personnel based in the U.S. District Court of Hawaii and/or CJA panel attorneys. Physical facilities: As with scenario 1, a new courthouse facility would need to be built to provide the courtroom, judge’s chambers, office space for federal court staff, and a holding area for detaining defendants during trials. Also, similar to scenario 1, it is unclear whether a new detention facility would need to be built or if a portion of the existing local prison could be upgraded to meet federal standards. Operational issues: Some federal and judicial officials we interviewed told us that this scenario may be less costly than scenario 1 because as a division of the District of Hawaii, some administrative functions and resources may be able to be shared with Hawaii. Other federal and judicial officials told us that costs for staff to travel between American Samoa and Hawaii and additional supervisory staff which may be needed in Hawaii may make scenario 2 just as costly, or possibly more costly than scenario 1. Although this scenario would allow for trials to be held in American Samoa, there may be issues to be resolved concerning the status of any judges that would serve in the court and the degree to which resources would be shared with the U.S. District Court of Hawaii. For example, some judicial officials have raised questions of equity about the possibility of Article IV judges being assigned to federal courts in CNMI, Guam, and USVI while an Article III judge was assigned to the federal court in American Samoa. This scenario would expand the federal jurisdiction of the High Court of American Samoa rather than establish a new federal court. This would be a unique structure, as local courts typically do not exercise federal criminal jurisdiction. As a result, a number of unresolved issues associated with this scenario would have to be resolved should this scenario be pursued. Jurisdiction: The jurisdiction of the High Court would be expanded to include additional federal matters, such as federal criminal jurisdiction. This would be a unique structure, as local courts generally do not exercise federal criminal jurisdiction. While there is a history of federal courts in insular areas with jurisdiction over local offenses, there has never been the reverse—a local court with jurisdiction over both local and federal offenses. Appeals process: The appellate process for federal matters under such a scenario is unclear. The current process for the limited federal cases handled by the High Court has five levels of appellate review: (1) to the Appellate Division of the High Court, (2) to the Secretary of the Interior, (3) to the U.S. District Court for the District of Columbia, (4) to the U.S. Court of Appeals for the District of Columbia Circuit, and (5) to the U.S. Supreme Court. Whether the appeals process would match that of the federal courts in CNMI, Guam, and USVI would have to be determined. Judges: The Chief Justice of the High Court stated that the High Court may need an additional judge to handle the increased caseload. Alternatively, in our discussions, Pacific Island Committee members with whom we met suggested that the Secretary of the Interior or the Chief Judge of the Ninth Circuit could designate active and senior district judges within the Ninth Circuit to handle any court workload in American Samoa. They point out that they designated judges from the Ninth Circuit to the District of Guam for over 2 years, when there was an extended judge vacancy. Further, the Ninth Circuit has designated local judges to handle federal matters, when necessary. For example, the judges from the Districts of CNMI and Guam routinely use local Superior Court or Supreme Court judges to handle federal court matters and trials, in cases when they must recuse themselves from a court matter or in the case of a planned or emergency absence. However, Pacific Island Committee members with whom we met stated that presumably federal judges would only handle federal court matters. It was unclear whether High Court justices would handle federal and local court matters and what implications might arise from such a structure. Associated Executive and Judicial Branch staff: It is unclear whether Probation and Pretrial services, U.S. Attorneys, and U.S. Marshals would be established, since these staff are only provided to a district court. Similarly, the authority under the CJA to authorize a federal defender organization to provide representation or to compensate panel attorneys is vested in the district court. The Department of Justice would need to determine whether it would establish a federal prosecutor position in American Samoa to prosecute certain federal cases in the High Court. There are local Public Defender and Attorney General Offices in American Samoa and the extent to which they could assist with cases is unknown. According to the Chief Justice of the High Court, it is unlikely that the existing probation and pretrial or court security staff would be able to handle an increased workload. Currently the High Court has three probation officers who work part-time as translators for the court, and two marshals, one for each of the High Court’s two courtrooms. Physical facilities: The extent to which federal detention and courtroom security requirements would apply is uncertain. Until this issue is resolved, activities could possibly continue in existing courthouse and detention facilities. However, the High Court justices and clerk said that current courtroom facilities are already used to capacity without the added caseload that federal jurisdiction could bring. Operational issues: This scenario may be the lowest-cost scenario and may alleviate concerns about the threat to the matai and land tenure systems. It is potentially the lowest-cost scenario because some of the existing court facilities and staff may be used. Some leaders within the American Samoa government believe this is the best option and supporters of this scenario note that the High Court has a history of respecting American Samoa traditions and so they have fewer concerns that issues of matai titles and land tenure would be in jeopardy. At the same time, as it is unprecedented to give federal criminal jurisdiction to a local court, this scenario could face the most challenges of the three, according to federal judges and other judicial officials. Legal experts with whom we met told us that, because this is a unique arrangement, the High Court and U.S. judiciary may be faced with having to constantly solve unique problems and develop solutions on a regular basis. For example, judicial officials stated that the High Court Justices would have to be cognizant of their roles and responsibilities when shifting from the duties of a local High Court Justice to the duties of a federal judge. A judicial official also noted that the High Court justices may have to become familiar with federal sentencing guidelines, which require a considerable amount of training. In the August 1995 hearing, the DOJ Deputy Assistant Attorney General stated that vesting federal jurisdiction in the High Court runs counter to well-established legislative policy that district courts should have exclusive jurisdiction over certain types of proceedings to which the United States is a party. For example, federal law states that U.S. district courts have exclusive jurisdiction over all offenses against the criminal laws of the United States and with respect to the collection of debts owed to the United States, provides for an exclusive debt collection procedure in the courts created by Congress. Similarly, federal regulatory statutes often provide for enforcement and judicial review in the federal courts. Another issue to be resolved is the appointment process for justices of the High Court. While none of the judicial officials with whom we met had concerns about the independence of the current justices, some expressed concerns about the differences in the way judges are appointed—while federal judges are generally appointed by the President, the justices in American Samoa are appointed by the Secretary of the Interior. As such, they suggested that the justices in American Samoa may not be subject to the same vetting process and protected by the same constitutional and statutory provisions—such as salary guarantees—as are district judges. The potential cost elements for establishing a federal court in American Samoa include agency rental costs, personnel costs, and operational costs; most of which would be funded by congressional appropriations. We collected likely cost elements, to the extent possible, for scenario 1 and 2 from the various federal agencies that would be involved in establishing a federal court in American Samoa. We did not collect cost data for scenario 3 because of its unique judicial arrangement and because there was no comparable existing federal court structure upon which to estimate costs. For scenario 1 and 2, AOUSC officials told us that a new courthouse would need to be built. GSA officials told us that court construction and agency rental costs would be comparatively high—about $80 to $90 per square foot for a new courthouse, compared to typical federal government rental charges for office space in American Samoa of around $45 to $50 per square foot in 2007. Funding sources for the judiciary and DOJ derive primarily from direct congressional appropriations and funding for a federal courthouse in American Samoa would likely be funded similarly. We found the data for scenarios 1 and 2 sufficiently reliable to provide rough estimates of the possible future costs for these scenarios for establishing a federal court in American Samoa, with limitations as noted. Due to limitations on existing buildings and potential land restrictions— about 90 percent of American Samoan land is communally owned—GSA officials told us that a new courthouse in American Samoa would likely use a build-to-suit lease construction arrangement rather than government-owned construction and that construction and consequent rental costs would be comparatively high. GSA provided initial construction and rental costs for the hypothetical courthouse in American Samoa, based on a floor plan submitted for a proposed new one-judge courthouse in CNMI. According to GSA officials, there are no buildings in American Samoa suitable for use as a federal courthouse. Further, officials from the High Court of American Samoa told us that its two-courtroom High Court building and its one-courtroom local district court building are frequently used to capacity. Under build-to-lease construction, the government contracts with a private developer to build the courthouse and, in this case, GSA leases the completed building based on the amortization of a 20-year construction loan. GSA would then rent portions of the building to the tenant federal agencies, such as AOUSC, EOUSA, and USMS. GSA officials gave very preliminary rent estimates of $80 to $90 per square foot, based on requirements similar to an existing build-to-suit lease prospectus for a new courthouse in CNMI. Further, GSA officials told us that federal agencies would be responsible for up-front payments for the particular courthouse governmental features, such as holding cells, and blast protection for security. GSA officials indicate that the accuracy of the initial American Samoa court construction may vary by as much as -20 to +80 percent, thereby influencing rental costs. The GSA Assistant Regional Administrator for Region IX Pacific Rim stated that there are many factors that could affect construction costs and, therefore, the tenant agencies’ rental costs. For example, any cost increases associated with the condition of an unknown site or escalation in construction costs beyond what has been anticipated will have a direct and proportional impact on the rental costs, as well as the up-front costs that agencies may be required to pay. Preliminary rental costs of $80 to $90 per square foot for a new courthouse with specialized building requirements would exceed typical federal government rental charges for offices in American Samoa at the prevailing market rates of $45 to $50 per rentable square foot in 2007. For scenarios 1 and 2, AOUSC officials provided information related to four types of costs: (1) district court costs, (2) probation and pretrial services costs, and (3) federal defender office costs. District court costs: For yearly district court costs under scenario 1, AOUSC provided us with district court cost estimates of about $1.5 million for personnel costs, including the costs of one district court judge and the full-time equivalent salaries of 2 law clerks and 1 secretary, 11 district clerk’s office staff, 1 pro se law clerk, 1 court reporter, and recruitment and training costs. Operational costs were estimated at $0.1 million, which includes judge’s law books, stationery, forms, new case assignment and jury management systems, travel, postage and delivery charges, and consumables for both the first year and recurring years. Information technology and other equipment costs were estimated at $0.1 million. Space and facilities costs ranged between $2.6 million to $2.9 million and include necessary alterations and renovations, signage, furnishings, furniture, and estimated GSA rental costs. Probation and pretrial services costs: For the yearly cost of probation and pretrial services, AOUSC provided us with personnel and benefits costs estimated at $0.3 million, which includes the full-time equivalent salaries of one Chief Probation Officer, one probation officer, and one administrative support staff. Operational costs were estimated at $0.1 million, including travel, training, transportation, postage, printing, maintenance, drug dependent offender testing and aftercare, pretrial drug testing, mental health treatment services, monitoring services, DNA testing, notices/advertising, contractual services, supplies, awards, firearms, and protective equipment. Information technology and other equipment costs were estimated at about $16,000 (i.e., equipment, maintenance, purchase of copy equipment, computer training, phone communications, supplies, computers, phones, data communications equipment, printers, scanner, and computer software). Space and facilities costs were estimated at $0.4 million to $0.5 million, which includes furniture and fixture purchases, as well as GSA rental costs. Federal Defender costs: AOUSC officials did not estimate costs for a Federal Defender’s office, since it is unlikely that the hypothetical court in American Samoa would, at least initially, reach the minimum 200 appointments per year required to authorize a Federal Defender Organization or the number of cases that would warrant the creation of a Federal Public Defender Organization headquartered in the District of Hawaii. The court in American Samoa, as an adjacent district, might be able to share the Federal Public Defender Organization staff based in Hawaii, or the court could rely solely on a CJA panel of attorneys. The costs to the Federal Public Defender Organization in Hawaii and the costs of reimbursing CJA attorneys would vary based on the caseload of the court. District Court costs: According to AOUSC, the estimated district court costs for scenario 2 could be similar to the estimated costs for scenario 1. AOUSC officials indicated that there may not be a need for a clerk, financial/procurement officer, jury clerk, or information technology specialist in American Samoa under scenario 2, as those functions may be handled out of the District of Hawaii office, leading to some possible reductions in personnel salaries. However, some judicial officials stated that any decrease in staff costs for this scenario may be offset by increased costs for travel between Hawaii and American Samoa. GSA rental costs would be comparable to scenario 1. Probation and pretrial services costs: Probation and Pretrial Services officials did not provide any cost differences between scenarios 1 and 2. Federal Defender costs: Either the Office of the Federal Public Defender in Hawaii or a CJA panel may provide defender services in American Samoa under both situations, thereby also not leading to any significant change in cost estimates between scenarios 1 and 2. For the Department of Justice, an EOUSA official provided U.S. Attorney’s Office cost estimates and a USMS official provided security cost estimates for both scenario 1 and scenario 2. Scenario 1 costs: EOUSA officials calculated the cost of a U.S. Attorney’s office based on a partial first year and a complete second year. Modular personnel costs are $0.6 million for the first year and $1.0 million for the second year, which includes one U.S. Attorney, three attorneys, and two support staff. Operational costs ranged from $0.5 million to $0.9 million, including travel and transportation, utilities, advisory and assistance services, printing and reproduction, and supplies and materials. Information technology costs were estimated at $0.1 million for equipment and the operation and maintenance of equipment. Space and facilities costs range between $1.3 million and $1.4 million and include the operation and maintenance of facilities and rent to GSA and others. Scenario 2 costs: EOUSA officials calculated U.S. Attorney’s office personnel costs for a partial first year and a complete second year. Modular personnel costs rose from $0.6 million in the first year to $1.0 million throughout the second year, which includes four attorneys and two support staff. Operational costs remain consistent at $0.2 million for both the first and second years, reflecting travel and transportation, litigation costs, supplies, and other miscellaneous costs. Information technology and equipment costs were estimated to be approximately $0.1 million for both years. Yearly rental rates may also be comparable in the initial years. Personnel and operations costs for scenario 2 were estimated to be less than for scenario 1 because scenario 2 does not include a separate U.S. Attorney for American Samoa. Rather, the costs for scenario 2 are based on the estimated costs and personnel the U.S. Attorney for the District of Hawaii would need to support cases that arise in American Samoa. Scenario 1 costs: USMS officials estimated that personnel costs were $0.8 million, based on fiscal year 2008 salaries, benefits, and law enforcement availability pay for all supervisory (one U.S. Marshal, one Chief Deputy, one Judicial Security Inspector) and nonsupervisory (two Deputy Marshals and one administrative) personnel that would be needed. Operational costs were estimated to be $0.8 million based on fiscal year 2008 standard, nonpersonnel costs for district operational and administrative positions (including vehicles, weapons, protective gear, communications equipment, and operational travel costs), and $0.7 million for defendant transport (including guard wages, airfare, per diem meals, and lodging). Information technology and equipment costs were estimated at $0.6 million for the installation of a computer network and telephone system to all USMS offices, and $0.2 million for yearly service on the wide-area network to American Samoa. Space and facilities costs were estimated between $1.1 million and $1.3 million for rent, plus variable defendant detention facility housing costs. Scenario 2 costs: With regard to scenario 2, USMS officials estimated that yearly personnel costs would be $0.5 million. Since a U.S. Marshal, Chief Deputy, and Judicial Security Officer would be shared with the USMS in Hawaii and not be located in American Samoa, personnel costs for this scenario are estimated to be approximately $0.4 million less than scenario 1. Operational costs (reflecting the standard, nonpersonnel costs for operational and administrative positions) under scenario 2 were estimated to be $0.5 million, or about $0.3 million less than scenario 1. The operational cost differential between the two scenarios with respect to prisoner transport is unclear. While the USMS did not specifically address information technology costs and other equipment costs with respect to scenario 2, the same types of costs in scenario 1 would be involved if a computer network and telephone system would need to be established. With respect to space and facilities, if the USMS were housed in the same court building as used for scenario 1, rental costs should be comparable (between $1.1 million and $1.3 million.) If, however, under scenario 2, the USMS were housed in an office building rather than a courthouse, then the resulting cost may be lower than scenario 1. Additionally, to the extent that defendants are detained in the same facilities as in scenario 1 (e.g., the Bureau of Prisons detention facility in Hawaii), detention facility costs should be comparable. Funding for the federal judiciary and DOJ agencies derives primarily from direct congressional appropriations to each agency and funding for a federal court in American Samoa would likely be funded similarly. In fiscal year 2006, about 94 percent of the total court salary and expense obligations were obtained through direct judiciary funding. The remaining 6 percent was obtained through offsetting collections, such as fees. In that same year, about 95 percent of the total Probation and Pretrial Services obligations were obtained through direct congressional appropriations. With regard to DOJ, in fiscal year 2006, 96 percent of the U.S. Attorneys' obligations to support district court activities were obtained through direct congressional appropriations and the remaining 4 percent were obtained through other sources, such as asset forfeitures. In fiscal year 2008, USMS used direct congressional appropriations to cover the expenses for staff hiring, payroll, relocation, personnel infrastructure, rent, and utilities. The Office of the Federal Detention Trustee funds 100 percent of prisoner detention, meals, medical care, and transportation. AOUSC funds 100 percent of the court security officers, magnetometers, and security measures at courthouse entrances. In May 2008, we requested comments on a draft of this report from the Administrative Office of the U.S. Courts, the Department of the Interior, the Department of Justice, the General Services Administration, and officials representing the executive, legislative, and judicial branches of the government of American Samoa. The Administrative Office of the U.S. Courts and the Department of Justice provided technical comments, which we have incorporated into the report as appropriate. For the Department of Justice, we received comments from the Bureau of Prisons, the Federal Bureau of Investigation, and the U.S Marshals Service. The Bureau of Prisons recommended that the current judicial system in American Samoa be improved—although no specific scenario was endorsed—due to concerns regarding public corruption, the crime rate, and the cost and inconvenience involved in transporting officials, witnesses, and prisoners to courts so far away from American Samoa. The Honolulu Division of the Federal Bureau of Investigation recommended that the District of Hawaii be provided additional resources and designated as the proper venue for federal cases arising in American Samoa, given the small pool of jurors, logistical challenges of permanently stationing federal personnel in American Samoa, and the lack of institutional infrastructure to sustain a federal district court in American Samoa. The U.S. Marshals Service stated it supported scenario 1 and added that that scenario 2 would place a strain on its current prisoner transportation system and be extremely difficult for the Hawaii district office to staff due to the lack of infrastructure and detention space. In addition to the technical comments received, the Administrative Office of the U.S. Courts, the Department of the Interior, and the Office of the Governor of American Samoa provided official letters for inclusion in the report. These letters can be seen in appendixes II, III, and IV, respectively. We are sending copies of this report to the Attorney General and Secretary of the Interior, Director of the Administrative Office of the U.S. Courts, Administrator of the General Services Administration, Governor of American Samoa, President of the Senate and Speaker of the House of the Legislature of American Samoa, Chief Justice of the High Court of American Samoa, and interested congressional committees. The report will be available on the GAO Web site at http://gao.gov. If you or your staff have any questions regarding 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. Staff acknowledgements are listed in appendix IX. We examined the unique judicial structure of American Samoa and identified issues associated with establishing a federal court in American Samoa. Specifically, the objectives of our review were to discuss: (1) the current system and structure for adjudicating matters of federal law arising in American Samoa and how it compares to those in the Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the U.S. Virgin Islands (USVI); (2) the reasons that have been offered for or against changing the current system and structure for adjudicating matters of federal law in American Samoa; (3) the description of different scenarios for establishing a federal court in American Samoa or expanding the federal jurisdiction of the High Court of American Samoa if a change to the current system were made, if a change to the current system were made, and the identification of issues associated with each scenario; and, (4) the potential cost elements and funding sources associated with implementing the different scenarios for establishing a federal court in American Samoa. To address these objectives, we reviewed historical documents, congressional testimonies, law review articles, previous studies, and cost data from and conducted interviews with U.S. government officials from the Administrative Office of the U.S. Courts (AOUSC), including the Federal Judicial Center, Office of Defender Services, and Probation and Pretrial Services; headquarters and field officials from the Department of Interior’s (DOI) Office of Insular Affairs and Inspector General; officials from Department of Justice’s (DOJ) Civil Rights Division, Criminal Division, Executive Office for U.S. Attorneys (EOUSA), Bureau of Prisons, and headquarters and field officials from the U.S. Marshal Service (USMS) and Federal Bureau of Investigation (FBI); headquarters and field officials from the General Services Administration (GSA); officials from the U.S. Attorneys offices for CNMI, Guam, Hawaii, and USVI; headquarters and field officials from the Inspector General offices of the Departments of Agriculture, Education, Homeland Security, Transportation, and Health and Human Services; officials and judges from the Ninth Circuit; and officials and judges from the U.S. District Court of Hawaii, the District Court for the Northern Mariana Islands, the District Court of Guam, and the District Court of the Virgin Islands. Further, we reviewed historical documents, legal decisions, and court statistical data. We also conducted interviews with government officials from the executive, judicial, and legislative branches of government and residents of American Samoa, including the Governor’s Office, High Court of American Samoa, Fono, Office of Samoan Affairs, Controller’s Office, Office of Territorial and International Criminal Intelligence and Drug Enforcement, Attorney General’s Office, and Public Defender’s Office. Also, we reviewed relevant legal review articles and position papers and conducted interviews with recognized legal experts on territorial governance issues. These experts were identified through our literature review and based on their having published work in the area of territorial judicial systems, and through our interviews with and information collected from federal government and territorial government officials. The experts contacted were not intended to be representative of all expert opinion on American Samoa judicial issues, but were contacted because they could provide insights on territorial governance issues in general. We conducted this performance audit from April 2007 to June 2008 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 obtain insight regarding public views related to objectives 2 and 3, during our October 2007 trip to American Samoa we conducted an open forum of college students and the general public and held group discussions with members of the American Samoa Bar Association, American Samoa Chamber of Commerce, and Common Cause of American Samoa. We also established an e-mail account (i.e., [email protected]) and received 62 comments from October 2007 to January 2008 regarding the general public’s views on possible scenarios for establishing a federal court in American Samoa or expanding the federal jurisdiction of the High Court of American Samoa. At all discussions and interviews in American Samoa we distributed flyers (see fig. 3) which solicited views to the e-mail account regarding the possible scenarios for establishing a federal court in American Samoa or expanding the federal jurisdiction of the High Court of American Samoa. Emails received were included in our analysis, except those which did not address the issue of a federal court or only posed questions without further elaboration. We did not independently evaluate the merits of the respondents’ comments. However, we did group and list the comments by topic. With some exceptions, such as responses that were irrelevant or unclear, substantially all of the comments received were categorized. To ensure inclusiveness and avoid subjectivity in presenting the comments, we did not eliminate any comments, even though the comments perhaps were the same as (or very similar to) comments made by another respondent. The open forum, group discussions, and e-mails were designed to provide broader insight regarding American Samoan public views regarding the establishment of a federal court. Because these comments are based on a nongeneralizable sample of individuals, they cannot be used to make inferences about the American Samoan population overall. While these views cannot be generalized to the population of American Samoa as a whole, they provided us with a better understanding of the range of issues that were important to the members of the local community. To address objective 4 on potential cost estimates establishing a federal court in American Samoa, we obtained estimated cost information for scenarios 1 and 2 from federal agencies that would be involved in establishing a federal court. This included obtaining cost information related to three areas: (1) court construction and rent from GSA, (2) judicial branch agency costs from AOUSC, and (3) executive branch agency costs from EOUSA and USMS. To the extent possible, for scenarios 1 and 2 we obtained agency estimates of the relevant cost elements, including build-to-lease construction costs, agency rental fees, salaries and benefits, operational costs, information technology and equipment costs, and space and facility costs. Since the court scenarios were hypothetical and the exact details of the jurisdiction, staffing, and physical facilities are not known, the estimated costs cannot be aggregated to obtain a precise estimate of the total costs for the scenarios. Further, we did not ask GSA, AOUSC, EOUSA, or USMS to estimate the costs of scenario 3 since this would be a unique structure and the federal agencies would have no existing federal structure upon which to estimate costs. To assess the reliability of the estimated costs for scenarios 1 and 2, we talked with agency officials knowledgeable about how the estimates were developed and reviewed relevant documentation, such as building surveys and agency budget documents. We found the data for scenarios 1 and 2 sufficiently reliable to provide estimates of the possible future costs for these scenarios for establishing a federal court in American Samoa, with limitations as noted below. Based on preliminary estimates and on hypothetical requirements similar to a proposed new courthouse in CNMI, GSA officials stated that the rough estimate of construction costs would be approximately $56 million and that the resulting agency rental fees based on the amortization of the construction loan might range from $80 to 90 per square foot, given a projected court construction award date of March 1, 2010. GSA and other agencies officials told us that these initial estimated costs may deviate widely from final construction costs for several reasons: (1) more detailed cost estimates are not available until later stages of (2) the condition of the undetermined site is unknown; (3) prices in the construction market may escalate beyond what has been (4) the cost adjustment index used for American Samoa, which accounts for 29 percent of the projected construction costs, is almost 10 years old and relied on limited expert opinion; and (5) American Samoa lacks local skilled labor and finished materials and the shipping and commodity costs at the time of construction are unknown. These factors would influence final construction costs, and thus agency rental costs. (1) Salaries and operational expenses were based on costs from fiscal years 2007 and 2008 data and would need to be reevaluated at the time a courthouse was projected to be built for inflationary and other cost escalation factors. (2) While CNMI and Guam court costs were used to estimate some court costs, the actual cost variation between American Samoa and the other territorial costs is unknown. (3) Because reliable estimates of the number of civil and criminal cases were not known, AOUSC officials based their personnel and benefits and operational and information technology cost estimates for probation and pretrial services on a percentage of the actual costs obligated in 2007 from the Probation and Pretrial Services Office in Guam, which is a consolidated operation covering both district courts located in CNMI and Guam. AOUSC officials determined the percentage of resources used to support the District Court for the Northern Mariana Islands as a basis for the estimate of costs for an office in American Samoa. (4) Rental costs were based on GSA space requirements estimated for the proposed courthouse in CNMI. (1) Because reliable estimates of the number of criminal and civil cases were not known, the U.S. Attorney’s cost data for scenario 1 non- personnel costs were based on actual fiscal year 2005 and fiscal year 2006 expenditure and allotment obligations for the U.S. Attorney’s Office for the District of Guam. Personnel costs were based on modular costs provided in the fiscal year 2008 President’s budget request to Congress. (2) For scenario 2, first year modular personnel costs represent partial year costs, whereas second year modular costs represent full-year costs. (3) Rental costs for the U.S. Attorney’s Office were based on GSA space requirements estimated for the U.S. Attorney’s Office in the proposed CNMI courthouse. (1) USMS officials assumed that defendant or prisoner transportation costs for a district court in American Samoa are unknown; however, the officials estimated that it would be about the same as costs in the District Court of the Northern Mariana Islands for fiscal year 2007— approximately 65 prisoners received per year and 104 court productions per year from federal detention facilities in Hawaii to American Samoa. If the workload in American Samoa is less or more, then estimated costs will be affected accordingly. (2) USMS officials assumed there would be no local detention space to house defendants or prisoners, so air transportation costs to federal detention facilities were included. Commercial airline rates were used since the Justice Prisoner and Alien Transportation System does not extend its flights to American Samoa. USMS officials said that commercial airline regulations and costs could not be specified under all defendant or prisoner transport circumstances. American Samoa consists of seven islands located about 2,600 miles southwest of Hawaii and about 1,600 miles from New Zealand. American Samoa Department of Commerce data indicate that in 2005, the population of American Samoa was about 65,500. Ethnically, Samoans constitute the vast majority of the population in American Samoa; about 31 percent of the population was born in the independent nation of Samoa. The Samoan islands were originally settled about 1000 B.C. by Polynesians. During the nineteenth century, Germany, Great Britain, and the United States developed commercial and military pursuits in Samoa, and in 1899 the three powers divided their authority over the islands, as Germany and Great Britain renounced all rights to Tutuila and the other Samoan islands east of Longitude 171 degrees west of Greenwich, and the United States renounced all rights to the western islands. On February 19, 1900, President McKinley issued an Executive Order placing control of the islands under the authority of the Department of the Navy, and on the same day, the Secretary of the Navy issued an order providing that the islands were established into a Naval Station, to be known as the Naval Station, Tutuila, and to be under the command of a Commandant. On April 17, 1900, the high chiefs of Tutuila formally ceded the islands of Tutuila and Aunuu to the United States, and on July 16, 1904, the high chief of Manua ceded the islands of Tau, Olosega, Ofu, and Rose to the United States. The Deeds of Cession were not formally accepted by the United States until 1929 when Congress, by joint resolution, accepted and ratified them and provided that “until Congress shall provide for the government of such islands, all civil, judicial, and military powers shall be vested in such person or persons and shall be exercised in such manner as the President of the United States shall direct….” In 1951, President Truman transferred the authority to govern American Samoa from the Secretary of the Navy to the Secretary of the Interior. The Secretary of the Interior subsequently issued an order to delimit the extent and nature of the authority of the American Samoa government, which provided for a Governor and an independent judicial branch. American Samoa ratified a Constitution, which went into effect on October 17, 1960, and a revised Constitution went into effect on July 1, 1967. The Constitution provides for legislative, judicial, and executive branches. The legislature, called the Fono, consists of a House of Representatives and Senate. The House of Representatives is composed of twenty members popularly elected from representative districts. The Senate is composed of eighteen members, each of whom must be matai and elected in accordance with Samoan custom by the city councils of the counties that the member is to represent. The 1967 Constitution provided that the executive branch was to consist of a Governor, to be appointed by the Secretary of the Interior. In 1977, the Secretary of the Interior superseded this provision by issuing an order providing that the Governor and Lieutenant Governor were to be popularly elected. The Governor’s veto power is similar to that of the U.S. President, except that if the Governor vetoes a bill and the legislature overrides the veto with a two- thirds majority of each house, the Governor, if still disapproving of the bill, may submit it to the Secretary of the Interior, who has the ultimate authority to decide if the legislation becomes law. The Constitution also provides for a judicial branch, which consists of the High Court, local district courts, and other courts that may be created by law. In 1983, Congress provided that the Constitution of American Samoa may only be amended by an act of Congress. American Samoa has limited representation in Congress. In 1970, the American Samoa legislature created the Office of the American Samoa Delegate-at-Large, which was to provide American Samoa with official representation in Washington, D.C. In 1978, Congress recognized the delegate from American Samoa and accorded the delegate status equivalent to that of the delegates from Guam and the U.S. Virgin Islands. As such, the delegate from American Samoa has all congressional privileges, including a vote in committee, except a vote in Congress as a whole. Although certain characteristics of the court system in American Samoa have been modified over time, the court system continues to resemble the system established by the first Commandant of the Naval Station in 1900. Although the village courts are no longer used, the High Court and the local district court remain in place, with the same basic division of jurisdiction, such that the High Court has jurisdiction over major local matters, including matters involving land and matai titles, and the local district court has jurisdiction over minor local matters, such as misdemeanor criminal cases and civil cases in which the amount in controversy does not exceed $5,000. While new avenues to appeal decisions of the High Court have been established, the appellate process within the American Samoa judiciary remains similar, with the appellate division of the High Court maintaining jurisdiction over decisions of the other High Court divisions and the local district court. Further, although the judges were initially appointed by the Governor, since 1931, the Chief Justice of the High Court has been appointed by the President’s delegate, first the Secretary of the Navy and then the Secretary of the Interior. In 1900, the first Commandant of the Naval Station, Commander Benjamin Tilley, issued Regulation No. 5, which established a system of courts in American Samoa. The system of courts consisted of village courts, local district courts, and the High Court. The village courts had jurisdiction over minor civil and criminal cases involving Samoans. The local district courts had jurisdiction over more significant cases and cases involving non-Samoans. The High Court had exclusive jurisdiction over major cases involving sums over $250 or criminal penalties over 6 months and all cases involving real property, treason, murder, and offenses committed within the Naval Station. According to a former Naval Governor of American Samoa, the village and local district courts had a case load generally consisting of cases involving offenses such as acts of physical violence, burglary, larceny, sex offenses, desertion, failure to pay taxes, traffic offenses, trespass, nonsupport of wife, and disorderly conduct. At the same time, the High Court mostly handled land and matai title disputes. In 1952, the judiciary of American Samoa underwent a major reorganization. The village courts were no longer used, and their jurisdiction was transferred to the local district courts. The High Court was reorganized into three divisions: appellate, probate, and trial. The structure of the High Court has continued to change over time, and jurisdiction over certain matters has been transferred between divisions. By 1969, local law had added to the High Court a fourth division, the land and titles division, which was to handle disputes related to land and matai titles. In 1979, local law eliminated the probate division and transferred such jurisdiction to the trial division of the High Court. In 2000, local law established a family, drug and alcohol court division. The law authorized the Chief Justice to transfer from the trial division of the High Court or the local district court to the family, drug and alcohol court division juvenile cases, domestic relations cases, certain domestic violence cases, and certain alcohol and substance abuse-related cases. In addition to restructuring the High Court, local law has also granted the High Court additional jurisdiction, such as over certain admiralty and maritime matters. In 1975, in response to Vessel Fijian Swift v. Trial Division of the High Court of American Samoa, in which the High Court held that it did not have in rem admiralty jurisdiction absent an express grant of such jurisdiction, local law granted the High Court jurisdiction, both in personam and in rem, over admiralty and maritime matters in common law. In 1982, the U.S. District Court of Hawaii confirmed that the High Court could exercise both in rem and in personam jurisdiction in admiralty and maritime cases. Although the High Court has jurisdiction over matters of admiralty and maritime common law, the High Court does not necessarily have jurisdiction over actions arising under federal maritime statutes, unless explicitly provided by federal law. Federal law has so provided in, for example, the statute governing maritime commercial instruments and liens. Throughout the 1960s and 1970s, and again in the early 2000s, federal law also provided that the High Court has jurisdiction over cases arising under certain other federal statutes. For example, the High Court has been granted jurisdiction over cases arising under certain federal statutes governing grain standards, pesticide control, animal welfare, animal and plant health, and poultry and meat inspection. Thus, current law provides that the High Court and local district court have jurisdiction over all local matters and certain federal matters. The High Court is composed of the trial; land and titles; family, drug and alcohol; and appellate divisions. The trial division has jurisdiction over civil cases in which the amount in controversy exceeds $5,000 (except land and matai title matters), criminal cases in which a felony is charged, admiralty and maritime matters, juvenile cases, probate, domestic relations except adoptions and certain child and spousal support cases, all writs, and any matter not otherwise provided for in statute. The land and titles division has jurisdiction over all matters relating to matai titles and all controversies relating to land. The family, drug and alcohol court division has jurisdiction over the following types of cases transferred from the trial division or the local district court: juvenile cases, including traffic offenses; domestic relations cases; domestic violence crimes except homicides and other Class A felonies; and criminal cases in which alcohol or other substance abuse is involved, including serious traffic offenses, except cases charging possession of a controlled substance with intent to distribute. The appellate division has appellate jurisdiction over all final decisions of the trial and land and titles divisions, appellate jurisdiction over all local district court and administrative decisions, and appeals of other matters specifically provided for by statute. The local district court retains jurisdiction over civil cases in which the amount in controversy does not exceed $5,000 (except land and matai title matters), criminal cases in which the offense charged is a misdemeanor or any offense punishable by not more than 1 year of imprisonment, traffic cases except those involving a felony, initial appearances and preliminary examinations in all criminal cases, adoptions and certain child and spousal support cases, and certain public health offenses. Beginning in 1900, the appellate division of the High Court had appellate jurisdiction over decisions of the trial division of the High Court and over decisions of the local district courts, and when the land and titles and family, drug, and alcohol court divisions were established within the High Court, the appellate division of the High Court assumed appellate jurisdiction over decisions of those divisions. Initially, the local district courts had appellate jurisdiction over decisions of the village courts, but once the village courts became defunct in 1952, the local district court lost its appellate jurisdiction. As such, current law provides that the appellate division of the High Court has appellate jurisdiction over decisions of the trial, land and titles, and family, drug, and alcohol court divisions of the High Court, as well as appellate jurisdiction over decisions of the local district court accompanied by a stenographic record and appeals based on a question of law. All decisions of the local district court in cases without a stenographic record may be appealed to the trial division of the High Court for de novo review. The Secretary of the Interior may also exercise appellate jurisdiction over decisions of the High Court. In June 1985, the Church of Jesus Christ of Latter-Day Saints requested that the Secretary of the Interior intervene and overturn a decision of the High Court regarding a piece of land in American Samoa. Though he declined to intervene, finding that such an intervention would undermine the U.S. policy of fostering greater self- government and self-sufficiency, the Secretary of the Interior stated that he had the authority to review the decision of the High Court. When the Church of Jesus Christ of Latter-Day Saints subsequently challenged the constitutionality of the Secretary’s refusal to overturn the High Court decision, the U.S. Court of Appeals for the District of Columbia Circuit approved of the Secretary of the Interior’s assertion of authority, stating that: The Congress has delegated its judicial authority with respect to American Samoa to the President, who has in turn delegated it to the Secretary…. The Congress, that is, could have, so far as Article III is concerned, provided that the Secretary himself would exercise the judicial power in American Samoa. No doubt, the due process clause of the Fifth Amendment may qualify this prerogative in some way. The Secretary might not be able to exercise his authority, nor perhaps even to retain it in dormancy, in a case to which he is a party. But that is a far cry from this case. Here, there is no claim that the Secretary was interested in the outcome. So far as due process is concerned, therefore, he could have decided it himself and there can be no cause of action because the court that did so was subservient to him. A decision of the High Court may not only be appealed to the Secretary of the Interior, it may also be collaterally challenged by filing an action in the U.S. District Court for the District of Columbia against the Secretary of the Interior for failing to administer American Samoa in accordance with the U.S. Constitution and federal law. This approach was first tested in King v. Morton in the mid-1970s. In that case, an individual charged in the High Court of American Samoa with willfully failing to pay his income tax moved for, and was denied, a jury trial. He subsequently commenced an action in the U.S. District Court for the District of Columbia against the Secretary of the Interior, requesting that the court declare unconstitutional the Secretary of the Interior’s administration of American Samoa in such a way that denied him the right to trial by jury. The district court dismissed the case for lack of jurisdiction, but the U.S. Court of Appeals for the District of Columbia Circuit held that the U.S. District Court for the District of Columbia could have jurisdiction under the federal question or writ of mandamus statutes, stating that the district court is “competent to judge the Secretary’s administration of the government of American Samoa by constitutional standards and, if necessary, to order the Secretary to take appropriate measures to correct any constitutional deficiencies.” The court again found that district court is competent to hear challenges to the constitutionality of the Secretary of the Interior’s administration of American Samoa in Corporation of Presiding Bishop of Church of Jesus Christ of Latter-Day Saints v. Hodel. In that case, the U.S. District Court for the District of Columbia found that, though the Church of Jesus Christ of Latter-Day Saints failed to raise a federal question, the court had jurisdiction to hear valid claims under the Constitution or federal law against the Secretary of the Interior regarding his administration of American Samoa. Thus, current law provides that decisions of the appellate division of the High Court may be appealed either directly to the Secretary of the Interior or challenged collaterally in the U.S. District Court for the District of Columbia, whose decisions may be appealed to the U.S. Court of Appeals for the District of Columbia Circuit and then to the U.S. Supreme Court. Beginning in 1900, the Commandant of the Naval Station was the President of the High Court and could appoint others to serve as judges. In 1903, the Commandant created the Office of Native Affairs, which was to supervise the judiciary. The Secretary of Native Affairs, a naval officer, became the chief judge of the local district courts, as well as serving as the legal advisor to the Governor, sheriff of the local police force, and prosecutor. Samoans appointed by the Governor sat as judges on the local district courts and magistrates of the village courts, with lifetime tenure, subject to removal only for misconduct. From 1931 until 1951, the Chief Justice of the High Court was appointed by the Secretary of the Navy. In 1931, the Governor separated the functions of the judge and prosecutor in the Chief Justice and Attorney General. The Chief Justice was to be a civilian appointed by the Secretary of the Navy, and the Attorney General position was filled by a naval officer. At this point, the Governor ceased to be the President of the High Court, and the Chief Justice was appointed by, and directly accountable to, the Secretary of the Navy. The Chief Justice was able to select associate judges from among the district judges to assist with cases in the High Court. Since 1951, when administration of American Samoa was transferred from the Secretary of the Navy to the Secretary of the Interior, the Chief Justice has been appointed by the Secretary of the Interior, and since 1962, the Associate Justice has also been appointed by the Secretary of the Interior. In the 1970s, the Secretary of the Interior began appointing federal judges to serve as Acting Associate Justices. About once each year, the Secretary coordinates with the Pacific Islands Committee of the Ninth Circuit to appoint judges to travel to American Samoa to hear appellate cases for approximately a week at a time. Current law provides that the Chief Justice and Associate Justice are appointed by the Secretary of the Interior and hold lifetime tenure for good behavior, but may be removed by the Secretary of the Interior for cause. The Chief Justice and Associate Justice must be trained in law. The associate judges are appointed by the Governor, upon the recommendation of the Chief Justice and confirmation of the Senate, and hold lifetime tenure, except that they may be removed by the Chief Justice for cause. The associate judges are not required to be trained in law, but rather are appointed based on their knowledge of Samoan custom and traditions. Also according to current law, the appellate division of the High Court is composed of the Chief Justice, Associate Justice, Acting Associate Justices, and associate judges. Sessions are held before three justices and two associate judges, and the presence of two justices and one associate judge is necessary to constitute a quorum and decide a case. In the case of a difference of opinion, the opinion of the two justices prevails, except in appeals from the land and title division, in which the opinion of the majority of five associate judges prevails. The land and title division is composed of the Chief Justice, Associate Justice, and the associate judges. For land matters, sessions are held before one justice and two associate judges, and the presence of one justice and one associate judge is necessary to constitute a quorum and decide a case. In the case of a difference of opinion, the opinion of the justice prevails. For matai title matters, sessions are held before one justice and four associate judges, and the presence of one justice and three associate judges is necessary to constitute a quorum and decide a case. In the case of a difference of opinion, the opinion of the majority of the four associate judges prevails, and if there is a tie, the justice casts the deciding vote. The trial division is composed of the Chief Justice, Associate Justice, and the associate judges. Sessions are held before one justice and two associate judges, and the presence of one justice and one associate judge is necessary to constitute a quorum and decide a case. In the case of a difference of opinion, the opinion of the justice prevails. In the family, drug and alcohol court division, sessions are held before the Chief Justice, Associate Justice or Acting Associate Justice, and two associate judges, and the presence of one justice and one associate judge constitutes a quorum for the trial and determination of the case. The local district court judge is appointed by the Governor, upon the recommendation of the Chief Justice and confirmation by the Senate, and holds lifetime tenure, although he may be removed by the Chief Justice for cause. The district court judge must also be trained in law. The Commonwealth of the Northern Mariana Islands, a chain of 14 islands stretching north from Guam, has a total land area of about 185 square miles. The three largest islands are Saipan, Tinian, and Rota. Saipan is about 3,300 miles from Hawaii, or about three-quarters of the distance from Hawaii to the Philippines. According to U.S. Census Bureau Data for 2000, the population of the Northern Mariana Islands is about 69,000, composed primarily of Asians, including Filipinos and Chinese, and Pacific Islanders, including Chamorros, Carolinians, and other Micronesians. About 58 percent of individuals residing in the Northern Mariana Islands are foreign born, and about 57 percent are not U.S. citizens. English, Chamorro, and Carolinian are the official languages of the Northern Mariana Islands. The Chamorro people are believed to have arrived in the Northern Mariana Islands about 1500 B.C. In 1565, Spain claimed the Mariana Islands as a possession, and in the mid-seventeenth century, Spain began to colonize the islands. During the time of Spanish colonization, the Chamorro population of Guam and the Northern Mariana Islands declined significantly—from between 50,000 and 100,000 when the Spanish first arrived in the mid-sixteenth century to around 1,500 by the time of the Spanish census in 1783. In the late-seventeenth century, Spain removed almost all of the population of the Northern Mariana Islands, with the exception of a small population on Rota that evaded the Spanish, to Guam, so that the islands remained nearly uninhabited until the nineteenth century. In the mid-nineteenth century, people from the Caroline Islands began to migrate to the Northern Mariana Islands, and in the late- nineteenth century, the Chamorros were allowed to return from Guam. During the twentieth century, the Northern Mariana Islands passed under the control of several foreign powers. After the Spanish-American War, Spain sold the Northern Mariana Islands to Germany. In 1914, Japan occupied the Northern Mariana Islands and became formally responsible for the islands in 1920. In 1944, the United States invaded the Northern Mariana Islands and defeated the Japanese. Subsequently, in 1947, the Northern Mariana Islands, along with the Caroline and Marshall Islands, entered into a trusteeship called the Trust Territory of the Pacific Islands, to be administered by the United States. The Northern Mariana Islands, however, after an unsuccessful attempt to be integrated with Guam, sought a separate relationship with the United States. By 1972, the Northern Mariana Islands had entered into separate status negotiations with the United States, and in 1975 the Northern Mariana Islands and the United States concluded a Covenant to Establish a Commonwealth of the Northern Mariana Islands in Political Union with the United States of America, making the Northern Mariana Islands a “self-governing commonwealth … in political union with and under the sovereignty of the United States of America.” The Covenant granted citizenship to residents of the Northern Mariana Islands and stated that the Northern Mariana Islands would approve a constitution that would provide for a local legislature, a popularly-elected Governor, and a local court system. The Covenant also provided for a District Court for the Northern Mariana Islands. In 1977, the Northern Mariana Islands adopted the Constitution of the Northern Mariana Islands, and in 1986 the Trusteeship Agreement establishing the Trust Territory of the Pacific Islands was dissolved, making the Covenant fully effective. The court system in the Northern Mariana Islands has developed in such a way that, over time, the local courts were granted additional responsibility and autonomy. For example, although the district court initially had jurisdiction over certain local matters, such jurisdiction was transferred from the District Court for the Northern Mariana Islands to the local Superior Court. Similarly, appellate jurisdiction over decisions of the Superior Court was transferred from the District Court for the Northern Mariana Islands to the newly-created local Supreme Court. Further, the appellate jurisdiction of the U.S. Court of Appeals for the Ninth Circuit over decisions of the Supreme Court expired, so that the U.S. Supreme Court has the same appellate jurisdiction over decisions of the Supreme Court of the Northern Mariana Islands as it does over decisions of the highest state courts. The current court system of the Northern Mariana Islands is composed of a District Court for the Northern Mariana Islands, which has the jurisdiction of a U.S. district court and a bankruptcy court; a local Superior Court, which handles local matters; and a Supreme Court, which has appellate jurisdiction over decisions of the Superior Court. Beginning in the late 1970s, the District Court for the Northern Mariana Islands had the original jurisdiction of a district court, as well as original jurisdiction over certain local criminal and civil cases and appellate jurisdiction over certain criminal and civil cases. Pursuant to the Covenant, in 1977 Congress established the District Court for the Northern Mariana Islands, granting the court the jurisdiction of a district court of the United States, except that cases arising under the Constitution or federal law had no minimum sum or value of the matter in controversy. The federal law also granted the district court original jurisdiction over all cases that the Constitution or laws of the Northern Mariana Islands did not vest in a local court. Further, the law granted the district court appellate jurisdiction as the Constitution and laws of the Northern Mariana Islands provided. Pursuant to the federal law, the Northern Mariana Islands immediately acted to vest limited jurisdiction in the local trial court and to define the appellate jurisdiction of the district court. The Constitution of the Northern Mariana Islands, adopted in 1977, established the Commonwealth Trial Court and granted it jurisdiction over all actions involving land in the Commonwealth, other civil actions in which the value of the matter in controversy did not exceed $5,000, and criminal actions in which the defendant, if convicted, could be fined no more than $5,000 or imprisoned for a term of no more than 5 years. The Constitution also provided that, at least 5 years after the Constitution has been in effect, the legislature could vest additional civil and criminal jurisdiction in the Commonwealth Trial Court. In 1978, the legislature of the Northern Mariana Islands also granted the district court appellate jurisdiction over all final judgments, final orders, and final decrees in criminal and civil cases. Thus, at that time, the district court had original jurisdiction over major local criminal and civil cases, as well as the jurisdiction of a federal district court, and appellate jurisdiction over final decisions in criminal and civil cases. During the 1980s, significant changes were made to the jurisdiction of the courts of the Northern Mariana Islands, as the government of the Northern Mariana Islands vested additional jurisdiction in the local courts, thereby divesting the district court of such jurisdiction. In 1982, the Northern Mariana Islands vested additional jurisdiction in the Commonwealth Trial Court, passing a law such that, effective January 1983, the trial court had original jurisdiction in all civil and criminal cases arising under the laws of the Northern Mariana Islands. Further, in 1988, the Northern Mariana Islands renamed the local trial court and expanded the jurisdiction of the newly-named Superior Court to include all civil actions, in law and in equity, and all criminal actions. The Northern Mariana Islands also established a Supreme Court and provided that, effective in May 1989, the Supreme Court had appellate jurisdiction over judgments and orders of the Superior Court. As a result of these changes, the district court was divested of its original, as well as appellate, jurisdiction over local matters. In 1984, Congress also changed the jurisdiction of the district court by redefining the jurisdiction to be that of a district court of the United States, to include diversity jurisdiction, and the jurisdiction of a bankruptcy court. From 1977 until 1984, the U.S. Court of Appeals for the Ninth Circuit had appellate jurisdiction over decisions of the appellate division of the District Court for the Northern Mariana Islands and decisions arising under federal law of the trial division of the District Court, and the appellate division of the District Court had appellate jurisdiction over decisions arising under local law of the trial division of the District Court. The 1977 federal law implementing the Covenant provided that portions of title 28 of the U.S. Code that apply to Guam or the District Court of Guam apply to the Northern Mariana Islands or the District Court for the Northern Mariana Islands, except as otherwise provided in Article IV of the Covenant. Thus, subject to Article IV of the Covenant, which authorizes the Northern Mariana Islands to determine the appellate jurisdiction of the district court, the U.S. Court of Appeals for the Ninth Circuit would have appellate jurisdiction over all final and interlocutory decisions of the District Court for the Northern Mariana Islands. In 1980, the U.S. Court of Appeals for the Ninth Circuit held that it did not have appellate jurisdiction over decisions in cases arising under local law issued by the trial division of the District Court of the Northern Mariana Islands; rather, the Northern Mariana Islands, as authorized by Article IV of the Covenant, had properly vested the appellate division of the District Court with appellate jurisdiction over such decisions. In 1984, Congress, disapproving of this holding, repealed the statutory provision authorizing the Northern Mariana Islands to determine the appellate jurisdiction of the district court and replaced it with a provision authorizing the Northern Mariana Islands to determine the appellate jurisdiction of the district court only over the courts established by the Constitution and laws of the Northern Mariana Islands. This amendment made clear that the Northern Mariana Islands could not grant the appellate division of the district court appellate jurisdiction over decisions of the trial division of the district court. Rather, the appellate division of the district court had appellate jurisdiction only over decisions of the local Superior Court, and the U.S. Court of Appeals for the Ninth Circuit had appellate jurisdiction over all final decisions of the District Court. The 1984 federal law also codified the appellate jurisdiction of the U.S. Court of Appeals for the Ninth Circuit over final decisions of the appellate division of the District Court for the Northern Mariana Islands. Once the Supreme Court became operational in 1989, this provision became moot. Thus, from 1984 until the present, the U.S. Court of Appeals for the Ninth Circuit has had jurisdiction over all final and interlocutory decisions of the District Court for the Northern Mariana Islands. From 1977 until 1988, the U.S. Supreme Court had appellate jurisdiction over certain decisions of the District Court for the Northern Mariana Islands. The 1977 federal law implementing the Covenant provided that portions of title 28 of the U.S. Code that applied to Guam or the District Court of Guam applied to the Northern Mariana Islands or the District Court for the Northern Mariana Islands, except as otherwise provided in Article IV of the Covenant, such that the U.S. Supreme Court had appellate jurisdiction over any decision of the District Court for the Northern Mariana Islands that held a federal law unconstitutional in a case in which the United States was a party. In 1988, however, Congress repealed the provision allowing a direct appeal to the U.S. Supreme Court from a decision of a district court. As a result, current law provides that decisions of the District Court for the Northern Mariana Islands may not be appealed directly to the U.S. Supreme Court. From 1977 until 1989, decisions of the Superior Court could be appealed to the appellate division of the District Court for the Northern Mariana Islands. The 1977 federal law implementing the Covenant authorized the Northern Mariana Islands to determine the appellate jurisdiction of the District Court for the Northern Mariana Islands, and in 1978, the Northern Mariana Islands provided that the district court had appellate jurisdiction over final decisions in criminal and civil cases. As noted above, in 1984, Congress confirmed that final decisions of the appellate division of the district court could be appealed to the U.S. Court of Appeals for the Ninth Circuit, such that decisions of the Superior Court could be appealed first to the appellate division of the district court and then to the U.S. Court of Appeals for the Ninth Circuit. Once the Supreme Court of the Northern Mariana Islands became operational in 1989, it had appellate jurisdiction over decisions of the Superior Court. From 1989 until 2004, the U.S. Court of Appeals for the Ninth Circuit had appellate jurisdiction over the Supreme Court of the Northern Mariana Islands. Federal law provides that the relations between the federal and local courts with respect to appeals, certiorari, removal of causes, and writs of habeas corpus are governed by the laws respecting the relations between the federal and state courts, except that for the first 15 years following the creation of the Supreme Court, the Ninth Circuit would have jurisdiction to review by writ of certiorari the decisions of such court in all cases involving the Constitution or federal law. Thus, from 1989 until 2004, the first 15 years of the operation of the Supreme Court of the Northern Mariana Islands, the U.S. Court of Appeals for the Ninth Circuit had appellate jurisdiction over cases arising under federal law decided by the Supreme Court of the Northern Mariana Islands. In 2004, the relationship between the Supreme Court of the Northern Mariana Islands and the federal court system became like that between a state supreme court and the federal court system. Of primary importance, final decisions of the Supreme Court of the Northern Mariana Islands may be reviewed by the U.S. Supreme Court, at its discretion, by writ of certiorari where the validity of a treaty or federal law is drawn into question; a territorial statute is drawn into question on the ground of it being repugnant to the U.S. Constitution, treaties, or federal law; or any title, right, privilege, or immunity is specially set up or claimed under the U.S. Constitution, treaties, federal, or commission held or authority exercised under the United States. The length of the terms of appointment for judges sitting on the District Court for the Northern Mariana Islands has increased over time. In 1977, federal law provided that the judge for the district court was to be appointed by the U.S. President with the advice and consent of the Senate for a term of 8 years and paid the same salary as that of a U.S. district judge. The 1984 amendments extended the term of the district judge to 10 years. Thus, current law provides that the district judge for the Northern Mariana Islands holds a term of 10 years and is to receive a salary equal to that of judges of the U.S. district courts. In addition to the district judge for the Northern Mariana Islands, additional judges may be assigned to sit on the District Court for the Northern Mariana Islands, and the population of judges eligible to be assigned to sit on the court has increased over time. In 1977, federal law provided that, whenever such an assignment is necessary for the proper dispatch of the business of the court, the Chief Judge of the Ninth Circuit may assign justices of the High Court of the Trust Territory of the Pacific Islands or judges of courts of record of the Northern Mariana Islands who are licensed attorneys in good standing, or a circuit or district judge of the Ninth Circuit, including a judge of the District Court of Guam who is appointed by the President; and the Chief Justice of the United States may assign any other U.S. circuit or district judge with the consent of the assigned judge and the chief judge of that circuit, to serve temporarily as a judge for the District Court for the Northern Mariana Islands. In 1984, federal law expanded the population of judges eligible to serve temporarily as a judge for the district court by authorizing the Chief Judge of the Ninth Circuit to assign a recalled senior judge of the District Court of Guam or of the District Court for the Northern Mariana Islands. Thus, current law provides that, whenever such an assignment is necessary for the proper dispatch of the business of the court, the Chief Judge of the Ninth Circuit may assign justices of the High Court of the Trust Territory of the Pacific Islands, judges of courts of record of the Northern Mariana Islands who are licensed attorneys in good standing, a circuit or district judge of the Ninth Circuit, including a judge of the District Court of Guam who is appointed by the President, or a recalled senior judge of the District Court of Guam or of the District Court for the Northern Mariana Islands; and the Chief Justice of the United States may assign any other U.S. circuit or district judge with the consent of the assigned judge and the chief judge of that circuit, to serve temporarily as a judge for the District Court for the Northern Mariana Islands. Guam, at 217 square miles, is the largest island in the Northern Pacific. It is located about 3,700 miles from Hawaii, or about three-quarters of the distance from Hawaii to the Philippines. According to U.S. Census Bureau data for 2000, the population of Guam is about 155,000. Guam’s primary ethnic groups are Chamorro and Filipino, and English and Chamorro are the dual official languages. Guam is believed to have been inhabited by the Chamorro people since about 2000 B.C. In 1521, Ferdinand Magellan landed on Guam; Spain claimed Guam and the Northern Mariana Islands as a possession in 1565, and in the mid-seventeenth century Spain began to colonize the islands. During the time of Spanish colonization, the Chamorro population of Guam and the Northern Mariana Islands declined significantly—from between 50,000 and 100,000 when the Spanish first arrived in the mid- sixteenth century to around 1,500 by the time of the Spanish census in 1783. After the Spanish-American War, in 1898, the United States took control of Guam, and the U.S. Navy became responsible for governing Guam. In 1941, Japan invaded Guam and occupied the island until 1944, when American forces recaptured Guam. In 1950, Congress passed the Organic Act for Guam, making Guam an unincorporated but organized territory of the United States. The Organic Act granted U.S. citizenship to the residents of Guam and organized a local government, which was to consist of a legislature; a Governor who would be appointed by the President, with the consent of the U.S. Senate; and a district court. Responsibility for the administration of Guam was subsequently transferred from the Secretary of the Navy to the Secretary of the Interior, where it remains today. In 1968, Congress amended the Organic Act to allow for the popular election of the Governor and Lieutenant Governor of Guam, and in 1972 Congress granted Guam a nonvoting delegate to Congress. Although Congress authorized Guam to call a constitutional convention to draft a local constitution in 1976, the proposed constitution was rejected by voters in a referendum. The court system in Guam has undergone significant changes since 1950. Congress and the Guam legislature have, over time, increased the responsibility and autonomy of the courts in Guam. For example, although the district court initially had jurisdiction over certain local matters, such jurisdiction was subsequently transferred from the District Court of Guam to the local Superior Court. Similarly, while the District Court of Guam had appellate jurisdiction over decisions of the Superior Court for a period of time, such jurisdiction was transferred from the District Court of Guam to the newly-created Supreme Court. Further, in order to provide oversight over the new Supreme Court, Congress originally provided that the U.S. Court of Appeals would have appellate jurisdiction over decisions of the Supreme Court for 15 years after its establishment. However, Congress later repealed this provision, providing that certain decisions of the Supreme Court may be appealed to the U.S. Supreme Court, just as are certain decisions of the highest state courts. The current court system of Guam is composed of a District Court of Guam, which has the jurisdiction of a U.S. district court and a bankruptcy court; a local Superior Court, which handles local matters; and a Supreme Court, which has appellate jurisdiction over decisions of the Superior Court. Beginning in 1950, the District Court of Guam had original jurisdiction over federal cases and some local cases, as well as appellate jurisdiction over certain decisions of the local trial court. In 1950, the Organic Act established the District Court of Guam and granted the court original jurisdiction over all cases arising under federal law, as well as all other cases in Guam not transferred by the Guam legislature to local courts. The Organic Act also granted the district court appellate jurisdiction to be determined by the Guam legislature. The Guam legislature subsequently reorganized the local court system, granting the local Island Court jurisdiction over non-felony cases arising under the laws of Guam, certain felony cases arising under the laws of Guam, all domestic relations and probate cases, and civil cases in which the amount in controversy did not exceed $2,000. Pursuant to the Organic Act, the Guam legislature also created an appellate division of the district court and provided that the district court had appellate jurisdiction over certain civil and criminal decisions of the Island Court. In 1974, Guam vested additional jurisdiction in the local courts, thereby divesting the district court of such jurisdiction. The legislature passed the Court Reorganization Act, creating a Superior Court, which replaced the preexisting Island, Police, and Commissioners’ Courts. The Act provided the Superior Court with original and exclusive jurisdiction over all cases arising under local law, except for cases also arising under federal law or pertaining to the Guam territorial income tax. The Court Reorganization Act also purported to create a Supreme Court, which was to have jurisdiction over appeals from the Superior Court, and repealed provisions of local law governing the appellate jurisdiction of the district court. The Supreme Court was not established under this law, however, as the transfer of appellate jurisdiction from the district court to the Supreme Court by the Guam legislature was challenged, and the U.S. Court of Appeals for the Ninth Circuit held that the Organic Act of Guam did not provide the Guam legislature with the authority to divest the district court of its appellate jurisdiction. In response, Congress amended the Organic Act of Guam in 1984 to authorize the Guam legislature to establish an appellate court and to confer upon such a court jurisdiction over all cases in Guam over which a federal district court does not have exclusive jurisdiction. The federal law also provided that, prior to the establishment of an appellate court, the District Court of Guam would continue to exercise appellate jurisdiction over the local courts of Guam. The same law expanded the jurisdiction of the district court to that of a district court of the United States, to include diversity jurisdiction. As an earlier law had conferred bankruptcy jurisdiction on the district court, from 1984 until 1996 the district court had the jurisdiction of the district court of the United States and a bankruptcy court of the United States, as well as appellate jurisdiction over local cases. The Guam legislature subsequently passed the Frank G. Lujan Memorial Court Reorganization Act of 1992, which created the Supreme Court of Guam. Once the Supreme Court became operational in 1996, the District Court of Guam was divested of appellate jurisdiction over local matters. In 2004, federal law amended the Organic Act to codify into federal law the establishment of the Superior and Supreme Courts of Guam. As a result, the District Court of Guam currently has the jurisdiction of a district court of the United States, including federal question jurisdiction and diversity jurisdiction, and that of a bankruptcy court of the United States. In general, since the establishment of the District Court of Guam, the U.S. Court of Appeals for the Ninth Circuit has had appellate jurisdiction over decisions of the district court. The Organic Act of 1950 provided that the Court of Appeals for the Ninth Circuit was to have appellate jurisdiction over decisions by the district court in all cases arising under federal law, habeas corpus proceedings, and civil cases in which the value in controversy exceeds $5,000. In 1951, Congress repealed this provision and amended federal law governing the appellate jurisdiction of the U.S. Courts of Appeals, providing that the Ninth Circuit Court of Appeals had appellate jurisdiction over all final and interlocutory decisions of the District Court of Guam. In 1982, the U.S. Court of Appeals for the Ninth Circuit held that its appellate jurisdiction extended to decisions of the appellate, as well as the trial, division of the District Court of Guam. In 1984, Congress codified into statute the appellate jurisdiction of the U.S. Court of Appeals for the Ninth Circuit over the decisions of the appellate division of the District Court of Guam. Once the Supreme Court became operational in 1996 and divested the district court of appellate jurisdiction, this provision became moot. Thus, current law provides that final and interlocutory decisions of the District Court of Guam may be appealed to the U.S. Court of Appeals for the Ninth Circuit. From 1950 until 1988, the U.S. Supreme Court had appellate jurisdiction over certain decisions of the District Court of Guam. The Organic Act provided that any party could appeal to the U.S. Supreme Court from a decision of the district court that held a federal law unconstitutional in a case in which the United States was a party. In 1951, although Congress repealed this provision and amended federal law governing the appellate jurisdiction of the U.S. Supreme Court, the right of appeal from the District Court of Guam to the U.S. Supreme Court remained substantively the same. In 1988, however, Congress repealed the provision allowing a direct appeal to the U.S. Supreme Court of a decision of a district court that holds a federal law unconstitutional in a case in which the United States is a party. As a result, current law provides that the decisions of the District Court of Guam may not be appealed directly to the U.S. Supreme Court. From 1950 until 1996, the District Court of Guam had appellate jurisdiction over decisions of the Superior Court. As noted above, the Organic Act granted the district court appellate jurisdiction to be determined by the Guam legislature, and the Guam legislature subsequently created an appellate division of the district court, providing that the district court had appellate jurisdiction over certain civil and criminal decisions of the local court. Pursuant to the 1984 amendments to the Organic Act, the appellate division of the District Court of Guam continued to exercise appellate jurisdiction over decisions of the Superior Court, with the U.S. Court of Appeals for the Ninth Circuit exercising appellate jurisdiction over this appellate division. Once the Supreme Court, authorized by federal law and established by the Guam legislature, became operational in 1996, it had appellate jurisdiction over decisions of the Superior Court. In 2004, the appellate jurisdiction of the Supreme Court was codified in U.S. Code, to include jurisdiction to hear appeals over any cause in Guam decided by the Superior Court of Guam or other courts established under the laws of Guam. Thus, current law provides that the Supreme Court has appellate jurisdiction over decisions of the Superior Court. From 1996 until 2004, the U.S. Court of Appeals for the Ninth Circuit had appellate jurisdiction over the Supreme Court of Guam. Federal law provided that the relations between the federal and local courts with respect to appeals, certiorari, removal of causes, and writs of habeas corpus are governed by the laws respecting the relations between the federal and state courts, except that for the first 15 years following the creation of the Supreme Court, the Ninth Circuit would have jurisdiction to review by writ of certiorari the decisions of such court. Thus, once the Supreme Court became operational in 1996, the U.S. Court of Appeals for the Ninth Circuit had appellate jurisdiction over the decisions of the Supreme Court. The U.S. Court of Appeals for the Ninth Circuit stated that its appellate jurisdiction over Supreme Court decisions extended not only to decisions arising under federal law but also to decisions arising under local law. In 2004, 7 years before the expiration of the 15 years after the establishment of the Supreme Court, Congress repealed the provision providing the Ninth Circuit with temporary appellate jurisdiction over decisions of the Supreme Court. Current law provides that local courts of Guam have the same relationship to federal courts as do state courts. Like final decisions of the highest state courts, final decisions of the Supreme Court of Guam may be reviewed by the U.S. Supreme Court, at its discretion, by writ of certiorari where the validity of a treaty or federal law is drawn into question; a territorial statute is drawn into question on the ground of it being repugnant to the U.S. Constitution, treaties, or federal law; or any title, right, privilege, or immunity is specially set up or claimed under the U.S. Constitution, treaties, federal, or commission held or authority exercised under the United States. The length of the terms of appointment for judges sitting on the District Court of Guam has increased over time. The Organic Act of 1950 provided that the judge for the district court was to be appointed by the U.S. President with the advice and consent of the Senate for a term of 4 years and paid the same salary as the Governor of Guam. The 1958 amendments extended the term of the district judge to 8 years and provided that the district judge of Guam receive the salary of U.S. district judges. In 1984, federal law again extended the term of the district judge of Guam, to 10 years. In addition to the judge appointed to sit on the District Court of Guam, other judges may be assigned to sit on the district court, and the population of judges that may be assigned to sit on the court has increased over time. The Organic Act provided that the Chief Justice of the United States was authorized to assign any consenting U.S. circuit or district judge to serve as a judge in the District Court of Guam whenever necessary for the proper dispatch of the business of the court. In 1958, federal law expanded the population of judges that were eligible to be assigned to serve temporarily in the district court by authorizing the Chief Judge of the Ninth Circuit to assign a judge of the Island Court of Guam, a judge of the High Court of the Trust Territory of the Pacific Islands, or a circuit or district judge of the Ninth Circuit to serve temporarily as a judge in the District Court of Guam. In 1984, federal law again expanded the population of judges eligible to serve temporarily in the district court by authorizing the Chief Judge of the Ninth Circuit to assign a recalled senior judge of the District Court of Guam or of the District Court for the Northern Mariana Islands. As a result, current law provides that the Chief Judge of the Ninth Circuit may assign a judge of any local court of record, a judge of the High Court of the Trust Territory of the Pacific Islands, a circuit or district judge of the Ninth Circuit, or a recalled senior judge of the District Court of Guam or of the District Court for the Northern Mariana Islands; and the Chief Justice of the United States may assign any other U.S. circuit or district judge, to serve temporarily as a judge in the District Court of Guam. The U.S. Virgin Islands consists of three main islands—St. Thomas, St. John, and St. Croix—as well as about 50 islets and cays. The islands have a total land mass of about 135 square miles and are located approximately 1,200 miles southeast of Florida and 40 miles east of Puerto Rico. According to 2000 U.S. Census Bureau data, the population of the U.S. Virgin Islands is about 109,000. Based on the same data, of the U.S. Virgin Islands population, about 76 percent is black and 13 percent is white, and though English is spoken at home by the majority of the population, about 17 percent claim Spanish and about 7 percent French or French Creole as their primary language. The Virgin Islands are believed to have been first inhabited by the Taino branch of the Arawak Indian culture group. The Taino Indians are believed to have been defeated by the Carib Indians, whom Christopher Columbus encountered when he first arrived in St. Croix in 1493. Throughout the seventeenth century, various European powers fought for control of the islands, but by 1735 Denmark governed the islands. With the use of large numbers of slaves, Denmark developed a sugar economy on St. Croix and a trading economy on St. Thomas. The United States purchased the Virgin Islands from Denmark in 1917. Federal law established a temporary government for the U.S. Virgin Islands, vesting the Governor, who, from 1917 until 1931 was a naval officer, with all military, civil, and judicial powers. The law also provided that local laws in effect at the time of enactment would remain in force and be administered by the existing local judicial tribunals. As such, the legislative branch consisted of two legislatures, one in St. Croix and one in St. Thomas, and the judicial branch consisted of the police courts and district court. In 1927, federal law provided that all residents of the U.S. Virgin Islands were U.S. citizens. In 1931, the President transferred responsibility for governing the U.S. Virgin Islands from the Secretary of the Navy to the Secretary of the Interior. Congress subsequently passed the Organic Act of 1936, which established local self-government. The Act provided for two Municipal Councils, one for St. Croix and one for St. Thomas and St. John, which were to meet once a year to enact legislation that would apply to the Virgin Islands as a whole; a Governor, to be appointed by the President with the advice and consent of the Senate, who was to act under the supervision of the Secretary of the Interior; and a District Court of the Virgin Islands and such inferior courts as the local legislature may determine. The Revised Organic Act of 1954 largely maintained the governmental structure from the prior Organic Act, except that it established a unified legislature for the U.S. Virgin Islands. In 1968, federal law provided that the Governor was to be popularly elected, and in 1972, federal law granted the U.S. Virgin Islands a nonvoting delegate to Congress. Although Congress authorized the U.S. Virgin Islands to convene a constitutional convention to draft a constitution, the proposed constitutions were rejected by voters. The court system in the U.S. Virgin Islands has changed over time, with the local courts gradually gaining increased responsibility and autonomy. For example, though the local trial court previously exercised jurisdiction over certain local issues, in the 1970s and early 1980s the local trial court was granted concurrent jurisdiction with the district court over additional local cases, and by 1994 the local trial court had been granted exclusive jurisdiction over local cases. Similarly, while the District Court of the Virgin Islands had appellate jurisdiction over decisions of the Superior Court for a period of time, in 2007 such jurisdiction was transferred from the District Court of the Virgin Islands to the newly-created Supreme Court. The current court system of the U.S. Virgin Islands is composed of the District Court of the Virgin Islands, which has the jurisdiction of a U.S. district court and a bankruptcy court; a local Superior Court, which handles local matters; and a Supreme Court, which has appellate jurisdiction over decisions of the Superior Court. From 1917 until 1936, the local judicial system in the U.S. Virgin Islands operated largely without federal influence. After the United States acquired the Virgin Islands in 1917, Congress passed a law providing that until Congress otherwise provided, local laws were to remain in force and be administered by the existing local judicial tribunals. By 1921, the local judicial tribunals consisted of a district court and three police courts: the Police Court of Frederiksted, the Police Court of Christiansted, and the Police Court of Charlotte Amalie. The district court had jurisdiction over all civil, criminal, admiralty, equity, insolvency, and probate matters and causes, unless jurisdiction was conferred on some other court, in which event the jurisdiction of the district court was concurrent. The police courts had jurisdiction, though not exclusive, over the recovery of specific personal property when the value did not exceed $200, for the recovery of money or damages when the amount claimed did not exceed $200, and over cases in which the defendant confessed without action to certain offenses. The police courts also had criminal jurisdiction, though not exclusive, over cases involving larceny when the value of the property did not exceed $50; assault or assault and battery, except when charged as committed with intent to commit a felony, in the course of a riot, or with any weapon or upon a public officer when upon duty; any other misdemeanor; and any offense over which jurisdiction was specifically conferred upon the police court. The police courts did not have jurisdiction over actions involving the title to real property and actions for false imprisonment, libel, malicious prosecution, criminal conversation, seduction upon a promise to marry, actions of an equitable nature, or admiralty causes. Beginning in 1936, the District Court of the Virgin Islands had original jurisdiction in federal cases and some local cases, as well as appellate jurisdiction over the local courts. In 1936, the Organic Act established the District Court of the Virgin Islands, granting it jurisdiction over criminal cases arising under local or federal law, cases in equity, cases in admiralty, cases of divorce and annulment of marriage, cases at law involving sums exceeding $200, cases involving title to real estate, and cases involving federal offenses committed on the high seas on vessels belonging to U.S. citizens or corporations when the offenders were found on or brought to the Virgin Islands. The District Court of the Virgin Islands also had concurrent jurisdiction with the police courts over civil cases in which the sum did not exceed $200 and criminal cases in which the punishment did not exceed a fine of $100 or imprisonment of 6 months, as well as appellate jurisdiction over decisions of the police courts. At the same time, the Organic Act authorized the local legislature to provide for a local Superior Court and to transfer from the District Court of the Virgin Islands to the Superior Court jurisdiction over all cases other than those arising under federal law. The Revised Organic Act of 1954 provided that the District Court of the Virgin Islands had the jurisdiction of a district court of the United States in all causes arising under federal law, regardless of the sum or value of the matter in controversy. The Revised Organic Act also provided that the district court had general original jurisdiction over all causes in the Virgin Islands, except that the local courts had exclusive jurisdiction over civil actions in which the matter in controversy did not exceed $500, criminal cases in which the maximum punishment did not exceed $100 or imprisonment for 6 months, or both, and all violations of police and executive regulations. The Act further authorized the local legislature to grant the local courts additional jurisdiction, to be exercised concurrently with the district court. Over time, the Virgin Islands government granted the local courts additional jurisdiction, which was exercised concurrently with the district court. In 1976, Virgin Islands law provided that the newly-named Territorial Court had concurrent jurisdiction over civil cases in which the amount in controversy exceeded $500 but did not exceed $50,000 and over criminal cases in which the punishment exceeded a fine of $100 or imprisonment for 6 months but did not exceed imprisonment for 1 year or a fine as prescribed by law. The same law provided that 2 years after the effective date of the law, the Territorial Court would assume jurisdiction, concurrent with the district court, over criminal cases in which the maximum sentence did not exceed imprisonment for 5 years or a fine as prescribed by law. In 1981, local law expanded the civil jurisdiction of the Territorial Court by increasing the maximum amount in controversy from $50,000 to $200,000. In 1984, Congress further defined the jurisdiction of the District Court of the Virgin Islands and authorized the local legislature to divest the district court of jurisdiction over local matters. Congress amended the Organic Act, conferring upon the District Court of the Virgin Islands the jurisdiction of a federal court, including diversity jurisdiction; the jurisdiction of a bankruptcy court; exclusive jurisdiction over cases involving income tax laws applicable to the Virgin Islands; and concurrent jurisdiction with the local courts over offenses against local law that are based on the same underlying facts as offenses against federal law. The amendments also granted the District Court of the Virgin Islands jurisdiction over all causes in the Virgin Islands not vested by local law in the local courts of the U.S. Virgin Islands, except that the jurisdiction of the district court was not to extend to civil cases in which the matter in controversy did not exceed the sum of $500 or to criminal cases in which the maximum punishment did not exceed a fine of $100 or imprisonment for 6 months, or both, and to violations of local police and executive regulations. In conjunction with this provision, the amendments authorized the legislature of the Virgin Islands to vest in the local courts jurisdiction over all causes in the Virgin Islands over which any federal court did not have exclusive jurisdiction. The U.S. Virgin Islands government subsequently took action to expand the jurisdiction of the local courts and divest the district court of jurisdiction over local matters. The local legislature provided that, effective in 1991, the Territorial Court had jurisdiction over all civil cases regardless of the amount in controversy, subject to the original jurisdiction of the District Court of the Virgin Islands. Effective in 1992, Virgin Islands law provided that the Territorial Court had jurisdiction, subject to the concurrent jurisdiction of the district court, over criminal cases in which the punishment did not exceed imprisonment for 15 years or a fine prescribed by law. Effective in 1994, the criminal jurisdiction of the Territorial Court was further expanded, as Virgin Islands law provided that the Territorial Court had jurisdiction over all criminal cases, subject to the concurrent jurisdiction of the district court over local offenses with the same underlying facts as federal offenses. Thus, current law provides that the District Court of the Virgin Islands has the jurisdiction of a district court of the United States, including diversity jurisdiction; the jurisdiction of a bankruptcy court; jurisdiction over all matters relating to income tax laws applicable to the Virgin Islands; and concurrent jurisdiction with the Superior Court over criminal cases arising under local law in which the underlying facts are the same as federal offenses. Since 1917, decisions of the District Court of the Virgin Islands could be appealed to the U.S. Court of Appeals for the Third Circuit. In 1917, after the United States acquired the Virgin Islands, Congress passed a law providing that appeals were to be made to the U.S. Court of Appeals for the Third Circuit. The Organic Act of 1936 provided that appeals from the District Court were to be as provided by the law in force on the date of enactment. In 1948, federal law provided that the U.S. Court of Appeals for the Third Circuit had appellate jurisdiction over final and interlocutory decisions of the District Court of the Virgin Islands. The 1984 amendments to the Organic Act confirmed that such appellate jurisdiction extended to decisions of the appellate division of the district court, which had appellate jurisdiction over decisions of the Superior Court. Once the Supreme Court of the Virgin Islands became operational in 2007, this provision became moot. Thus, current law provides that the U.S. Court of Appeals for the Third Circuit has appellate jurisdiction over final and interlocutory decisions of the District Court of the Virgin Islands. From 1948 until 1988, the U.S. Supreme Court had appellate jurisdiction over certain decisions of the District Court of the Virgin Islands. In 1948, federal law provided that the U.S. Supreme Court had appellate jurisdiction over any decision of the District Court of the Virgin Islands that held a federal law unconstitutional in a case in which the United States was a party. In 1988, however, Congress repealed this provision. As a result, current law provides that the decisions of the District Court of the Virgin Islands may not be appealed directly to the U.S. Supreme Court. From 1936 until 2007, decisions of the Superior Court of the Virgin Islands could be appealed to the District Court of the Virgin Islands; since 2007, the Supreme Court of the Virgin Islands has had appellate jurisdiction over decisions of the Superior Court. The Organic Act of 1936 provided that the District Court of the Virgin Islands had appellate jurisdiction over decisions of the local courts. The Revised Organic Act of 1954 again provided that the District Court of the Virgin Islands had appellate jurisdiction over decisions of the local courts to the extent prescribed by local law. By 1965, the Virgin Islands legislature had defined the appellate jurisdiction of the district court over the decisions of the Superior Court, providing that the district court had appellate jurisdiction over Superior Court decisions in all civil cases, all juvenile and domestic relations cases, and all criminal cases in which the defendant was convicted, other than by guilty plea. In 1984, federal law provided for an appellate division of the District Court of the Virgin Islands, which was to consist of the chief judge of the district court and two designated judges, provided that not more than one of them was a judge of a court established by local law. The federal law also authorized the Virgin Islands legislature to establish an appellate court, and in 2004, the Virgin Islands legislature did so, establishing the Supreme Court of the Virgin Islands. Once the Supreme Court became operational in 2007, it assumed appellate jurisdiction over decisions of the Superior Court. Since 2007, the U.S. Court of Appeals for the Third Circuit has had appellate jurisdiction over the decisions of the Supreme Court of the Virgin Islands. Federal law provides that the relations between the federal and local courts with respect to appeals, certiorari, removal of causes, and writs of habeas corpus are governed by the laws respecting the relations between the federal and state courts; however, the law provides that for the first 15 years following the creation of the Supreme Court, the Third Circuit is to have jurisdiction to review by writ of certiorari the decisions of such court. As such, since 2007, when the Supreme Court became operational, the U.S. Court of Appeals for the Third Circuit has exercised this jurisdiction. In 2022, upon the expiration of the 15 years, local courts of the Virgin Islands will have the same relationship to the federal judicial system as do state courts. Of significance, final decisions of the Supreme Court of the Virgin Islands will be reviewed by the U.S. Supreme Court, at its discretion, by writ of certiorari where the validity of a treaty or federal law is drawn into question; a territorial statute is drawn into question on the ground of it being repugnant to the U.S. Constitution, treaties, or federal law; or any title, right, privilege, or immunity is specially set up or claimed under the U.S. Constitution, treaties, federal, or commission held or authority exercised under the United States. Both the number of judges of the District Court of the Virgin Islands and the terms of appointment of those judges have increased over time. The Organic Act of 1936 provided that the judge of the District Court of the Virgin Islands was to be appointed by the President with the advice and consent of the Senate and hold a term of 4 years unless sooner removed by the President for cause. The Revised Organic Act of 1954 increased the term of the judge to 8 years and provided that the judge should receive the salary equal to that of judges of U.S. district courts. In 1970, the District Court of the Virgin Islands was allocated an additional district judge, and in 1984, federal law increased the term of the two judges of the district court to 10 years. In addition to the judges appointed to sit on the District Court of the Virgin Islands, other judges may be assigned to sit temporarily on the court, and the population of judges eligible to be assigned to the District Court of the Virgin Islands has increased over time. The Revised Organic Act of 1954 provided that, whenever such an assignment is necessary for the proper dispatch of the business of the district court, the Chief Judge of the Third Circuit may assign a circuit or district judge of the Third Circuit, or the Chief Justice of the United States may assign any other U.S. circuit or district judge with the consent of the judge and of the chief judge of that circuit, to serve temporarily as a judge of the District Court of the Virgin Islands. In 1970, federal law expanded the pool of judges that the Chief Judge of the Third Circuit may assign to serve temporarily as a judge of the District Court of the Virgin Islands to include judges of the Municipal Court of the Virgin Islands. The 1984 federal law further expanded the pool of judges eligible to be assigned by the Chief Judge of the Third Circuit to the district court to include any judge of a court of record of the Virgin Islands established by local law and a recalled senior judge of the District Court of the Virgin Islands. Thus, current law provides that, when such an assignment is necessary for the proper dispatch of the business of the court, the chief judge of the Third Circuit may assign a judge of a court of record of the Virgin Islands established by local law, a circuit or district judge of the Third Circuit, or a recalled senior judge of the District Court of the Virgin Islands; and the Chief Justice of the United States may assign any other United States circuit or district judge with the consent of the assigned judge and the chief judge of that circuit, to serve temporarily as a judge of the District Court of the Virgin Islands. In addition to the contact named above, Christopher Conrad, Assistant Director, Chuck Bausell, Jenny Chanley, George Depaoli, Emil Friberg, Jared Hermalin, Nancy Kawahara, Tracey King, Jeff Malcolm, Jan Montgomery, Amy Sheller, and Adam Vogt made key contributions to this report.

American Samoa is the only populated U.S. insular area that does not have a federal court. Congress has granted the local High Court federal jurisdiction for certain federal matters, such as specific areas of maritime law. GAO was asked to conduct a study of American Samoa's system for addressing matters of federal law. Specifically, this report discusses: (1) the current system for adjudicating matters of federal law in American Samoa and how it compares to those in the Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the U.S. Virgin Islands (USVI); (2) the reasons offered for or against changing the current system for adjudicating matters of federal law in American Samoa; (3) potential scenarios and issues associated with establishing a federal court in American Samoa or expanding the federal jurisdiction of the local court; and (4) the potential cost elements and funding sources associated with implementing those different scenarios. To conduct this work, we reviewed previous studies and testimonies, and collected information from and conducted interviews with federal government officials and American Samoa government officials. Because American Samoa does not have a federal court like the CNMI, Guam, or USVI, matters of federal law arising in American Samoa have generally been adjudicated in U.S. district courts in Hawaii or the District of Columbia. Reasons offered for changing the existing system focus primarily on the difficulties of adjudicating matters of federal law arising in American Samoa, principally based on American Samoa's remote location, and the desire to provide American Samoans more direct access to justice. Reasons offered against any changes focus primarily on concerns about the effects of an increased federal presence on Samoan culture and traditions and concerns about juries' impartiality given close family ties. During the mid-1990s, several proposals were studied and many of the issues discussed then, such as the protection of local culture, were also raised during this study. Based on previous studies and information gathered for this report, GAO identified three potential scenarios, if changes were to be made: (1) establish a federal court in American Samoa under Article IV of the U.S. Constitution, (2) establish a district court in American Samoa as a division of the District of Hawaii, or (3) expand the federal jurisdiction of the High Court of American Samoa. Each scenario would present unique issues to be addressed, such as what jurisdiction to grant the court. The potential cost elements for establishing a federal court in American Samoa include agency rental costs, personnel costs, and operational costs, most of which would be funded by congressional appropriations. Exact details of the costs to be incurred would have to be determined when, and if, any of the scenarios were adopted. The controversy surrounding whether and how to create a venue for adjudicating matters of federal law in American Samoa is not principally focused on an analysis of cost effectiveness, but other policy considerations, such as equity, justice, and cultural preservation.

You are an expert at summarizing long articles. Proceed to summarize the following text: FDA’s mission is to protect the public health by ensuring the safety and effectiveness of human drugs marketed in the United States. The agency’s responsibilities begin years before a drug is marketed and continue after a drug’s approval. FDA oversees the drug development process. Among other things, FDA reviews drug sponsors’ proposals for conducting clinical trials, assesses drug sponsors’ applications for the approval of new drugs, and publishes guidance for industry on various topics. Once drugs are marketed in the United States, FDA has the responsibility to continue to monitor their safety and efficacy and to enforce drug sponsors’ compliance with applicable laws and regulations. FDA also annually publishes a list of drugs approved for sale within the United States, the Approved Drug Products with Therapeutic Equivalence Evaluations, also known as the Orange Book. In addition, since February 2005, FDA has provided updates via the Electronic Orange Book on brand-name drug approvals the month they are approved and on generic drug approvals daily. FDA’s Center for Drug Evaluation and Research is responsible for ensuring the safety and efficacy of drugs. Within this center, the Office of New Drugs is responsible for reviewing new drug applications (NDA), while the Office of Generic Drugs is responsible for reviewing applications for generic drugs, which are abbreviated new drug applications (ANDA). NDAs and ANDAs must be submitted by sponsors and approved by FDA before a new brand-name or generic drug can be marketed in the United States. As part of the approval process, FDA reviews proposed labeling for both brand-name and generic drugs; a drug cannot be marketed without an FDA-approved label. Among other things, a drug’s label contains information for health care providers and specifically cites the conditions and populations the drug has been approved to treat, as well as effective doses of the drug. Sponsors of both new brand-name and generic drugs are required to submit annual reports to FDA that include, for example, updates about the safety and effectiveness of their drugs; these annual reports are one way FDA monitors the safety and efficacy of drugs once they are available for sale. Manufacturers may submit an ANDA to FDA to seek approval to market a generic version of the drug after the period of exclusivity and any patents for a brand-name drug expire. FDAAA contained three provisions related to antibiotic effectiveness and innovation, each of which required FDA to take certain actions. One provision required FDA to identify breakpoints “where such information is reasonably available,” to periodically update them, and to make these up- to-date breakpoints publicly available within 30 days of identifying or updating them. A second provision extended the duration of market exclusivity from 3 years to 5 years for new drugs that meet certain detailed, scientific criteria. be for a new drug consisting of a single enantiomer of a previously approved racemic drug. The application for the drug must also be submitted for approval in a different therapeutic category than the previously approved drug and meet certain other requirements. FDAAA specified that FDA use the therapeutic categories established by the United States Pharmacopeia to determine whether an application has been submitted for a separate therapeutic category than the previously approved drug.categories developed by this organization that were in effect on the date of the enactment of FDAAA. The provision applies to new drugs of any type that meet the criteria, not just antibiotics. Pub. L. No. 110-85, § 1113, 121 Stat. 823, 976-77 (2007). serious and life-threatening infectious diseases.to counter some of the business risks a drug sponsor must undertake when developing antibiotics. For example, the Orphan Drug Act provides incentives including a 7-year period of marketing exclusivity to sponsors of approved orphan drugs, a tax credit of 50 percent of the cost of conducting human clinical testing, research grants for clinical testing of new therapies to treat orphan diseases, and exemption from the fees that are typically charged when sponsors submit NDAs for FDA’s review. Sponsors may also be eligible for a faster review of their applications for market approval. Sponsors of all drugs are required to keep the information on their drug labels accurate. Unlike labels for most other types of drugs, labels for antibiotics contain breakpoints. These breakpoints may continue to change over time, and the sponsors of antibiotics are tasked with the additional responsibility of maintaining up-to-date breakpoints on labels. Although sponsors are required to maintain up-to-date breakpoints on their labels, FDA has acknowledged that many antibiotics are labeled with outdated breakpoints. Outdated breakpoints can result in health care providers unknowingly selecting ineffective treatments, which can also contribute to additional bacterial resistance to antibiotics. Monitoring breakpoints on labels and keeping them up to date can be a challenging process. The most accurate way to monitor and determine if a breakpoint on a label is up to date is to conduct both clinical trials and laboratory studies, but these can be difficult and expensive and may not be appropriate in all circumstances. For example, clinical trials require the enrollment of large numbers of patients, which may be difficult to achieve, to ensure an understanding of a drug’s safety and effectiveness against specific bacteria. Enrollment may also be difficult for clinical trials involving antibiotic-resistant bacteria. Unlike clinical trials for a new cancer drug, for example, where researchers are able to target drugs to a patient population with a specific type of cancer, this may not necessarily be the case for antibacterial drugs. There are no rapid diagnostic tests available to help a researcher identify patients with antibiotic-resistant infections who would be eligible for such trials. Laboratory studies, such as susceptibility testing, can be less costly than clinical trials; however, they still require significant microbiology expertise. Susceptibility testing reveals an antibiotic’s breakpoint—that is, its ability to kill or inhibit the growth of a specific bacterial pathogen. As such, the results of such tests can provide a sponsor with some data to help update its antibiotic label with more accurate information. Guidelines for developing appropriate susceptibility tests are available from standards-setting organizations, such as the Clinical and Laboratory Standards Institute. Sponsors may obtain information from such organizations to help them conduct susceptibility tests for their antibiotics or otherwise determine if the breakpoints on their antibiotic labels are up to date. According to FDA officials, much of this information is available free online and at conferences. When new information becomes available that may cause the label to become inaccurate, false, or misleading—such as information on increased bacterial resistance to antibiotics—drug sponsors are responsible for updating their drug labels. Label changes of this type require FDA’s approval. A sponsor must submit an application supplement to FDA with evidence to support the need for a label change. A sponsor’s responsibility for maintaining a drug’s label persists throughout the life cycle of the drug—that is, from the time the drug is first approved until FDA withdraws its approval of the drug. A drug is not considered withdrawn until FDA publishes a Federal Register notice officially announcing its withdrawal. A sponsor may also decide to discontinue manufacturing a drug without withdrawal. Sponsors that decide to discontinue marketing a drug are still responsible for maintaining accurate labels. Unlike a drug that is withdrawn, a discontinued drug for which approval has not been withdrawn is one that the sponsor has stopped marketing, but that it may resume marketing without obtaining permission to do so from FDA. Discontinued drugs are identified as such in the discontinued section of the Orange Book. Federal regulations allow ANDA’s labels to differ from the label of the corresponding reference-listed drug in certain ways, such as manufacturer name or expiration date. See 21 C.F.R. § 314.94(a)(8)(iv) (2011). to-date breakpoints, into their generic drugs’ labels. A drug maintains its reference-listed drug designation until its approval is withdrawn or a finding is made by FDA that a discontinued reference-listed drug was In either withdrawn from the market for safety or effectiveness reasons.of these cases, FDA will designate a different drug as the reference-listed drug and publish this change in the Orange Book. FDA will generally designate the generic version of the drug with the largest market share as the new reference-listed drug. In this case, the labels of other generic versions of the drug will be expected to follow the label of the newly designated generic, reference-listed drug. FDA has not taken sufficient steps to implement the FDAAA provision regarding preserving antibiotic effectiveness by ensuring that antibiotic labels contain up-to-date breakpoints. In 2008 FDA requested that sponsors respond to the agency regarding whether their antibiotics’ labels included up-to-date breakpoints, but FDA has not yet confirmed whether the majority of these labels are accurate. FDA also took the step of issuing guidance in 2009 on sponsors’ responsibility to maintain up-to- date breakpoints on their antibiotics’ labels, but the agency has not been systematically tracking sponsors’ responsiveness. Although FDA has taken steps to update breakpoint information on antibiotic labels, as of November 2011, it has not confirmed that the information is up to date for most reference-listed antibiotics. As one step in FDA’s efforts to implement the FDAAA provision regarding antibiotic effectiveness, FDA identified 210 antibiotics and, in January and February 2008, sent letters to the sponsors of these drugs reminding them of the importance of regularly updating the breakpoints on their antibiotic labels. In addition, the letters requested that sponsors evaluate and maintain the currency of breakpoints included on their labels and within 30 days submit evidence to FDA showing that the breakpoints were either current or needed revision. Sponsors that could not submit this evidence within 30 days were advised to provide the agency with a timetable for when they expected to respond with this information. If sponsors determined that their antibiotic labels needed revision, the agency’s letter instructed them to submit a label supplement. FDA’s letters also highlighted to sponsors that all subsequent annual reports should include an evaluation of these breakpoints and document the status of any needed changes to the antibiotic label. As of November 2011, over 3.5 years after FDA sent its letters, 146, or 70 percent, of the 210 antibiotics are still labeled with breakpoints that have not been updated or confirmed to be up to date. For 78 of the 146 antibiotics, FDA has not yet received a submission regarding the currency of the breakpoints; for 12 of the antibiotics, the sponsors’ submissions are pending FDA review; and for 56 of the antibiotics, FDA determined that the sponsors’ submission was inaccurate or incomplete and therefore requested a revision or additional information. Thus far, FDA has determined that 64, or 30 percent, of the 210 antibiotics have up-to-date breakpoints (see fig. 1). (See app. II for more details on the status of the labels of the 210 antibiotics.) One reason so many antibiotics still have breakpoints that FDA has not confirmed to be up to date is that many sponsors have not fulfilled the responsibilities outlined in FDA’s 2008 letters. FDA officials stated that the agency has followed up with sponsors that had not responded at all to the 2008 letters; however, it did not begin to do so until 2010—2 years after it asked sponsors to respond within 30 days—and two sponsors have still not informed FDA when they intend to submit the requested information. FDA officials told us that they routinely monitor the status of all requested submissions that they have not yet received. In particular, they told us that they have contacted sponsors to set time frames for submitting the requested information, and that they follow up with sponsors that do not submit information within the time frames established. FDA has not pursued regulatory action against any of these sponsors. FDA officials stated that the agency could take regulatory action against a sponsor whose label contained outdated breakpoints, as federal regulations require all sponsors of drugs to maintain accurate labels. However, the officials added that in order for FDA to take regulatory action against a sponsor, FDA would first have to be able to prove that the breakpoint on the antibiotic label was not up to date. Another reason many antibiotics still have breakpoints on their labels that FDA has not confirmed to be up to date is that FDA faced difficulty in keeping up with the workload that resulted from sponsors’ breakpoint submissions. According to FDA officials, it should take 1 to 3 months for the agency to review such submissions when staff are available and the submissions include all of the necessary information. However, it took FDA longer than a year to review many of the submissions it received, and as of November 2011, FDA still had a backlog of five submissions from 2008. FDA officials identified four factors that have contributed to the lengthy time between when the agency received a submission and when it completed its review. First, FDA officials explained that the submissions sent in response to the agency’s 2008 letter generated a larger number of supplements than normal, adding significantly to FDA’s existing workload of label supplements. Second, some of the submissions required significantly more resources to review than typical label supplements, because of challenging scientific issues or difficulties obtaining data. Third, some of the sponsors’ submissions were inaccurate or did not include all necessary information. Fourth, FDA staff spent a significant amount of time answering questions from sponsors, tracking responses, and following up when needed. Some of the sponsors we obtained comments from expressed frustration at how long it took FDA to review their submissions, especially given that bacterial resistance to antibiotics is not static and breakpoints may continue to change over time. Specifically, 3 of the 26 sponsors we obtained comments from stated that they are concerned that the breakpoints they submitted may be outdated by the time FDA completes its review. One of these sponsors told us that it was advised by FDA to refrain from submitting new information before the agency completed its review of the sponsor’s previously submitted label supplement. According to the sponsor, FDA officials said that providing new information would result in the sponsor’s submission going to the end of FDA’s review queue. While the fact that breakpoints on the labels of 146 antibiotics may not be up to date is troubling, there are additional reasons for concern. First, nearly all of these 146 antibiotics are reference-listed drugs—thus, in addition to the labels of these drugs, the labels of the generic antibiotics that follow the labels of the reference-listed antibiotics are also uncertain. Second, because bacterial resistance to antibiotics is not static, some of the breakpoints for the 64 antibiotics that FDA has confirmed through its review as up to date may have since become out of date. Third, FDA’s list of 210 drugs did not include a complete list of all the antibiotics for which sponsors are responsible for evaluating and maintaining the breakpoints on their labels. For example, FDA did not include any brand-name drugs that were discontinued at the time the agency compiled its list, and also did not include some antibiotics that were reference-listed drugs at that time. FDA officials were unsure how many antibiotics were omitted, but estimated that the number was low. Given the uncertainty surrounding the 146 antibiotics whose breakpoints have not yet been confirmed as well as the antibiotics omitted from FDA’s 2008 request to sponsors, more than two-thirds of reference-listed antibiotic labels may contain out-of-date breakpoints. Another step FDA took to implement the FDAAA provision regarding preserving the effectiveness of antibiotics was to issue guidance that reminded sponsors of the requirement to maintain accurate labels, and thus, their responsibility to keep information about breakpoints up to FDA officials stated that in part because the agency received date.questions in response to its 2008 letters, officials determined that it would be useful to issue guidance. FDA first issued draft guidance in June 2008 and finalized it a year later, in June 2009. The guidance specified that the sponsors of brand-name and generic antibiotics that are designated as reference-listed drugs are responsible for evaluating their breakpoints on labels at least annually and should include this evaluation in the sponsor’s annual report to FDA. When we asked for clarification as to whether the guidance language limited this responsibility to the sponsors of those brand-name antibiotics that are reference listed, FDA officials told us that the guidance applied to sponsors of all brand-name antibiotics—both those that were and were not reference listed, including those that are discontinued—as well as sponsors of reference-listed, generic antibiotics. The guidance also described approaches sponsors could take to determine up-to-date breakpoints for their antibiotics. While FDA’s 2008 letters to certain sponsors communicated much of the same information, FDA’s guidance was the first time that FDA specified (1) which sponsors are responsible for evaluating their breakpoints, including that this responsibility applied to sponsors of generic, reference-listed antibiotics, and (2) the frequency with which sponsors needed to perform these evaluations. FDA has not been systematically tracking whether sponsors have been responsive to the guidance. Specifically, FDA does not know what percentage of antibiotic annual reports have included an evaluation of breakpoints. At our request, FDA reviewed a small sample of annual reports and this review suggested that sponsors’ responsiveness to the annual reporting responsibility is low. FDA reviewed the most recent annual reports for 19 of the 64 antibiotics that FDA confirmed to be labeled with up-to-date breakpoints after receiving a response to the agency’s 2008 letters. FDA found that 10 of the 19, or just over half, of these annual reports included an evaluation of the antibiotics’ breakpoints. group of antibiotics—that is, those for which a sponsor already responded to FDA’s 2008 letter with a submission regarding the currency of their breakpoints—the overall rate for all antibiotics is likely even lower. FDA looked at a subset of the 64 antibiotics that were also brand-name drugs and for which the sponsor had submitted its most recent annual report electronically. Three of the 19 antibiotics in FDA’s sample had annual reports that noted that a label supplement was recently approved but had not been implemented in time to be reflected in the report. Because bacterial resistance to antibiotics is not static, sponsors that do not follow the guidance by evaluating their breakpoints on a regular basis and sharing the results of their evaluation with FDA are unlikely to be able to maintain accurate labels. FDA officials stated that they plan to track compliance with the guidance in one of the agency’s drug databases by January 1, 2012. FDA plans to have all annual reports for antibiotics reviewed by FDA microbiologists who will use a standardized form to document the assessment of the antibiotics’ breakpoints. In addition, the agency plans to track whether the annual report included an evaluation of the antibiotics’ breakpoints in an FDA database. FDA plans to follow up with sponsors that do not include a complete evaluation of antibiotic breakpoints in their annual reports to inform them about what information was missing. Some sponsors, particularly sponsors of generic, reference-listed antibiotics, may not be following FDA’s guidance because they are confused as to whether the responsibility to evaluate and maintain up-to- date breakpoints on their labels, as described in the guidance, applies to them. Fifteen sponsors we obtained comments from manufactured at least one generic, reference-listed antibiotic—all were responsible for evaluating and maintaining their breakpoints. Of these 15, 7 sponsors expressed some form of confusion regarding their responsibility. Five of these 7 sponsors stated that their strategy for ensuring that the breakpoints on their generic antibiotic labels were up to date was to follow the breakpoints on the label of the corresponding brand-name drug. Two of the 5 were even more specific and added that their generic antibiotics were only designated reference-listed drugs “by default” and that their strategy was to follow the label of the brand-name drug—even if the brand-name drug was discontinued. One other sponsor was unsure whether any of its generic antibiotics were reference-listed drugs or what implications such a designation would have. A seventh sponsor understood the responsibilities associated with having a generic antibiotic that was designated a reference-listed drug, but was under the impression that its generic antibiotic was not a reference-listed drug. FDA officials told us that it is a sponsor’s responsibility to routinely monitor FDA’s Orange Book to determine if any of its drugs become designated a reference-listed drug. However, FDA’s June 2009 guidance is silent on sponsors’ responsibility to consistently monitor the Orange Book to determine if one of their drugs has become, or ceases to be, a reference-listed drug. The officials acknowledged that there is no process or mechanism for notifying sponsors when one of their drugs becomes, or is no longer, a reference-listed drug. The guidance was also not explicit about FDA’s view that the responsibility described in the guidance also applied to sponsors of discontinued brand-name antibiotics. The guidance also explained that FDA intended to comply with FDAAA’s requirement that it identify, periodically update, and make publicly available up-to-date breakpoints by using two approaches. First, the guidance explained that the agency would review breakpoints referenced in the labeling of individual drug products and post any approved labels on the Internet. FDA officials told us that this is the approach FDA has thus far used to make up-to-date breakpoints publicly available. Second, FDA’s guidance also stated that it would, when appropriate, recognize standards used to determine breakpoints from one or more standards- FDA setting organizations and publish these in the Federal Register.has not yet used this approach and did not mention a specific plan or timetable to do so. FDA officials told us that publishing this information in the Federal Register could make the review process quicker as sponsors would then have ready access to standards already recognized by FDA. For example, publishing this information may be helpful for some sponsors, such as those that do not have the microbiology expertise to update their own breakpoints. While FDA officials said that they have been making updated breakpoints publicly available, the agency’s guidance regarding these alternative approaches may be causing confusion among some sponsors that are anticipating the publication of breakpoints from standards-setting organizations in the Federal Register. This was the case for one sponsor we obtained comments from, which stopped purchasing data from a standard-setting organization because it believed FDA would be publishing recognized standards in the Federal Register. The FDAAA provision that grants extended market exclusivity has not resulted in any sponsors submitting NDAs for antibiotics that qualify for this exclusivity. Additionally, as required by FDAAA, FDA held a public meeting to discuss incentives, such as those available under the Orphan Drug Act, to encourage antibiotic innovation. However, no changes were made to the availability of current incentives nor were any new incentives established following the public meeting. To date, drug sponsors, including those we received comments from, have not submitted any NDAs for antibiotics as a result of the FDAAA provision granting additional market exclusivity for new drugs containing single enantiomers of previously approved racemic drugs. According to FDA officials, they have received very few inquiries regarding this provision and as of November 2011, no NDAs for antibiotics have been submitted that would qualify for this exclusivity. FDA officials noted that because it is a narrowly targeted provision, they are unsure if any existing racemic drug could qualify. None of the drug sponsors from which we obtained comments said that this FDAAA provision provided a sufficient incentive to develop a new antibiotic of this type. FDA officials stated that it was unlikely that this provision would have an impact on antibiotic innovation. The officials stated that the requirement that the single enantiomer of the approved drug be in a separate therapeutic category would be challenging for antibiotic sponsors to meet. The officials noted that this market exclusivity was not limited to antibiotics. One drug sponsor we spoke with stated that it is pursuing this market exclusivity for a drug that is not an antibiotic. The lack of NDAs for antibiotics submitted in response to this FDAAA provision is consistent with the overall trend in the approval of innovative antibiotic NDAs. The number of annual approvals of antibiotic NMEs from 2001 through 2010 has not changed significantly since the passage of FDAAA. Specifically, the annual number of antibiotic NME approvals was two or less for the years prior to, and one or less for the years following, the enactment of FDAAA. Because drug development is a lengthy process—sponsors spend, on average, 15 years developing a new drug—it may be too early to ascertain the full impact of FDAAA on antibiotic innovation. However, the extended exclusivity provided for in FDAAA is only available to sponsors submitting qualifying NDAs before October 1, 2012. As required by FDAAA, FDA held a public meeting on April 28, 2008, to explore whether and how existing incentives and potential new incentives could be applied to promote the development of antibiotics as well as to discuss whether infectious diseases may qualify for grants or other incentives that may promote innovation. The meeting provided an opportunity to gather input from stakeholders and address their concerns. However, although potential new incentives and changes to current ones were suggested at the meeting, many of these suggestions—such as tax incentives and extended market exclusivities—would require a statutory change. One of the discussion topics at the public meeting related to the circumstances under which antibiotics could qualify for incentives provided under the Orphan Drug Act, which is intended to stimulate the development of drugs for rare diseases—conditions that affect fewer than 200,000 people in the United States. Following the public meeting, FDA responded in writing to an inquiry from one stakeholder to clarify that an antibiotic could qualify for an orphan drug designation when the drug’s use is restricted to the treatment of a small population of patients with an infection caused by a specific pathogen. Our examination of FDA data suggests that orphan drug designation is not common for antibiotics. These data show that the annual number of antibiotics that received an orphan drug designation from 2001 to 2007—when FDAAA was enacted—was three drugs or fewer each year. The number of antibiotics that received orphan drug designation following FDAAA’s enactment in 2007 has remained constant at this rate through 2010. Additionally, not all antibiotics that have been awarded orphan drug designation have been or will apply to be approved for marketing. Of the 15 antibiotics that received an orphan drug designation from 2001 through 2010, only 1 was approved for marketing as of November 2011. In addition to discussing the applicability of the Orphan Drug Act, the agency gathered input during the public meeting from drug sponsors and other parties—such as those in academia and professional associations—on serious and life-threatening infectious diseases, antibiotic resistance, and incentives for antibiotic innovation. The incentives mentioned as useful mechanisms to encourage the innovation and marketing of antibiotics were both financial and regulatory in nature and are summarized in table 1. The growing public health threat associated with bacterial resistance to antibiotics makes the development of new antibiotics critical. Although FDAAA contained a provision to encourage the development of certain antibiotics, no sponsor has submitted an application for a new drug that meets the law’s specific criteria. FDAAA also recognized that up-to-date breakpoints are vital to preserving the effectiveness of antibiotics. Antibiotic labels containing out-of-date breakpoints can lead clinicians to choose less effective treatments and provide additional opportunities for bacteria to develop resistance. Out-of-date breakpoints on labels of reference-listed antibiotics also have a ripple effect on the accuracy of the labels of other antibiotics because other sponsors must match the labels of the corresponding reference-listed drugs. However, more than 4 years after FDAAA’s enactment, there continues to be uncertainty about the accuracy of the labels of more than two thirds of reference-listed antibiotics, as well as those of the generic antibiotics that are required to follow these drugs’ labels. The steps FDA has taken since the enactment of FDAAA have been insufficient to ensure that all antibiotics have up-to-date breakpoints on their labels. The agency has acted with neither decisiveness nor a sense of urgency. First, FDA has not yet completed reviewing the submissions it received in response to its 2008 request and many sponsors still have not provided FDA with needed information. Further, FDA officials told us that they sent letters to sponsors of 210 antibiotics. These sponsors were responsible for evaluating and maintaining, and if necessary, updating the breakpoints on their labels; however, FDA’s request was not made to all the antibiotic sponsors that held this responsibility. While the agency did follow up with sponsors, this was not done in a timely manner. FDA’s review of sponsors’ submissions has also been time-consuming; given that sponsors are expected to provide information on the effectiveness of these breakpoints annually. It is unclear how the agency plans to keep up with this workload if sponsors’ fulfillment of this responsibility improves. Second, FDA’s issuance of guidance to specify the responsibilities of antibiotics’ sponsors to evaluate breakpoints appears to have been unsuccessful at encouraging all sponsors to fulfill these responsibilities. The comments we received from drug sponsors indicate that some antibiotic sponsors remain confused about this responsibility—either because they did not know that their antibiotics were reference-listed drugs or because they interpreted the June 2009 FDA guidance differently than FDA intended. Without formal notification that their antibiotics have been designated as reference-listed drugs and a clarification of their responsibilities, sponsors may continue to be unaware of, or have differing interpretations of a responsibility that ultimately helps preserve antibiotic effectiveness. The pace of FDA’s actions—many of which remain incomplete—means that the majority of antibiotics we examined may have out-of-date breakpoints on their labels that could result in the prescription of ineffective treatments by health care providers and further contribute to antibiotic resistance. This requires concerted action on the part of the agency to help preserve the effectiveness of currently available antibiotics. We recommend that the Commissioner of FDA take the following six actions to help ensure that antibiotics are accurately labeled: expeditiously review sponsors’ submissions regarding the breakpoints on their antibiotics’ labels; take steps to obtain breakpoint information from sponsors that have not yet submitted breakpoint information in response to the 2008 letters sent by the agency; ensure that all sponsors responsible for the annual review of breakpoints on their antibiotics’ labels—including discontinued brand- name antibiotics and reference-listed antibiotics designated since 2008—have been reminded of their responsibility to evaluate and maintain up-to-date breakpoints; establish a process to track sponsors’ submissions of breakpoint information included in their annual reports to ensure that such information is submitted to FDA and reviewed by the agency in a timely manner; notify sponsors when one of their drugs becomes or ceases to be a clarify or provide new guidance on which antibiotic sponsors are responsible for annually evaluating and maintaining up-to-date breakpoints on drug labels. HHS reviewed a draft of this report and provided written comments, which are reprinted in appendix IV. In its comments, HHS acknowledged the importance of updating antibacterial breakpoints and said that FDA is committed to ensuring that breakpoint information on drug labels is up to date. Although HHS did not specifically indicate whether it agreed with our recommendations, the agency stated that it will consider all of them as it continues to improve its processes to ensure that antibacterial drug labels contain up-to-date breakpoint information. HHS also stated that FDA has already taken steps to expedite the review of sponsor submissions regarding updated breakpoint information, which is consistent with our recommendations. In addition, HHS expressed concern that our report did not fully capture the challenges associated with updating the labels of antibacterial drugs. HHS summarized the approach FDA used to address the provision in FDAAA related to antibiotic effectiveness and highlighted the challenges sponsors face in obtaining currently relevant and adequate scientific data to assess antibiotic breakpoints. However, we believe that our report accurately describes the same actions that HHS outlined in its comments. Similarly, we believe that our report acknowledges the challenges surrounding sponsors’ responsibility to maintain up-to-date breakpoints. We recognize that these challenges pose difficulties for both sponsors and FDA. However, FDA is ultimately responsible for ensuring that drugs, including antibiotics, are safe and effective. Despite the agency’s efforts, 4 years have elapsed since FDA first began contacting drug sponsors regarding the accuracy of the breakpoints on 210 of their antibiotics’ labels. Yet there continues to be uncertainty about the accuracy of the labels for two-thirds of these drugs. Given the serious threat to public health posed by antibiotic resistance, we believe that it is important that our recommendations are implemented, in order to help preserve the effectiveness of these critical drugs. Finally, HHS provided us with new information, reporting that as of December 12, 2011, the labeling for 66 antibacterial drugs has been updated or found to be correct. This is an increase of 2 antibacterial drugs, up from the 64 antibacterial drugs that are cited in our report. We include this information here, but did not revise our report, as HHS did not provide a complete update regarding all of the 210 antibiotics discussed in this report. HHS also provided technical comments that were incorporated, as appropriate. We are sending copies of this report to the Secretary of Health and Human Services and appropriate congressional committees. 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 Office 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. As one step in FDA’s efforts to implement the provision in the Food and Drug Administration Amendments Act of 2007 regarding antibiotic effectiveness, FDA identified 210 antibiotics for which sponsors were responsible for evaluating and maintaining and, if necessary, updating the breakpoints on their antibiotics’ labels. In January and February of 2008, FDA sent letters to the sponsors of these drugs reminding them of the importance of regularly updating the breakpoints on their antibiotic labels. In addition, the letters requested that sponsors evaluate and maintain the currency of breakpoints included on their labels and within 30 days submit evidence to FDA showing that the breakpoints were either current or needed revision. Of the 210 antibiotics, 126 were brand-name antibiotics and 84 were generic antibiotics, manufactured by 39 different sponsors. Table 2 identifies these 39 sponsors and whether the sponsor held a brand-name antibiotic, a generic antibiotic, or both. Number of antibiotics for which (NDA) Abbreviated new drug applications (ANDA) Appendix III: Timeline of FDA Implementation of Certain Food and Drug Administration Amendments Act Provisions See FDA, Guidance for Industry: Updating Labeling for Susceptibility Test Information in Systemic Antibacterial Drug Products and Antimicrobial Susceptibility Testing Devices (June 2009). In addition to the contact named above, Geri Redican-Bigott, Assistant Director; Alison Binkowski; Ashley R. Dixon; Cathleen Hamann; Lisa Motley; Patricia Roy; Laurie F. Thurber; and Jocelyn Yin made key contributions to this report.

Antibiotics are critical drugs that have saved millions of lives. Growing bacterial resistance to existing drugs and the fact that few new drugs are in development are public health concerns. The Food and Drug Administration Amendments Act of 2007 (FDAAA) required the Food and Drug Administration (FDA), an agency within the Department of Health and Human Services (HHS), to identify, periodically update, and make publicly available up-to-date breakpoints, the concentrations at which bacteria are categorized as susceptible to an antibiotic. Breakpoints are a required part of an antibiotic’s label and are used by providers to determine appropriate treatments. FDAAA provided a financial incentive for antibiotic innovation and required FDA to hold a public meeting on antibiotic incentives and innovation. FDAAA directed GAO to report on the impact of these provisions on new drugs. This report (1) assesses FDA’s efforts to help preserve antibiotic effectiveness by ensuring breakpoints on labels are up to date and (2) examines the impact of the antibiotic innovation provisions. GAO examined FDA data, guidance, and other documents; interviewed FDA officials; and obtained information from drug sponsors, such as manufacturers, that market antibiotics. FDA has not taken sufficient steps to ensure that antibiotic labels contain up-to-date breakpoints. FDA designates certain drugs as “reference-listed drugs” and the sponsors of these drugs play an important role in ensuring the accuracy of drug labels. Reference-listed drugs are approved drug products to which generic versions are compared. As of November 2011, FDA had not yet confirmed whether the breakpoints on the majority of reference-listed antibiotics labels were up to date. FDA contacted sponsors of 210 antibiotics in early 2008 to remind sponsors of the importance of maintaining their labels and requested that they assess whether the breakpoints on their drugs’ labels were up to date. Sponsors were asked to submit evidence to FDA showing that the breakpoints were either current or needed revision. As of November 2011, over 3.5 years after FDA contacted sponsors, the agency had not yet confirmed whether the breakpoints on the labels of 70 percent, or 146 of the 210 antibiotics, were up to date. FDA has not ensured that sponsors have fulfilled the responsibilities outlined in the early 2008 letters. For those submissions FDA has received, it has often taken over a year for FDA to complete its review. Officials attributed this delay to reviewers’ workload, challenging scientific issues or difficulties in obtaining needed data, and incomplete submissions. FDA also issued guidance to clarify sponsors’ responsibility to evaluate and maintain up-to-date breakpoints. The guidance reminded sponsors that they are required to maintain accurate labels and stated that certain sponsors should submit an evaluation of breakpoints on their antibiotic labels to FDA annually. However, FDA has not been systematically tracking whether sponsors are providing these annual updates. Some sponsors remain confused about their responsibility to evaluate and maintain up-to-date breakpoints. At GAO’s request, FDA reviewed a small sample of annual reports and determined that few sponsors appear to be responsive to the guidance. The FDAAA provisions related to antibiotic innovation have not resulted in the submission of new drug applications for antibiotics. FDAAA extended the period of time that sponsors of new drugs that meet certain criteria have exclusive right to market the drug. According to FDA officials, the agency has received very few inquiries regarding this provision and, as of November 2011, no new drug applications for antibiotics have been submitted that would qualify for this exclusivity. None of the drug sponsors GAO received comments from said that this provision provided sufficient incentive to develop a new antibiotic of this type. FDAAA also required that FDA hold a public meeting to discuss whether and how existing or potential incentives could be applied to promote the development of antibiotics. Both financial and regulatory incentives were discussed at FDA’s 2008 meeting, including tax incentives for research and development and providing greater regulatory clarity during the drug approval process. GAO recommends that the Commissioner of FDA take steps to help ensure antibiotic labels contain up-to-date information, such as by expediting the agency’s review of breakpoint submissions. HHS said it will consider implementing GAO’s recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: As part of its fiscal year 2012 budget request, DOD outlined estimated savings of about $178 billion to be realized over a 5-year time period beginning in fiscal year 2012. According to DOD, these savings included about $154 billion from the Secretary’s initiative and about $24 billion from other sources. Specifically, The military departments and SOCOM identified a total of $100 billion in savings as a result of their efforts to support the Secretary’s initiative. A majority of the projected savings identified by the military departments and SOCOM (approximately $70 billion, or 70 percent) was planned to be reinvested in high-priority military needs—such as enhancing weapon systems—while the remainder was planned to be used to address operating costs resulting from areas such as health care and training. In addition to the $100 billion from the military departments and SOCOM, DOD proposed a $78 billion reduction in its overall budget plan over a 5-year time period, covering fiscal years 2012 through 2016, which reflected a 2.6 percent reduction from DOD’s fiscal year 2011 budget submission over the same time period. Of this amount, $54 billion reflected projected savings identified from a health care policy assessment, government-wide civilian pay freeze, and other specific areas identified by the Secretary where immediate action could be taken department-wide. The remaining $24 billion reflected revised economic assumptions, projected savings from restructuring the Joint Strike Fighter weapon program, and projected savings from reducing the size of the Army and Marine Corps. Information accompanying DOD’s fiscal year 2012 budget request catalogued the $100 billion in savings from the military departments and SOCOM under the following four categories: reorganizations, such as restructuring headquarters management and eliminating unneeded task forces; better business practices, such as reducing energy consumption; program reductions and terminations, such as terminating weapon system programs; and reductions in lower priority programs, such as shifting funding requests from military construction projects to base operations. Table 1 shows the specific amounts of projected savings reported for each category and military department. Among other things, the the budget account from which each savings identified will be derived; the number of military personnel and full-time civilian employees of the federal government affected by such savings; the estimated reductions in the number and funding of contractor personnel caused by such savings; a specific description of activities or services that will be affected by such savings, including the locations of such activities or services; and certain information regarding each reinvestment planned to be funded with efficiency initiative savings. In June 2012, DOD submitted its report to the congressional defense committees and provided some information on the categories above. Among other things, at that time, DOD reported that it was on track to meet estimated savings targets for all of its efficiency initiatives. However, the report did not include a comprehensive analysis of reinvestments because, according to DOD, many areas in which reinvestments had occurred due to the efficiency initiatives included in the fiscal year 2012 President’s Budget request had been offset by major force structure changes and other reductions in its fiscal year 2013 budget request. In briefings to the Comptroller delivered in February 2013 and March 2013, the military departments and SOCOM reported that they remain, with a few exceptions, on track to meet original savings estimates associated with their individual efficiency initiatives. At the time of our review, DOD had not compiled DOD-level summary information on its progress in achieving its original savings estimate of $100 billion. DOD officials cited various reasons why compiling and reporting on this information may not be feasible. For example, they noted that the need to apply spending reductions in response to sequestration affected funding levels for many programs, including areas targeted for efficiency initiatives. As a result, DOD had to adjust plans for executing programs as well as for implementing initiatives, such as adjusting the scope of initiatives or the timing of actual or planned actions for implementation. Because of the variability in its programs and funding amounts, DOD officials stated that, at a certain point, it becomes difficult to isolate whether savings were achieved solely due to implementing initiatives rather than a combination of factors. We have previously reported on opportunities for DOD to improve tracking and reporting on cost savings and efficiencies. For example, in March 2012, we reported that DOD took steps to examine its headquarters resources for potential efficiencies, but that it faced an underlying challenge of not having complete and reliable headquarters information available to make related assessments and decisions. To improve DOD’s ability to identify how many headquarters personnel it has, we recommended that the Secretary of Defense direct the Director of Administration and Management, in consultation with the Under Secretary of Defense for Personnel and Readiness, to revise its DOD Instruction 5100.73, Major DOD Headquarters Activities, to, among other things, include all major DOD headquarters activity organizations. DOD partially concurred with our recommendation and commented that the shortcomings in the instruction have limited impact on the management of the department. In July 2012, we reported that, as part of one of its efficiency initiatives, the Air Force estimated it could save about $1.7 billion in its training program by reducing live flying hours and taking other steps, such as increasing the use of virtual training, but lacked a methodology for determining the costs of virtual training and therefore, did not consider these costs in its estimate.visibility over the costs related to virtual training, we recommended that the Secretary of Defense direct the Secretary of the Air Force to develop a methodology for collecting and tracking cost data for virtual training and use this cost data to help inform future decisions regarding the mix of live and virtual training. DOD concurred with our recommendation and To improve decision makers’ identified actions being taken to enhance its ability to capture costs related to virtual training. Additionally, in December 2012, we reported that DOD had developed an approach for the military departments and SOCOM to follow in tracking and reporting on the status of efficiency initiatives; however, DOD’s approach had some limitations that resulted in incomplete reporting which could limit the visibility of senior leaders in monitoring progress toward achieving programmatic and financial goals. Specifically, the offices of the Comptroller and DCMO had provided general direction through emails, briefings, and training, and, according to officials, had given the military departments and SOCOM flexibility to report on the efficiency initiatives that they felt were most important. In practice, the Army, Air Force, and SOCOM had reported on all of their efficiency initiatives, while the Navy reported on a subset of its initiatives based on what it deemed to be at medium or high risk of experiencing implementation issues or adversely affecting the Navy’s ability to carry out its mission. With respect to realized savings, we reported that the military departments and SOCOM told us they were on track to realize estimated savings, but found some instances where certain costs were not considered. For example, for its initiative to reduce fleet shore command personnel from U.S. Pacific Fleet and U.S. Fleet Forces Command, the Navy did not account for potential increases in relocation costs for moving personnel to other areas within the Navy. We found that the military departments and SOCOM were not reporting consistent information or complete cost information because they had not received written guidance with standardized definitions and methodologies. Rather, the direction provided by the offices of the Comptroller and DCMO did not specify whether all of the costs associated with implementing an efficiency initiative, including costs not initially identified, should be included. To ensure more complete and consistent reporting, we recommended that DOD develop guidance with standardized definitions and methodologies for the military departments and SOCOM to use in reporting. Further, we recommended that guidance should define reporting requirements for such things as the specific types of costs associated with implementing the initiatives, including implementation costs that were not initially identified in calculations of net savings. DOD agreed with the spirit and intent of our recommendation and indicated it planned to issue additional formal guidance in the February 2013 timeframe. The status of DOD’s implementation of this recommendation is discussed in more detail later in this report. Since initiating its initial round of initiatives for fiscal year 2012, DOD has continued to identify and implement efficiency initiatives. Specifically, in information accompanying its fiscal years 2013 and 2014 budget requests, DOD identified additional efficiency initiatives, referred to as More Disciplined Use of Resources (MDUR) initiatives. These initiatives are expected to generate $60 billion in savings for the period of fiscal years 2013 through 2017 and an additional $34 billion for the period of fiscal years 2014 through 2018. While savings generated by the Secretary’s fiscal year 2012 efficiency initiatives were to be reinvested, savings from the MDUR initiatives were intended to help the department meet reductions to its budget, and therefore will not be reinvested. More recently, on July 31, 2013, as part of DOD’s Strategic Choices and Management Review, the Secretary announced his plan to implement an additional round of efficiency initiatives in fiscal year 2015. According to the Secretary, a tenet of the review was the need to maximize savings from reducing DOD’s overhead, administrative costs, and other institutional expenses. These initiatives would include management reforms, coupled with consolidations, personnel cuts, and spending reductions that would reduce DOD’s overhead and operating costs by some $10 billion over the next 5 years and almost $40 billion over the next decade. DOD has taken steps to further refine its approach to its tracking and reporting on the implementation of its efficiency initiatives. Specifically, DOD issued written guidance that standardizes and expands the type of information on efficiency initiatives that the military departments and SOCOM are expected to report, which may improve visibility on the progress and risks in implementation for DOD decision makers. Moreover, in commenting on a draft of this report, DOD stated that it will cease to track initiatives once they have been implemented and will select for detailed tracking only those initiatives where this information will help it manage more effectively. Following our December 2012 report, the Comptroller issued written guidance in February 2013 establishing a standardized format for reporting on the fiscal year 2012 efficiency initiatives as well as the fiscal year 2013 MDUR initiatives. According to DOD officials, this guidance is also applicable to initiatives identified in fiscal year 2014 and any future initiatives. In contrast to the way they reported before, the military departments and SOCOM were now expected to report consistently and provide the status of their efficiency initiatives, including summary information related to (1) whether original net savings projections across the Future Years Defense Program are being met, (2) risks to program(s), mission(s), or resources associated with the efficiency initiative (characterized as “low”, “medium”, or “high” risk), and (3) any risks to “milestones” or the implementation status of the efficiency initiative (e.g., characterized as “on track,” “off track but can meet major milestones,” or “off track and cannot meet major milestones”). Only in instances where the military departments and SOCOM identified programs that were not achieving original net savings estimates or where program or milestone risk had been identified, the guidance requires further detail, including how implementation would be achieved. Further, all of the information was to be reported in a manner that mirrored the descriptions contained in DOD’s fiscal year 2012 budget request justification book for the efficiency initiatives, whereby some of the efficiency initiatives were collapsed into broader groups of initiatives referred to by descriptive titles. In February and March 2013, using the new February 2013 guidance, the military departments and SOCOM completed the first round of semi-annual reporting on the fiscal year 2012 efficiency initiatives and fiscal year 2013 MDUR initiatives. In reviewing the military departments’ and SOCOM’s February 2013 and March 2013 reports, we observed that, consistent with the aforementioned February 2013 guidance, the military departments and SOCOM reported details associated with only those efficiency initiatives that were not achieving original net savings estimates or where program or milestone risk had been identified. As a result, detailed information on the full range of efficiency initiatives and related programs was not included in their reports. For example, the Air Force has as many as 10 individual initiatives that comprise its acquisition management initiative. Absent a requirement in the February 2013 guidance to report on each of those underlying initiatives, DOD decision makers would only receive information on the overall acquisition management initiative. Moreover, as a result of the reporting direction, DOD decision makers would receive detailed information on the overall acquisition management initiative only if the initiative is not meeting original savings estimates, or where program or milestone risk had been identified. Prior to the February 2013 guidance, some departments and SOCOM had previously chosen to report on all their initiatives. In reviewing the reports developed by the military departments and SOCOM in February 2013 and March 2013, we observed that information on all initiatives was now unavailable to DOD decision makers, thus hindering their ability to assess implementation progress across the full range of efficiencies. We discussed with DOD Comptroller officials whether reporting on only those efficiency initiatives not achieving their original estimates or facing risk had provided the Comptroller with sufficient details to oversee all of the initiatives. Comptroller officials agreed that reporting on each of the individual efficiency initiatives would improve DOD decision makers’ visibility and therefore provide information needed for their oversight. They also noted that it would facilitate DOD’s ability to address any future congressional reporting requirements. As a result, the Comptroller’s office subsequently issued guidance in October 2013 that, according to these officials, superseded the February 2013 guidance and expanded the amount of information to be reported. Specifically, this guidance directed the military departments and SOCOM to submit further detail for all efficiency initiatives, rather than merely those not achieving the original estimates or at risk. Beginning in October 2013, the military departments and SOCOM began submitting reports that included this broader set of information. While obtaining this broader set of information, DOD stated in its written comments on a draft of this report, provided on January 6, 2014, that it will narrow the scope of efficiency initiatives that will be tracked due to the period of constrained resources it is experiencing. DOD stated that it will cease tracking initiatives once they have been implemented, and will select for detailed tracking only those initiatives where this information will help it manage more effectively. In clarifying its written comments, DOD officials stated that all of its efficiency initiatives, except those implemented or which strictly call for terminations of programs, such as weapons systems, will be selected for detailed tracking. While the October 2013 guidance, which requires the military departments and SOCOM to report more detailed information on the full range of ongoing efficiency initiatives, does not specify that initiatives that strictly call for program terminations should no longer be tracked, we believe it is reasonable for DOD to cease the tracking of initiatives that strictly call for program terminations. We note that, in issuing additional guidance on its tracking and reporting on efficiency initiatives, DOD did not include any direction as to the specific types of costs that the military departments and SOCOM should consider in determining realized savings associated with implementation, such as costs that were not initially identified in calculations of net savings, as we had recommended in our December 2012 report. According to a Comptroller official, DOD has various guidance on developing cost estimates that the military departments and SOCOM can use in determining savings associated with the implementation of their efficiency initiatives. We reviewed the documents and discussed with the efficiency initiative focal points how, or if, this guidance was applied in developing their cost estimates. Some of the program managers with whom we spoke confirmed that while they were aware of existing guidance on developing cost estimates, they had not been instructed to use this guidance to determine specific types of costs that should be considered in calculating net savings. As a result, we continue to believe that our prior recommendation in our December 2012 report has merit and should be implemented. The military departments and SOCOM have taken steps to evaluate some of their efficiency initiatives, such as establishing performance measures and collecting performance data. However, these efforts have largely occurred on an ad hoc basis and vary by efficiency initiative because DOD has not established a requirement for performing such evaluations. As a result, DOD lacks a systematic basis for evaluating the impact of its efficiency initiatives on improving program efficiency or effectiveness. In setting forth the initial efficiency initiatives, the Secretary of Defense intended for DOD to improve the effectiveness and efficiency of its programs and activities. The Secretary also directed that any efficiency initiative must be specific, actionable, and measurable. Our prior review of federal agencies’ efficiency efforts concluded that an improvement in efficiency need not only involve a reduction in costs, but also can be achieved by maintaining federal government services or outcomes with fewer resources (such as time or money), or improving or increasing the quality or quantity of services while maintaining (or reducing) resources. In addition, we and other agencies, such as the Office of Management and Budget (OMB), have documented the need to develop performance measures for evaluating progress toward achieving desired outcomes. For example, as we have previously concluded, performance measures should be measurable, outcome-oriented, and actively tracked and reported. As our prior work has shown, leading organizations that employ result-oriented management use performance information as a basis for decision making and have found this approach improves program results. As previously discussed, the Comptroller’s October 2013 guidance provides direction on how the military departments and SOCOM are to approach reporting on the status of their efficiency initiatives, but does not require them to develop approaches for evaluating the impact of initiatives on achieving desired outcomes. In practice, we found that the military departments and SOCOM varied in the extent to which they evaluated individual efficiency initiatives, including whether they had established measures or indicators to gauge the impact on program efficiency or effectiveness beyond savings. The following paragraphs provide examples of the services’ and SOCOM’s efforts to evaluate certain efficiency initiatives. Air Force’s Facility Sustainment Initiative: This initiative is intended to reduce infrastructure maintenance costs by a total of $1.4 billion during the period of fiscal years 2012 through 2016 by performing preventative maintenance before critical failures occur. The Air Force uses a model to predict and prioritize infrastructure most at risk for critical failures and then focuses preventive maintenance efforts on such infrastructure. Furthermore, the Air Force has established measures to track the amount of hours spent performing preventive and corrective maintenance over the course of the initiative to determine whether this effort achieved the intended outcome, which was to reduce the amount of more costly corrective maintenance performed. We have previously concluded that deferring facility sustainment can lead to shortened facility service lives and increased future costs for recapitalization. SOCOM’s Information Technology Services Efficiency Initiative: SOCOM established a new approach for its information technology services that is intended to reduce costs by a total of $394 million during the period of fiscal years 2012 through 2016. According to SOCOM officials, the new approach involved a contract framework for information technology services that reduces costs by awarding funds directly to the organizations that provide the services on a competitive basis, rather than through an intermediary that selects the organizations that provide the information technology services. The approach also adopts other best practices for procurement, such as providing performance-based incentives. As part of this initiative, SOCOM established multiple individual measures to assess contractor performance, such as answering a help desk call within a set amount of time or tracking trends on resolving information technology issues such as user access, but does not have measures in place to evaluate how the overall impact of the initiative affects the delivery of information technology services relative to the previous approach. SOCOM officials explained that because the implementation of its Information Technology Services Efficiency Contract occurred prior to it being identified as an efficiency initiative, methods of evaluating its effectiveness or efficiency, other than cost, were not established. Navy’s Total Ownership Cost Initiative: This initiative seeks to achieve efficiencies through life cycle management of the Navy’s ships and encompasses multiple underlying initiatives, such as the Navy’s Revised Virginia Class Drawings Efficiency Initiative. This initiative is intended to reduce costs of $30.3 million during the period of fiscal years 2012 through 2016 by moving away from reliance on paper documents toward an electronic system that allows multiple users to make revisions and access up-to-date documents. The Navy has not yet identified measures to evaluate how increasing the use of the electronic system to process technical documents will maintain or improve work processes. Navy officials indicated the same is true for other fiscal year 2012 initiatives that make up the Navy’s Total Ownership Cost initiative and commented that the focus was on tracking savings and not on developing efficiency measures to assess whether its initiatives, once implemented, improve the effectiveness or efficiency of these programs. Army and Air Force Data Center Consolidation Efficiency Initiatives: These initiatives are part of the larger Federal Data Center Consolidation Initiative, directed by OMB, that seeks to consolidate information technology infrastructure and activities to save energy costs, among other goals, and are expected to reduce the Army and Air Force’s costs by $490 million and $180 million, respectively, during fiscal years 2012 through 2016. Both the Army and Air Force have taken steps to implement these initiatives. According to Air Force officials, they had begun to establish measures that could be used to evaluate the impact of these initiatives, but faced some challenges due to changing guidance. For example, officials discussed that OMB guidance issued after the initiatives were underway expanded the definition of a data center and effectively increased the scope of the military departments’ consolidation effort after these initiatives were submitted in the fiscal year 2012 budget request. This resulted in the reconfiguration of planning and implementation schedules. Air Force officials also stated that they had begun to develop performance measures to assess impact when a new DOD effort to establish a secure, joint information environment was put in place. Therefore, the Air Force had to adjust their implementation plans and postpone the development of their measures to ensure actions taken on this initiative conformed to the new DOD requirement. While the focus of DOD’s effort was to quickly identify funds that could be reinvested into other higher priority programs, military department and SOCOM officials explained that because the initial effort to identify efficiency initiatives occurred late at the end of the cycle they used to build their fiscal year 2012 budget submission, their effort focused on tracking savings targets and not on developing measures to evaluate impact. In the subsequent budget cycles that included the MDUR initiatives, the focus remained on identifying areas for reductions in spending. DOD officials agreed that additional measures could be useful to evaluate impacts—beyond savings—of their efficiency initiatives. Our prior work concluded that such measures can assist managers in determining whether desired outcomes were being achieved or if adjustments were needed, such as in the scope of the initiative or to the nature or timing of implementation actions. Without a systematic way to evaluate the impact of its efficiency initiatives, DOD is limited in its ability to assess whether the efficiency initiatives have improved the effectiveness or efficiency of its programs and activities. Over the past few years, in light of mounting fiscal pressures, DOD has continued to identify and implement efficiency initiatives with certain goals in mind, including achieving cost savings and seeking opportunities to enhance the efficiency or effectiveness of its programs and activities. DOD’s recent efforts to refine its approach for tracking and reporting on its current efficiency initiatives has the potential for providing greater oversight to decision makers on progress of the military departments and SOCOM on the status of their implementation efforts. However, its efforts to date do not sufficiently ensure that leaders have the information they need to fully assess the impact these initiatives are having on DOD’s programs and activities. Having a systematic way to evaluate the impact of its efficiency initiatives beyond cost savings could provide DOD the ability to determine whether or not its initiatives are improving the efficiency and effectiveness of its programs and activities while also achieving savings. Such information could also inform DOD as to whether actions are needed to make adjustments to the scope of any given initiative and related programmatic actions necessary for implementation. To enhance DOD’s ability to determine whether its efficiency initiatives are having the desired effect of improving efficiency and effectiveness, we recommend that the Secretary of Defense require the military departments and SOCOM to develop approaches for evaluating the impact of their efficiency initiatives, such as establishing performance measures or other indicators, collecting related performance information, and using this information to measure progress in achieving intended outcomes associated with their initiatives until implemented. In written comments on a draft of this report, DOD concurred with our recommendation and provided additional comment. Specifically, DOD concurred with having the military departments and SOCOM develop performance measures and other indicators for evaluating the impact of its efficiency initiatives, and commented that it has decided to cease tracking initiatives once they have been implemented. DOD also provided technical comments, which were incorporated as appropriate. The full text of DOD’s comments is reprinted in appendix II. In its overall comments, DOD stated it intends to continue to refine its procedures, guidance, and oversight in order to achieve its goal of identifying and implementing efficiencies. DOD also stated that during this period of constrained resources, it must avoid creating a costly and redundant oversight process. To that end, DOD stated that it will cease tracking initiatives once they have been implemented, and will select for detailed tracking only those initiatives where this information will help it manage more effectively. We have modified the report to reflect DOD’s decision. In clarifying its written comments, DOD officials stated that DOD will select for detailed tracking all of its efficiency initiatives except those implemented or which strictly call for terminations of programs, such as weapons systems. While the October 2013 guidance does not specify that initiatives that strictly call for program terminations should no longer be tracked, in a resource-constrained environment, we believe it is reasonable for DOD to do so. We also expect that DOD will clarify this revised approach in any future guidance to the military departments and SOCOM. In addition, we have modified the recommendation to clarify its intent that DOD should develop an approach for evaluating the impact of its efficiency initiatives until those initiatives have been implemented. We are sending copies of this report to the Secretary of Defense 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 about this report, please contact me at (202) 512-5257 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 determine the progress DOD has made in adjusting its approach to tracking and reporting on the implementation of its efficiency initiatives since we last reported in December 2012 and to assess the extent to which DOD is evaluating the impact of its efficiency initiatives on DOD programs and activities, we reviewed guidance and documentation issued at the department-wide level as well as within the military departments and SOCOM. We also interviewed officials from the offices of the Comptroller and DCMO, the military departments, and SOCOM who are involved in monitoring the implementation of its efficiency initiatives to discuss their approach to tracking and reporting on the initiatives. Specifically, we obtained available information from each of the military departments and SOCOM, including briefings prepared for senior DOD officials, on the current status of initiatives, how original estimates of savings compared with savings realized to date, and any program or timeline risks associated with implementing the efficiency initiatives. Additionally, we reviewed existing guidance to identify any requirements for evaluation of the efficiency initiatives. We then analyzed information provided by each of the military departments and SOCOM as well as interviewed officials from each of the military services and SOCOM serving as focal points for the efficiency initiatives to determine the expected outcome or impact for individual initiatives, and what steps they have taken to evaluate the impact of efficiency initiatives. We conducted this performance audit from May 2013 through January 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. In addition to the contact named above, Tina Won Sherman, Assistant Director; Grace Coleman; Susan Langley; Ricardo A. Marquez; Sharon L. Pickup; Mike Silver; Michael Shaughnessy; Susan Tindall; and Sarah Veale made key contributions to this report.

In May 2010, the Secretary of Defense announced a department-wide initiative with the goal of achieving efficiencies and reducing excess overhead costs while reinvesting those savings in sustaining DOD's force structure and modernizing its weapons portfolio. The Secretary tasked the military departments and SOCOM to find estimated savings of about $100 billion over the period of fiscal years 2012 to 2016. For fiscal years 2013 and 2014, DOD identified additional efficiency initiatives. The National Defense Authorization Act for Fiscal Year 2012 mandated that GAO assess the extent to which DOD has tracked and realized savings proposed pursuant to the initiative to identify $100 billion in efficiencies. As the second report in response to this mandate, this report addresses 1) DOD's progress in adjusting its approach to tracking and reporting on the implementation of its efficiency initiatives since GAO's December 2012 report, and 2) the extent to which DOD is evaluating the impact of its initiatives. GAO reviewed guidance, and analyzed and discussed information developed after December 2012 with DOD officials. The Department of Defense (DOD) has refined its approach for tracking and reporting on the status of efficiency initiatives by establishing specific requirements to standardize and expand the type of information that the military departments (Army, Navy, and Air Force) and U.S. Special Operations Command (SOCOM) report to senior decision makers. Initially, DOD provided general direction through emails, briefings, and training, which gave the military departments and SOCOM flexibility to selectively report on the initiatives that they believed were important, resulting in inconsistencies. For example, prior to February 2013, all but the Navy had chosen to report on all their initiatives. In February 2013, the DOD Comptroller issued written guidance that specified the type of information to be reported, including 1) whether original net savings projections are being met, and 2) any associated program or milestone risks. In instances where original net savings projects were not met or risks were identified, the guidance required further detail such as how implementation would be achieved. As a result, in their March 2013 reports, the military departments and SOCOM only reported details on those initiatives that were not achieving original net savings estimates or where risk had been identified. GAO observed, during this review, that information on all initiatives was now unavailable to DOD decision makers, thus hindering their ability to assess implementation progress across the full range of initiatives. Comptroller officials agreed that such information would enhance DOD's oversight, and in October 2013, the DOD Comptroller issued updated guidance, directing that this information also be reported on initiatives on track to achieve savings or not experiencing risk. The military departments and SOCOM subsequently began submitting reports with this broader set of information. The military departments and SOCOM have taken steps to evaluate the impact of some of their efficiency initiatives, such as establishing performance measures to assess their impact on achieving desired outcomes. However, this has largely occurred on an ad hoc basis and varies by initiative because DOD has not required such evaluations. As a result, DOD lacks a systematic basis for evaluating whether its various initiatives have improved the efficiency or effectiveness of its programs or activities. In setting forth initiatives, the Secretary of Defense intended for DOD to improve the effectiveness and efficiency of its programs and activities, and that related initiatives should be specific, actionable, and measurable. While DOD has provided direction on how the military departments and SOCOM are to report on implementation status, this direction does not require them to develop approaches for evaluating the impact of their initiatives. In practice, the military departments and SOCOM varied in the extent to which they evaluated initiatives, including whether they had established measures or other indicators to assess outcomes. For example, GAO found instances where the military departments and SOCOM had established measures and assessed progress for some but not all initiatives. Developing a more systematic approach to evaluating the impact of its initiatives could provide DOD with more complete information to assess whether the initiatives are accomplishing desired outcomes, beyond achieving savings, and whether adjustments are needed in the scope of implementing the initiatives. GAO recommends that DOD establish a requirement for the military departments and SOCOM to develop approaches for evaluating the impact of their efficiency initiatives, such as developing performance measures or other indicators. DOD concurred with GAO's recommendation, and provided additional comments that it will cease tracking initiatives that strictly call for program terminations. GAO believes this to be a reasonable approach.

You are an expert at summarizing long articles. Proceed to summarize the following text: DHS’s efforts to strengthen and integrate its management functions have resulted in progress addressing our criteria for removal from the high-risk list. In particular, in our February 2015 high-risk update report, we found that DHS had met two criteria and partially met the remaining three criteria. DHS subsequently met an additional criterion—establishing a framework for monitoring progress—and therefore as of March 2016, has met three criteria and partially met the remaining two criteria, as shown in table 1. Leadership commitment (met). We found in our 2015 report and have observed over the last year that the Secretary and Deputy Secretary of Homeland Security, the Under Secretary for Management at DHS, and other senior officials have continued to demonstrate exemplary commitment and top leadership support for addressing the department’s management challenges. Additionally, they have taken actions to institutionalize this commitment to help ensure the long-term success of the department’s efforts. For example, in April 2014, the Secretary of Homeland Security issued a memorandum entitled Strengthening Departmental Unity of Effort, committing to, among other things, improving DHS’s planning, programming, budgeting, and execution processes through strengthened departmental structures and increased capability. Senior DHS officials, including the Deputy Secretary and Under Secretary for Management, have also routinely met with us over the past 7 years to discuss the department’s plans and progress in addressing this high-risk area, most recently in February 2016. Throughout this time, we provided specific feedback on the department’s efforts. We concluded in our 2015 report and continue to believe that it will be important for DHS to maintain its current level of top leadership support and commitment to ensure continued progress in successfully executing its corrective actions through completion. Action plan (met). We found that DHS has established a plan for addressing this high-risk area. Specifically, in a September 2010 letter to DHS, we identified and DHS agreed to achieve 31 actions and outcomes that are critical to addressing the challenges within the department’s management areas and in integrating those functions across the department. In March 2014, we updated the actions and outcomes in collaboration with DHS to reduce overlap and ensure their continued relevance and appropriateness. These updates resulted in a reduction from 31 to 30 total actions and outcomes. Toward achieving the actions and outcomes, DHS issued its initial Integrated Strategy for High Risk Management in January 2011 and has since provided updates to its strategy in nine later versions, most recently in January 2016. The integrated strategy includes key management initiatives and related corrective actions plans for addressing DHS’s management challenges and the actions and outcomes we identified. For example, the January 2016 strategy update includes an initiative focused on financial systems modernization and an initiative focused on IT human capital management. These initiatives support various actions and outcomes, such as modernizing the U.S. Coast Guard’s financial management system and implementing an IT human capital strategic plan, respectively. We concluded in our 2015 report and continue to believe that DHS’s strategy and approach to continuously refining actionable steps to implementing the outcomes, if implemented effectively and sustained, should provide a path for DHS to be removed from our high- risk list. Capacity (partially met). In October 2014, DHS identified that it had resources needed to implement 7 of the 11 initiatives the department had under way to achieve the actions and outcomes, but did not identify sufficient resources for the 4 remaining initiatives. In addition, our prior work has identified specific capacity gaps that could undermine achievement of management outcomes. For example, in April 2014, we reported that DHS needed to increase its cost-estimating capacity and that the department had not approved baselines for 21 of 46 major acquisition programs. These baselines—which establish cost, schedule, and capability parameters—are necessary to accurately assess program performance. Thus, in our 2015 report, we concluded that DHS needs to continue to identify resources for the remaining initiatives; work to mitigate shortfalls and prioritize initiatives, as needed; and communicate to senior leadership critical resource gaps. In its January 2016 strategy update, DHS stated that the department had addressed capacity shortcomings it previously identified and self-assesses the capacity criterion as fully met. We are analyzing DHS’s capacity to resolve risks as part of our ongoing assessment of the department’s progress in addressing the Strengthening DHS Management Functions high-risk area and will report on our findings in our 2017 high-risk update. Monitoring (met). In our 2015 report we found that DHS established a framework for monitoring its progress in implementing the integrated strategy it identified for addressing the 30 actions and outcomes. In the June 2012 update to the Integrated Strategy for High Risk Management, DHS included, for the first time, performance measures to track its progress in implementing all of its key management initiatives. DHS continued to include performance measures in its October 2014 update. However, in our 2015 report we also found that DHS could strengthen its financial management monitoring efforts and thus concluded that the department had partially met the criterion for establishing a framework to monitor progress. In particular, according to DHS officials, as of November 2014, they were establishing a monitoring program that would include assessing whether financial management systems modernization projects for key components that DHS plans to complete in 2019 are following industry best practices and meet users’ needs. However, DHS had not yet entered into a contract for independent verification and validation services in connection with its efforts to establish this program. Effective implementation of these modernization projects is important because, until they are complete, the department’s current systems will not effectively support financial management operations. DHS subsequently entered into a contract for independent verification and validation services that should help ensure the financial management systems modernization projects meet key requirements. As a result, we currently assess DHS to have met the framework to monitor progress criterion. As we concluded in our 2015 report and continue to believe, moving forward, DHS will need to closely track and independently validate the effectiveness and sustainability of its corrective actions and make midcourse adjustments, as needed. Demonstrated progress (partially met). We found in our 2015 report that DHS had made important progress in strengthening its management functions, but needed to demonstrate sustainable, measurable progress in addressing key challenges that remain within and across these functions. In particular, we found that DHS had implemented a number of actions demonstrating the department’s progress in strengthening its management functions. For example, DHS had strengthened its enterprise architecture program (or blueprint) to guide and constrain IT acquisitions and obtained a clean opinion on its financial statements for 2 consecutive years, fiscal years 2013 and 2014. DHS has continued to demonstrate important progress over the last year by, for example, obtaining a clean opinion on its financial statements for a third consecutive year. However, we also found in our 2015 report that DHS continued to face significant management challenges that hindered the department’s ability to accomplish its missions. For example, DHS did not have the acquisition management tools in place to consistently demonstrate whether its major acquisition programs were on track to achieve their cost, schedule, and capability goals. In addition, DHS did not have modernized financial management systems, which affected its ability to have ready access to reliable information for informed decision making. Over the last year DHS has continued to take actions to address these challenges but they persist, as discussed in more detail below. As we concluded in our 2015 report, addressing these and other management challenges will be a significant undertaking that will likely require several years, but will be critical for the department to mitigate the risks that management weaknesses pose to mission accomplishment. Key to addressing the department’s management challenges is DHS demonstrating the ability to achieve sustained progress across the 30 actions and outcomes we identified and DHS agreed were needed to address the high-risk area. Achieving sustained progress across the actions and outcomes, in turn, requires leadership commitment, effective corrective action planning, adequate capacity (that is, the people and other resources), and monitoring the effectiveness and sustainability of supporting initiatives. The 30 actions and outcomes address each management function (acquisition, IT, financial, and human capital) as well as management integration. For example, one of the outcomes focusing on acquisition management is validating required acquisition documents in accordance with a department-approved, knowledge-based acquisition process, and the outcomes focusing on financial management include sustaining clean audit opinions for at least 2 consecutive years on department-wide financial statements and internal controls. We found in our 2015 report that DHS had made important progress across all of its management functions and significant progress in the area of management integration. In particular, DHS had made important progress in several areas to fully address 9 actions and outcomes, 5 of which it had sustained as fully implemented for at least 2 years. For instance, DHS fully met 1 outcome for the first time by obtaining a clean opinion on its financial statements for 2 consecutive years and sustained full implementation of another outcome by continuing to use performance measures to assess progress made in achieving department-wide management integration. Since our 2015 update, DHS fully addressed another outcome as a result of actions it has taken to improve the maturity of its system acquisition management practices, leaving additional work to fully address the remaining 20 outcomes. As of March 2016, DHS has also mostly addressed an additional 7 actions and outcomes—3 since our 2015 report—meaning that a small amount of work remains to fully address them. We also found in our 2015 report and continue to observe, that considerable work remains, however, in several areas for DHS to fully achieve the remaining actions and outcomes and thereby strengthen its management functions. Specifically, as of March 2016, DHS has partially addressed 9 and initiated 4 of the actions and outcomes. As previously mentioned, addressing some of these actions and outcomes, such as modernizing the department’s financial management systems, are significant undertakings that will likely require multiyear efforts. Table 2 summarizes DHS’s progress in addressing the 30 actions and outcomes as of March 2016, and is followed by selected examples. Acquisition management. DHS has fully addressed 1 of the 5 acquisition management outcomes, mostly addressed 2 outcomes, partially addressed 1 outcome, and initiated actions to address the remaining outcome. For example, DHS has taken a number of actions to fully address establishing effective component-level acquisition capability. These actions include initiating (1) monthly Component Acquisition Executive staff forums to provide guidance and share best practices and (2) assessments of component policies and processes for managing acquisitions. DHS has also continued to make progress addressing the outcome on validating required acquisition documents in a timely manner. Specifically, the Under Secretary for Management provided direction to the components on submitting the outstanding documentation. We will continue to assess DHS’s progress on this outcome. In addition, DHS has conducted staffing analysis reports that quantify gaps in acquisition personnel by position. Moving forward, DHS must develop and implement a plan for filling key vacant positions identified through its staffing analysis reports. Further, DHS should continue to improve its acquisition program management by effectively using the Joint Requirements Council, which it reinstated in June 2014, to identify and eliminate any unintended redundancies in program requirements, and by demonstrating that major acquisition programs are on track to achieve their cost, schedule, and capability goals. IT management. DHS has fully addressed 3 of the 6 IT management outcomes, mostly addressed another 2, and partially addressed the remaining 1. For example, DHS has finalized a directive to establish its tiered governance and portfolio management structure for overseeing and managing its IT investments, and annually reviews each of its portfolios and the associated investments to determine the most efficient allocation of resources within each of the portfolios. The department has also made progress in implementing its IT Strategic Human Capital Plan for fiscal years 2010 through 2012. However, in January 2015 DHS shifted its IT paradigm from acquiring assets to acquiring services, and acting as a service broker (i.e., an intermediary between the purchaser of a service and the seller of that service). According to DHS officials in May 2015, this paradigm change will require a major transition in the skill sets of DHS’s IT workforce, as well as the hiring, training, and managing of staff with those new skill sets; as such, this effort will need to be closely managed in order to succeed. Additionally, we found that DHS continues to take steps to enhance its information security program. However, while the department made progress in remediating findings from the previous year, in November 2015, the department’s financial statement auditor designated deficiencies in IT systems controls as a material weakness for financial reporting purposes for the 12th consecutive year. This designation was due to flaws in security controls such as those for access controls, configuration management, segregation of duties, and contingency planning. Thus, DHS needs to remediate this longstanding material weakness. Information security remains a major management challenge for the department. Financial management. DHS has fully addressed 2 financial management outcomes, partially addressed 3, and initiated 3. Most notably, DHS received a clean audit opinion on its financial statements for 3 consecutive years, fiscal years 2013, 2014, and 2015, fully addressing 2 outcomes. In addition, in November 2015, DHS’s financial statement auditors reported that one of four material weaknesses in its internal controls over financial reporting had been reduced to a significant deficiency in connection with its remediation efforts. However, the remaining material weaknesses reported by DHS auditors continue to hamper DHS’s ability to establish effective internal control over financial reporting and comply with financial management system requirements. DHS continues to make progress on three multi-year projects to modernize selected components’ financial management systems. According to its January 2016 strategy update, DHS has made the most progress on its U.S. Coast Guard modernization project; whereas additional planning and discovery efforts need to be completed on its projects to modernize Federal Emergency Management Agency and U.S. Immigration and Customs Enforcement financial management systems before DHS will be in a position to implement modernized solutions for these components and their customers. Without sound controls and systems, DHS faces long-term challenges in sustaining a clean audit opinion on its financial statements and in obtaining and sustaining a clean opinion on its internal control over financial reporting, and ensuring its financial management systems generate reliable, useful, and timely information for day-to-day decision making as a routine business operation. Human capital management. DHS has fully addressed 1 human capital management outcome, mostly addressed 3, and partially addressed the remaining 3. For example, the Secretary of Homeland Security signed a human capital strategic plan in 2011 that DHS has since made sustained progress in implementing, fully addressing this outcome. DHS also has actions under way to identify current and future human capital needs, an outcome it mostly addressed since our 2015 report due to progress implementing its Workforce Planning Model. However, DHS has considerable work ahead to improve employee morale. For example, the Office of Personnel Management’s 2015 Federal Employee Viewpoint Survey data showed that DHS ranked last among 37 large federal agencies in all four dimensions of the survey’s index for human capital accountability and assessment. Further, the survey data showed that DHS’s scores continued to decrease in three index dimensions (job satisfaction, leadership and knowledge management, and results-oriented performance culture) and remained constant in the fourth dimension (talent management). DHS has developed plans for addressing its employee satisfaction problems, but as we previously recommended, DHS needs to continue to improve its root-cause analysis efforts related to these plans. DHS has also developed and implemented mechanisms to assess training programs but could take additional actions. For example, in September 2014, we found that DHS had implemented component- specific and department-wide training programs and that the five DHS components in our review all had documented processes to evaluate their training programs. However, to fully achieve this outcome, DHS also needs to, among other things, issue department-wide policies on training and development and strengthen its learning management capabilities. In February 2016, we reported that DHS had initiated the Human Resources Information Technology (HRIT) investment in 2003 to address issues presented by its human resource environment, which with respect to learning management, included limitations resulting from nine disparate learning management systems that did not exchange information. DHS established the Performance and Learning Management System (PALMS) program to provide a system that will consolidate DHS’s nine existing learning management systems into one system and enable comprehensive training reporting and analysis across the department, among other things. However, in our February 2016 report we found that selected PALMS capabilities had been deployed to headquarters and two components, but full implementation at four components was not planned, leaving uncertainty about whether the PALMS system would be used enterprise-wide to accomplish these goals. We further found that DHS did not fully implement effective acquisition management practices and therefore was limited in monitoring and overseeing the implementation of PALMS and ensuring that the department obtains a system that improves its learning management weaknesses, reduces duplication, and delivers within cost and schedule commitments. We made 14 recommendations to DHS to, among other things, address HRIT’s poor progress and ineffective management. DHS concurred with all 14 recommendations and provided estimated completion dates for implementing each of them. Management integration. DHS has sustained its progress in fully addressing 3 of 4 outcomes we identified and they agreed are key to the department’s management integration efforts. For example, in January 2011, DHS issued an initial action plan to guide its management integration efforts—the Integrated Strategy for High Risk Management. Since then, DHS has generally made improvements to the strategy with each update based on feedback we provided. DHS has also shown important progress in addressing the last and most significant management integration outcome—to implement actions and outcomes in each management area to develop consistent or consolidated processes and systems within and across its management functional areas—but, as we concluded in our 2015 update, considerable work remains. For example, the Secretary’s April 2014 Strengthening Departmental Unity of Effort memorandum highlighted a number of initiatives designed to allow the department to operate in a more integrated fashion. Further, in its January 2016 update, DHS reported that in August 2015 the Under Secretary for Management identified four integrated priority areas to bring focus to strengthening integration among the department’s management functions. According to DHS’s January 2016 update, these priorities— which include, for example, strengthening resource allocation and reporting ability and developing and deploying secure technology solutions—each have stretch goals and milestones that are monitored by integrated teams led by senior DHS officials. However, given that these management integration initiatives are in the early stages of implementation, it is too early to assess their impact. We concluded in our 2015 report and continue to believe that in the coming years, DHS needs to continue implementing its Integrated Strategy for High Risk Management and show measurable, sustainable progress in implementing its key management initiatives and corrective actions and achieving outcomes. In doing so, it will be important for DHS to maintain its current level of top leadership support and sustained commitment to ensure continued progress in executing its corrective actions through completion; continue to implement its plan for addressing this high-risk area and periodically report its progress to us and Congress; identify and work to mitigate any resource gaps and prioritize initiatives as needed to ensure it can implement and sustain its corrective actions; closely track and independently validate the effectiveness and sustainability of its corrective actions and make midcourse adjustments as needed; and make continued progress in achieving the 20 actions and outcomes it has not fully addressed and demonstrate that systems, personnel, and policies are in place to ensure that results can be sustained over time. We will continue to monitor DHS’s efforts in this high-risk area to determine if the actions and outcomes are achieved and sustained over the long term. Each year, DHS invests billions of dollars in its major acquisition programs to help execute its many critical missions. In fiscal year 2015 alone, DHS reported that it planned to spend approximately $7.2 billion on these acquisition programs, and the department expects it will ultimately invest more than $180 billion in them. DHS and its underlying components are acquiring systems to help secure the border, increase marine safety, screen travelers, enhance cyber security, improve disaster response, and execute a wide variety of other operations. Each of DHS’s major acquisition programs generally costs $300 million or more and spans multiple years. To help manage these programs, DHS has established an acquisition management policy that we found in September 2012 to be generally sound, in that it reflects key program management practices. However, we also have found that DHS has lacked discipline in managing its programs according to this policy, and that many acquisition programs have faced a variety of challenges. These challenges can contribute to poor acquisition outcomes, such as cost increases or the risk of end users—such as border patrol agents or first responders in a disaster— receiving technologies that do not work as expected. Reflecting the shortcomings we have identified since 2005, we have made 64 recommendations to DHS on acquisition management issues; 42 of which have been implemented. Our findings also formed the basis of the five acquisition management outcomes identified in the high risk list, which DHS continues to address. As detailed below, DHS has fully addressed one outcome, mostly addressed two outcomes, partially addressed one outcome, and initiated efforts to address the final outcome. Outcome 1: Validate required acquisition documents in a timely manner (mostly addressed); Outcome 2: Establish effective component level acquisition capability (fully addressed); Outcome 3: Establish and effectively operate the Joint Requirements Council (partially addressed); Outcome 4: Assess and address whether appropriate numbers of trained acquisition personnel are in place at the department component levels (mostly addressed); and Outcome 5: Demonstrate that major acquisition programs are on track to achieve their cost, schedule, and capability goals (initiated). In March 2005, we reported that a lack of clear accountability was hampering DHS’s efforts to integrate the acquisition functions of its numerous organizations into an effective whole. We found that DHS remained a collection of disparate organizations, many of which were performing functions with insufficient oversight, giving rise to an environment rife with challenges. For example, the Chief Procurement Officer had been delegated the responsibility to manage, administer, and oversee all acquisition activity across DHS, but in practice enforcement of these activities was spread throughout the department with unclear accountability. We concluded that unless DHS’s top leaders addressed these challenges, the department was at risk of continuing to exist with a fragmented acquisition organization that provided stopgap, ad hoc solutions. In November 2008, we found that billions invested in major acquisition programs continued to lack appropriate oversight. While the acquisition review process DHS had in place at the time of our review called for executive decision making at key points in an acquisition program’s life cycle, the process had not provided the oversight needed to identify and address cost, schedule, and performance problems in its major investments. Poor implementation of the process was evidenced by the number of programs that did not adhere to the department’s acquisition review policy—of DHS’s 48 major programs requiring milestone and annual reviews, 45 were not assessed in accordance with this policy. Furthermore, at least 14 of these programs had reported cost growth, schedule slips, or performance shortfalls. We found that poor implementation was largely the result of DHS’s failure to ensure that the department’s major acquisition decision-making bodies effectively carried out their oversight responsibilities and had the resources to do so. For example, although a Joint Requirements Council had been responsible for managing acquisition investment portfolios and validating requirements, the council had not met since 2006. We also found in November 2008 that acquisition program budget decisions had been made in the absence of required oversight reviews and, as a result, DHS could not ensure that annual funding decisions for its major investments made the best use of resources and addressed mission needs. We found almost a third of DHS’s major investments received funding without having validated mission needs and requirements—which confirm a need is justified—and two-thirds did not have required life-cycle cost estimates. Without validated requirements, life-cycle cost estimates, and regular portfolio reviews, DHS cannot ensure that its investment decisions are appropriate and will ultimately address capability gaps. In July 2008, 15 of the 57 DHS major investments we reviewed were designated by the Office of Management and Budget as poorly planned and by DHS as poorly performing. Among other things, we recommended that DHS reinstate the Joint Requirements Council or establish another departmental joint requirements oversight board to review and approve acquisition requirements and assess potential duplication of effort. In November 2008, DHS issued the initial version of Acquisition Management Directive 102-01—the policy in effect today—in an effort to establish an acquisition management system that effectively provides required capability to operators in support of the department’s missions. DHS Acquisition Management Directive 102-01 and DHS Instruction Manual 102-01-001, which includes 12 appendixes, establish the department’s policies and processes for managing these major acquisition programs. In September 2012 we found that these documents reflect many key program management practices that could help mitigate program risks. Table 3 presents our 2012 assessment of the policy. However, in September 2012 we also found that DHS had not consistently met the policy’s requirements. At the time of our 2012 review, the department had only verified that 4 of 66 programs documented all of the critical knowledge the policy requires to proceed with acquisition activities. See figure 1. In 2012, most major programs lacked reliable cost estimates, realistic schedules, and agreed-upon baseline objectives, limiting DHS leadership’s ability to effectively manage those programs and provide information to Congress. As a result, we were only able to gain insight into the magnitude of the cost growth for 16 of 77 programs we reviewed, but we found that their aggregate cost estimates had increased by 166 percent. Additionally, we found that nearly all of the DHS program managers we surveyed in 2012 reported their programs had experienced significant challenges. Sixty-eight of the 71 respondents reported they experienced funding instability, faced workforce shortfalls, or their planned capabilities changed after initiation, and most survey respondents reported a combination of these challenges. DHS has concurred with and presented plans for addressing all of the acquisition management recommendations that we have addressed to the Secretary since September 2012, the implementation of which will enhance acquisition management. For example, in April 2014, we found that the department’s Acquisition Review Board rarely directed programs to make tradeoffs for affordability. We recommended that this board assess program-specific tradeoffs at all of its meetings, particularly in light of the fact that the department had identified a 30-percent gap between the 5-year funding needed for its major acquisitions and the actual resources expected to be available. DHS has since implemented this recommendation. Furthermore, in reviews completed in March, April, and October of 2015, we found that DHS had taken steps to improve oversight of its major acquisition programs and that it had begun to implement its 2008 acquisition policy more consistently. Many of DHS’s recent actions correspond to the high risk outcomes, as shown in the table 4. DHS faced a unique challenge when it was formed—merging 22 separate entities into a single department—which included integrating the acquisition functions of its numerous organizations into an effective whole. The department is to be commended for the efforts its leadership has taken to address the acquisition management shortcomings we have identified over the past 10 years. However, in our April 2015 review, we continued to find enduring challenges to acquisition programs, such as: Staffing shortfalls—DHS reported that 21 of the 22 programs we reviewed faced program office workforce shortfalls pertaining to such positions as program managers, systems engineers, and logisticians. Program funding gaps—we found that 11 of the 22 programs we reviewed faced funding gaps (projected funding vs. estimated costs) of 10 percent or greater, including five programs that faced gaps of 30 percent or greater. Inconsistencies in how components were implementing the department’s acquisition management policy—for example, we found that the funding plans for Coast Guard programs continued to be incomplete, in that they did not account for all of the operations and maintenance funding the Coast Guard planned to allocate to its major acquisition programs. These gaps in information reduce the value of the funding plans presented to Congress and obscure the affordability of Coast Guard acquisition programs. Further, as we noted in our most recent high risk update, the department has additional work to do to fully address the remaining acquisition management outcomes. To address these issues, we have, among other things, recommended that DHS assess program-specific affordability tradeoffs at all acquisition review meetings and ensure that funding plans submitted to Congress are comprehensive and clearly account for all operations and maintenance funding that DHS plans to allocate to its programs. DHS concurred with these recommendations and is taking actions to implement them. For example, DHS established that department leadership would, during all acquisition program reviews, specifically address affordability issues and make explicit tradeoffs as necessary, and DHS officials told us that DHS leadership is discussing affordability at all program reviews to help ensure adequate funding exists. Additionally, DHS has continued to obtain department-level approval for program baselines as needed, and has initiated efforts to improve the quality of acquisition data reported by components. To ensure that recent efforts are sustained, the department must continue to implement its sound acquisition policy consistently and effectively across all components. We continue to track DHS’s progress through ongoing reviews of the Joint Requirements Council, non-major program acquisitions, and our annual assessment of major acquisition programs, in addition to our high risk updates. Chairman Johnson, Ranking Member Carper, and members of the committee, this completes our prepared statement. We would be happy to respond to any questions you may have at this time. For further information about this testimony, please contact Rebecca Gambler at (202) 512-8777 or [email protected] or Michele Mackin at (202)-512-4841 or [email protected]. In addition, 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 Larry Crosland, Jennifer Kamara, James Kernen, Emily Kuhn, Elizabeth Luke, Valerie Freeman, David Lysy, Taylor Matheson, Shannin O’Neill, Lindsay Taylor, Nathan Tranquilli, Katherine Trimble, and Shaunyce Wallace. Key contributors for the previous work that this testimony is based on are listed in each product. Homeland Security: Weak Oversight of Human Resources Information Technology Investment Needs Considerable Improvement. GAO-16- 407T. Washington, D.C.: February 25, 2016. Homeland Security: Oversight of Neglected Human Resources Information Technology Investment Is Needed. GAO-16-253. Washington, D.C.: February 11, 2016. Immigration Benefits System: Better Informed Decision Making Needed on Transformation Program. GAO-15-415. Washington, D.C.: May 18, 2015. Homeland Security Acquisitions: Major Program Assessments Reveal Actions Needed to Improve Accountability. GAO-15-171SP. Washington, D.C.: April 22, 2015. Homeland Security Acquisitions: DHS Should Better Define Oversight Roles and Improve Program Reporting to Congress. GAO-15-292. Washington, D.C.: March 12, 2015. Department of Homeland Security: Progress Made, but More Work Remains in Strengthening Management Functions. GAO-15-388T. Washington, D.C.: February 26, 2015. DHS Training: Improved Documentation, Resource Tracking, and Performance Measurement Could Strengthen Efforts. GAO-14-688. Washington, D.C.: September 10, 2014. Department of Homeland Security: Progress Made; Significant Work Remains in Addressing High-Risk Areas. GAO-14-532T. Washington, D.C.: May 7, 2014. Homeland Security Acquisitions: DHS Could Better Manage Its Portfolio to Address Funding Gaps and Improve Communications with Congress. GAO-14-332. Washington, D.C.: April 17, 2014. Department of Homeland Security: DHS’s Efforts to Improve Employee Morale and Fill Senior Leadership Vacancies. GAO-14-228T. Washington, D.C.: December 12, 2013. DHS Financial Management: Continued Effort Needed to Address Internal Control and System Challenges. GAO-14-106T. Washington, D.C.: November 15, 2013. Information Technology: Additional OMB and Agency Actions Are Needed to Achieve Portfolio Savings. GAO-14-65. Washington, D.C.: November 6, 2013. DHS Financial Management: Additional Efforts Needed to Resolve Deficiencies in Internal Controls and Financial Management Systems. GAO-13-561. Washington, D.C.: September 30, 2013. Information Technology: Additional Executive Review Sessions Needed to Address Troubled Projects. GAO-13-524. Washington, D.C.: June 13, 2013. Department of Homeland Security: Taking Further Action to Better Determine Causes of Morale Problems Would Assist in Targeting Action Plans. GAO-12-940. Washington, D.C.: September 28, 2012. Homeland Security: DHS Requires More Disciplined Investment Management to Help Meet Mission Needs. GAO-12-833. Washington, D.C.: September 18, 2012. Department of Homeland Security: Billions Invested in Major Programs Lack Appropriate Oversight. GAO-09-29. Washington, D.C.: November 18, 2008. Homeland Security: Successes and Challenges in DHS’s Efforts to Create an Effective Acquisition Organization. GAO-05-179. Washington, D.C.: March 29, 2005. 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. 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In 2003, GAO designated implementing and transforming DHS as high risk because the failure to address risks associated with transforming 22 agencies into one department could have serious consequences for U.S. national and economic security. While challenges remain, DHS has made considerable progress. As a result, in 2013 GAO narrowed the scope of the high-risk area to focus on strengthening and integrating DHS management functions (human capital, acquisition, financial, and information technology). This statement discusses DHS's progress and actions remaining in addressing these functions with a focus on acquisition management. In fiscal year 2015 alone, DHS reported that it planned to spend approximately $7.2 billion on its major acquisition programs to help execute its many critical missions. This statement is based on GAO's 2015 high-risk update, GAO products from 2005 through 2016, and selected updates from ongoing work. To conduct past and ongoing work we reviewed key documents such as DHS strategies and interviewed agency officials. The Department of Homeland Security's (DHS) efforts to strengthen and integrate its management functions have resulted in it meeting three and partially meeting two of GAO's criteria for removal from the high-risk list (see table). For example, DHS has established a plan for addressing the high-risk area and a framework for monitoring its progress in implementing the plan. However, DHS needs to show additional results in other areas, including demonstrating the ability to achieve sustained progress across 30 outcomes that GAO identified and DHS agreed were needed to address the high-risk area. As of March 2016, DHS had fully addressed 10 of these outcomes but work remained in 20. GAO has reported on DHS's acquisition management for over 10 years. The department has struggled to effectively manage its major programs, including ensuring that all major acquisitions had approved baselines and that they were affordable. GAO has noted significant progress in recent reviews (see table). This progress is largely attributable to sustained senior leadership attention. Source: GAO analysis of DHS documents, interviews, and prior GAO reports. | GAO-16-507T To ensure that recent efforts are sustained, the department must continue to implement its sound acquisition policy consistently and effectively across all components. GAO has made numerous recommendations in this regard, which DHS has concurred with and is taking actions to implement. This testimony contains no new recommendations. GAO has made about 2,400 recommendations to DHS since 2003 to strengthen management efforts, among other things. DHS has implemented more than 70 percent of these recommendations, including those related to acquisition management, and has actions under way to address others.

You are an expert at summarizing long articles. Proceed to summarize the following text: 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. Schools that have not met their state’s performance goals for 2 or more consecutive years are identified for improvement and must implement certain activities that are meant to improve student academic achievement. Districts and states play a role in this process by providing technical assistance to schools. In addition, states are responsible for monitoring district and school compliance with NCLBA. Education provides states and districts with guidance on school improvement and monitors states for compliance with NCLBA requirements. Prior to NCLBA, the Congress attempted to hold states accountable for the annual performance of their schools by requiring them to collect assessment data, develop criteria to determine whether schools and districts were performing satisfactorily, and conduct student assessments. The 1994 reauthorization of ESEA—Improving America’s Schools Act (IASA)—required that schools be designated for improvement for failure to make AYP for 2 consecutive years and that districts take corrective action as a final intervention for schools that repeatedly missed AYP. However, under IASA states assessed AYP in different ways and used different measures to evaluate school performance. NCLBA added several new provisions to address these differences and to strengthen accountability. These provisions include: The requirement that states develop plans that include academic standards and establish performance goals for meeting AYP that would lead to 100 percent of their students being proficient in reading, mathematics, and science by 2014. To measure their progress, states were required to establish academic proficiency goals for making AYP and to administer an annual assessment to students in most grade levels. In addition, each school’s assessment data must be disaggregated in order to compare the achievement levels of students within certain designated groups with the state’s proficiency targets. These student groups include the economically disadvantaged, major racial and ethnic groups, students with disabilities, and those with limited English proficiency, and each of these groups generally must make AYP in order for the school to make AYP. A timeline for implementing specific interventions based on the number of years the school missed AYP. For a school that fails to meet AYP for 2 consecutive years, districts must offer students in these schools the opportunity to transfer to a higher-performing public school in the district, and after the third year, they must also offer supplemental education services (SES), such as tutoring. In addition, the school must also develop an improvement plan in consultation with the district, school staff, parents, and outside experts. These plans, which are subject to district approval, must incorporate strategies to address the specific academic issues that caused the school to be identified for improvement. Under NCLBA, if a school fails to make AYP for 4 consecutive years, it is required to implement one of the corrective actions identified in the legislation. In addition, a new intervention to change the governance of schools—school restructuring—was introduced for schools that miss AYP for 5 or more years. (See table 1.) Districts are responsible for selecting and implementing the corrective actions and restructuring options for these schools. Schools exit improvement status if they make AYP for 2 consecutive years. Schools in corrective action must implement at least one of six activities such as replacing selected school staff or implementing a new curriculum. Schools that do not make AYP after 5 years must plan for restructuring, which means that the district must decide how to change the school’s governance. Restructuring, the most severe of the NCLBA interventions, requires that the school implement a major change to how the school is operated, such as reorganizing into a public charter school or contracting with an outside organization such as a private management company to operate the school. If the school does not make AYP during the planning phase, the school enters restructuring. The corrective action and restructuring activities allowed under NCLBA are shown below in table 2. NCLBA does not address actions that districts must take after implementing restructuring and the school continues to fail to make AYP. Education officials said that they have encouraged states and districts to continue to try different interventions with these schools. The school district bears the primary responsibility for ensuring that its schools in improvement, including those in corrective action and restructuring, receive technical assistance, although the state also plays a role in providing assistance. The purpose of the district’s assistance is to strengthen and improve the school’s instructional program by helping the school address the issues that caused it to make inadequate progress in student achievement. Specifically, the district must ensure that each school identified for improvement receives assistance based on scientifically based research in three areas: analysis of student assessment data, identifying and implementing instructional strategies, and analysis of the school budget, as shown in table 3 below. The state educational agencies are also responsible for making several forms of technical assistance available to schools in improvement and overseeing the improvement activities of districts. States generally are required to reserve and allocate 4 percent of the state’s total Title I allocation for school improvement activities, with 95 percent of these funds going directly to the districts. States are to prioritize their assistance to districts that, among other things, serve the lowest achieving schools, such as those in corrective action and restructuring. They also are required to develop and sustain a statewide system of support that provides technical assistance to schools, with a priority given to those in improvement status. In addition, in developing the statewide system of support, the state agency must: Establish school support teams to work in schools throughout the state that are identified for improvement. The purpose of these teams is to assist schools to strengthen their instructional programs and must include individuals who are knowledgeable about scientifically based research and practice and its potential for improving teaching and learning. Designate and use distinguished teachers and principals who are chosen from Title I schools and have been especially successful in improving academic achievement. Devise additional approaches to improve student performance, for example, by drawing on the expertise of other entities, such as institutions of higher education, educational service agencies, or private providers of scientifically based technical assistance. Education provides assistance to states in implementing NCLBA and monitors states for compliance. Specifically, Education provides assistance to states and districts in several ways such as issuing regulations, providing guidance and policy letters, and through its comprehensive centers. For example, the department published nonregulatory guidance that was specific to schools in improvement and provided information on the actions that districts and states must take to reform their schools in compliance with NCLBA. To help build the capacity of states to meet NCLBA goals, Education awarded almost $57 million in fiscal year 2006 to the 21 comprehensive centers. These include 16 regional centers established to provide technical assistance to states within defined geographic areas. In addition, Education established five content centers that work closely with the regional centers to provide technical assistance to states on school improvement. One content center focuses on school improvement issues. Education monitors each state agency to determine, among other issues, whether the state is ensuring that districts are implementing NCLBA requirements for school improvement. Education, the state agency, and districts all play a role in ensuring that schools are meeting NCLBA requirements. Their monitoring responsibilities are presented in table 4. Education monitors states in two ways: (1) routinely gathers and analyzes data collected from Web-based searches and documents, such as Consolidated State Performance Reports, and (2) on-site visits at least once every 3 years to monitor state compliance with Title I. During these site visits, states are monitored to ensure that they are complying with Title I program requirements, which includes providing the necessary guidance and support to schools that are in improvement, including those in corrective action and restructuring. In addition, according to Education’s monitoring guidelines, Education officials visit selected districts in each state and ask for evidence on how schools are implementing required actions and meeting timeframes. Once the review is complete, Education issues a report to the state containing findings, recommendations, and required actions needed to address identified problems. A state is generally given 30 business days to respond to the findings and required actions and also to provide a timeline for addressing each issue. A state with significant findings may have conditions attached to its Title I Grant and if it fails to adequately address the identified deficiencies, the Secretary generally may withhold the state’s Title I funds that are used for state administration until all requirements have been satisfied. Schools in corrective action and restructuring status in the 2005-2006 school year were more frequently located in urban school districts and a few states and served higher percentages of minority, poor, and middle- school students than other Title I schools. In the 2005-2006 school year, 2,790 Title I schools were in corrective action, planning for restructuring, or implementing restructuring (see fig. 1). These schools comprised about 5 percent of all Title I schools and served over 2 million students. Data for the 2006-2007 school year show that the numbers of schools in corrective action and restructuring are growing, a trend that is likely to continue. Schools in corrective action and restructuring were predominantly located in urban areas, especially compared to all other Title I schools, as shown in table 5. Examples of urban areas with relatively higher numbers of schools in corrective action and restructuring include Chicago, Detroit, Los Angeles, New York, and Philadelphia. Nationwide, school districts in these 5 cities alone contained over 25 percent of all schools in corrective action and restructuring, as shown in Table 6. By comparison, these 5 districts contained less than 4 percent of all other Title I schools. Consequently, schools in corrective action and restructuring were concentrated in a few states. Five states—Illinois, New York, California, Pennsylvania and Michigan—collectively had over 60 percent of these schools, but less than 30 percent of all Title I schools nationwide. In contrast, a majority of states had 20 or fewer schools in corrective action and restructuring, as shown in figure 2. In general, states with large numbers of schools identified for improvement when NCLBA was passed had more schools in corrective action and restructuring in the 2005-2006 school year than those with few schools in improvement in 2001. Prior to NCLBA, states had identified schools for improvement, and when NCLBA was passed in the 2001-2002 school year, it generally required states to maintain the prior improvement status of schools. Consequently, many schools that were in earlier stages of improvement in school year 2001-2002 entered corrective action and restructuring in subsequent years. Schools in corrective action and restructuring also had a much higher percentage of racial or ethnic minority students compared to all other Title I schools (96 percent compared to 37 percent) and also enrolled a higher percentage of economically disadvantaged students (83 percent compared to 54 percent). These differences varied substantially when the location of the school is accounted for, as seen in table 7. Schools in corrective action and restructuring varied in terms of the grade level of students that they served. Compared with all other Title I schools, middle schools were considerably over-represented among schools in corrective action and restructuring while primary schools were underrepresented, as seen in table 8. Several factors might explain why middle schools are over-represented. Evidence from the National Assessment of Educational Progress— especially for many of the urban school districts with numerous schools in corrective action or restructuring—shows that the percentage of students who score at a proficient level or above in math is generally lower in middle schools than in elementary schools. Other factors may also include being less qualified than their peers in elementary or middle schools, teachers in middle schools, and social and emotional challenges associated with students as they make the transition into middle schools. Yet another reason may be that because of NCLBA provisions about the minimum number of students in a school that would comprise a designated student subgroup, middle schools typically have to make AYP for more student subgroups than elementary schools. Data for the 2006-2007 school year showed that the number of schools in corrective action and restructuring has increased. In 2006-2007, there were 4,509 schools in corrective action and restructuring compared to 2,790 the year before, an increase of over 60 percent, and more than twice as many schools compared to just 2 years earlier. (See fig. 3.) Additionally, 41 states had more schools in corrective action and restructuring whereas only 8 states had fewer. (See fig. 4 and see app. II for a comprehensive list of the number of schools in corrective action and restructuring in each state.) Most notably, in 2006-2007, the state of Florida had 574 schools in those categories compared to only 32 such schools in 2005-2006. According to a Florida state official, this increase is attributable to the fact that many schools have been struggling to meet the increasing proficiency targets. Other states with large increases include California (increase of 376 schools) and Massachusetts (increase of 118 schools). A few states, such as Michigan, had fewer schools in corrective action and restructuring in 2006-2007 compared to the prior year. In Michigan’s case, it is not clear whether the decrease was related to state or district reform efforts, changes in criteria making it easier for schools to make AYP, or some combination of these factors. The general trend toward higher numbers of schools in corrective action and restructuring may continue. As of the 2006-2007 school year, more schools were identified for improvement than at any time since such data were tracked under IASA. As proficiency targets continue to increase up to 100 percent by 2014, many schools identified for improvement may not make AYP. Consequently, if these schools cannot meet the increasing proficiency targets, they will enter corrective action and ultimately restructuring. Our survey results indicated that a majority of schools in corrective action and restructuring implemented required activities; however, in some cases schools may not be in compliance with NCLBA requirements. Although many schools in corrective action implemented multiple corrective actions, some did not take any corrective action. A majority of restructuring schools implemented a required restructuring option, but based on our survey results, about 40 percent of schools did not take any of the 5 restructuring options required by NCLBA, one of which is a broad category referred to as “other” major restructuring. Although there was no relationship between any of the specific activities and whether a school made AYP, a higher percentage of schools that fully implemented improvement activities made AYP compared with those that had not fully implemented activities. Among schools in corrective action status, we estimate that 94 percent implemented at least one corrective action from those specifically identified by NCLBA, and about three-quarters had used more than one corrective action. Hiring an outside expert and changing the internal structure of the school were the most frequent actions, with each implemented by about 60 percent of schools. Outside experts are used to advise the school on its progress toward making adequate yearly progress. Among schools that changed their internal structures, about 85 percent increased small group work and about 75 percent reorganized the school schedule to increase opportunities for professional development. Many schools also reduced class size, created small learning communities, and implemented team teaching as part of the changes to the organizational structure. In addition to hiring outside experts and changing internal structure, about 40 percent of schools changed the curriculum. A smaller percentage of schools implemented certain forms of corrective actions such as extending the school year or day or decreasing management authority at the school level. Some officials explained that extending the school year or day would be costly to the district because teacher salaries may have to increase to compensate for the additional instructional time. For the majority of schools, district officials played a significant role in determining the action taken. Figure 5 shows the allowed corrective actions and the percentage of schools implementing each action. Based on our survey, we estimate that 6 percent of schools in corrective action status did not take corrective actions. For example, in one school we visited, the principal told us that the school had not implemented any changes during its year in corrective action. He told us that the district provided no input on the required actions and that the state educational agency approved the school improvement plan without comment. About a third of schools that went into corrective action in 2005-2006 did not take a new corrective action in that year. These schools took corrective action in earlier years of improvement and did not implement any further corrective actions after entering corrective action status. For example, some schools indicated that the school used an outside expert or implemented a new curriculum in previous school years and had not implemented any additional corrective actions the year in which the school entered corrective action status. Education officials told us that if a school implemented a corrective action in earlier stages of improvement (year 1 or 2 of improvement), an additional corrective action might not be required. They explained that whether a district must take additional actions depends in part on whether the school is showing improvement in student achievement. If the school showed evidence that the intervention is producing results that are likely to enable the school to exit improvement status, an additional corrective action might not be necessary. On the other hand, Education officials noted that if the data indicates that the previous corrective actions have not addressed the school’s achievement problems they would expect the district to take additional corrective action. While it may be appropriate in some cases for schools to continue implementing the same actions, Education officials acknowledged that they have not provided written guidance on when continuing prior actions without implementing a new one would be acceptable. Department officials told us that while they had conducted Title I monitoring in every state, they had not found compliance issues specifically related to corrective action from their monitoring visits. States are required to conduct annual reviews of district progress in part to ensure that districts are carrying out their responsibilities, one of which is taking at least one corrective action when necessary. However, states generally do not report to Education district noncompliance, such as failure to take corrective actions as required. Under NCLBA, states are required to annually submit to Education and make widely available the measures taken to address the achievement problems of schools in improvement status, including schools in corrective action. However, Education does not require states to report on the measures taken for each school. Instead, Education requires states to provide a brief summary of the measures taken across the state. Consequently, Education lacks information on which action was taken by each school, whether schools are taking actions at all, and whether or not states have taken any actions against schools or districts for failure to comply with NCLBA. We estimate that a majority of schools in restructuring had implemented at least one of the five restructuring options allowed by NCLBA. According to NCLBA, each of these options is to result in a major change to the school’s governance. As figure 6 shows, about 40 percent of the schools implemented the “other” major restructuring of the school’s governance, which can include such actions as expanding or narrowing the grades served or creating smaller learning communities within the school. We estimate that 27 percent of schools replaced all or most of the staff related to the school’s performance issues. Of the 40 percent of schools that selected “other” major restructuring of the school’s governance, 44 percent created smaller learning communities—an approach taken by some of the schools we visited. For example, one middle school we visited created “academies” within the school. Each academy had its own theme, and students stay within the academy as they are promoted from grade to grade. Another 37 percent of schools that chose the “other” option narrowed or expanded the range of grades served within the school, for example, changing a kindergarten- through-grade-five elementary school to a kindergarten- through-grade- eight school. In one district we visited, officials reported that a kindergarten-through-grade-eight model creates a more positive learning environment than middle schools do as it creates a sense of family and relationships in schools. Figure 7 shows the various types of restructuring activities taken by schools implementing “other” major restructuring. In addition to the “other” major restructuring option, in an estimated 27 percent of restructuring schools, all or most of the staff (primarily teachers and principals) who were relevant to the failure to make AYP were replaced. The schools we visited that replaced staff varied in terms of whether teachers, principals, or both were replaced. Our survey indicated that for many of these schools, it was difficult or very difficult to recruit new teachers as replacements. Very few schools in restructuring had contracted with an entity, such as a private management organization, become a charter school, or been taken over by the state. Some states may not have authorized all restructuring options under state law or policy, which may explain why fewer schools have taken these options. For example, according to a recent report, while some states have policies that permit districts to turn schools over to private management or to reopen schools as charter schools, others do not. In three of the five states we visited, state officials reported that their state educational agencies currently do not take over schools. In one of these states, turning over school management to the state agency is permissible under state policy, but officials told us that the state does not have the capacity or expertise to do so. The amount of time it takes to plan for such a change may also be a factor in why these options are not often selected. For example, a district official reported that the district did not have sufficient time during the restructuring planning process to seriously consider reopening as a charter school, contracting with a private management company, or turning the operation of the school over to the state. In about 70 percent of schools, the district played a significant role in determining the restructuring option taken. Although a majority of schools implemented a restructuring option, about 40 percent of the schools that were in restructuring did not take any of the 5 restructuring options prescribed under NCLBA, according to our survey results. Several principals of schools that had not restructured did not know why an option was not taken. In other cases, principals believed that the school board or district had decided not to restructure. In addition, one of the surveyed schools and some school and district officials we visited did not believe restructuring was necessary when student achievement was improving. For example, officials at one of the schools we visited that was planning for restructuring indicated that the district and school administration had determined that no changes were needed because they were confident that the actions already taken were helping students. Nonetheless, about half of the schools that did not take one of the five restructuring options engaged in a variety of school improvement efforts. Some of these efforts may fall under the “other” major restructuring option, while others do not appear to be consistent with NCLBA requirements for restructuring. For example, one school implemented a new curriculum as a restructuring option, while at another school extra funding was used for small group instruction and after-school programs, both of which more closely resemble corrective action under NCLBA. In addition, in two districts we visited, officials allowed schools that were improving to continue efforts started under prior stages of improvement. However, we could not determine based on the information reported by survey respondents whether these activities would be considered restructuring under NCLBA. Further, several Education officials we spoke with could not determine whether or not the actions schools reported taking were in compliance without more information from the schools, such as other on-going districts efforts. Similar to our finding that many schools may not be implementing a restructuring option, Education’s 2006 interim report on Title I stated that very few schools in restructuring status implemented a restructuring option prescribed by NCLBA, though many implemented actions NCLBA specifies for the corrective action stage of school improvement. Despite these findings, department officials told us that they did not have any monitoring findings related to restructuring requirements, nor did they know whether any states had found districts that had not implemented restructuring requirements, although they did find deficiencies in some districts’ review of school improvement plans. Education’s monitoring tools and reporting requirements do not fully address issues of compliance. While Education’s state monitoring tool includes questions about how states monitor the implementation of school improvement plans, Education officials acknowledged that the department may be able to strengthen its monitoring tool to determine whether state oversight of districts is adequate to ensure compliance. Also, since states are not required to report district noncompliance to Education and Education does not require states to report on the specific corrective actions and restructuring options taken to address the achievement problems of each school, federal officials have limited information on areas in which there are compliance issues as well as the extent to which districts are complying. We estimate that over a third of schools that fully implemented a corrective action or restructuring option made AYP, as opposed to 16 percent of schools that had mostly or partially implemented improvement activities. Several officials noted, and research shows, that school improvement efforts take more than a year to affect student achievement, so it is possible that these activities will help these schools make AYP over the next several years. Many district and school officials we interviewed told us that implementing a new curriculum takes time and that other improvement efforts can take several years to fully implement and to see results. Other factors also can affect school improvement efforts. For example, among the schools that made AYP, 76 percent of principals believed teacher quality helped or greatly helped school improvement activities in their school, opposed to only 53 percent among schools that had not made AYP. In addition to teacher quality, around 80 percent of school officials believed that instructional support and resources, such as teacher aides and computers, helped or greatly helped their school improvement efforts. Schools lacking such support may find implementation of corrective action and restructuring more challenging. Based on our survey results, none of the specific corrective actions or restructuring options was associated with making AYP, nor was making AYP associated with the number of activities undertaken, and these findings are consistent with recent research on school improvement. Many school officials believed that other factors affected student achievement and therefore, the schools’ ability to make AYP. About 80 percent of school principals believed that community poverty impeded student achievement, while two-thirds believed community violence impeded achievement. We found similar views during our site visits. For example, at two schools we visited, officials noted that the presence of gangs in the neighborhood affected student achievement, and teachers at one school commented that it was unsafe for students to visit the community library after dark. Several school and district officials observed that poverty affected students’ academic efforts. School officials noted that many poor students cannot stay late at school because they have family obligations, such as taking care of younger children. In addition, about two-thirds of school principals believed that student mobility (moving from one school to another) impeded student achievement, and several officials said that districtwide or statewide curricula had been implemented, in part, to address widespread student mobility by establishing a consistent instructional approach across schools. Moreover, we estimate that nearly half of school officials believed that low student attendance impeded student achievement at their school. This finding was more prevalent among schools that had not made AYP compared to schools that had made AYP. Finally, several activities were undertaken by very few schools, such as state takeover or extending the school year, so these activities’ association with AYP could not be accurately assessed in this study. We estimate that more than 40 percent of the schools in corrective action and restructuring did not receive all of the required technical assistance, such as data analysis and professional development, through their school district, but most of the schools received some technical assistance from their state. While states generally are not required to provide specific kinds of assistance to schools, they are required to develop a statewide system of support that is available to schools and districts and to provide technical assistance to schools if the district fails to do so. Most schools reported receiving technical assistance from their state educational agency, such as help from instructional experts or highly skilled educators. We estimate that 42 percent of the schools in corrective action and restructuring had not received all of the required assistance in school year 2005-2006 while about 56 percent did. Schools most frequently received technical assistance related to professional development (92 percent) and instructional strategies (90 percent). However, only about 70 percent received assistance with analyzing the school budget to ensure that resources were allocated toward improving student achievement. We also found, based on our survey results, that 7 out of 313 schools (about 2 percent) in corrective action and restructuring received no assistance. (See fig. 8 for the percentage of schools receiving each type of required technical assistance.) Education officials noted that through their monitoring site visits they found that some districts had not provided all of the assistance required. In these instances, Education officials said states could withhold Title I funds from the districts that are out of compliance. However, Education could not tell us how often states take actions against districts for not providing required assistance, because according to one Education official, Education did not collect this information from states. Generally, school officials we met with told us that the district was actively involved in providing assistance to their schools. Almost all school principals and teachers that we interviewed specifically emphasized district efforts to train their administrators and teaching staff to analyze and use student testing data to target their instruction to areas of academic weakness and to students that needed additional assistance. In addition, they said that districts had targeted resources to provide professional development and implement effective instructional practices. For example, in most districts we visited, school officials said that literacy or math coaches had been hired to provide staff development or to work with teachers to identify instructional practices to improve instruction. Also, in some schools we visited, officials told us that districts assisted the schools in their efforts to increase parental involvement. For example, in New York City, the district helped some schools by approving a parent coordinator position to get parents more involved in their schools. Officials in some districts also reported reviewing school budgets to ensure that resources are allocated to programs that target student performance. In regard to budget assistance, district officials in Chicago told us that they must approve budgets of all schools in restructuring. In addition, principals in two California schools reported that the district reviewed their budgets and recommended expenditures that targeted school improvement activities. Most schools received some assistance from their state educational agency, and almost half received state funds for school improvement. States are required to develop a statewide system of support that is available to assist districts. As a part of this system, states must create school support teams, which are composed of various participants, including highly qualified or distinguished educators, such as teachers and principals who can assist the school in strengthening its instructional program to improve student achievement. We estimate that about 65 percent of schools received assistance from their state educational agency in developing the school improvement plan, and 60 percent received assistance from a school support team (fig. 9). Although state educational agencies generally are not required to provide specific kinds of technical assistance to schools in corrective action and restructuring, they are required to ensure that districts are providing all of the required assistance to schools identified for improvement, and if the district has not, state educational agencies must step in and provide the assistance. An estimated 47 percent of the schools in corrective action and restructuring received state funds for school improvement activities in addition to federal Title I funds. While state funds were used for many different kinds of school improvement activities, more than 75 percent of the schools surveyed used the funds for professional development activities, classroom support such as instructional and resource materials, or both. In addition, officials in four of the five states we visited told us that schools received state funds for school improvement activities. Maryland provides its schools guidelines on how the funds can and cannot be used and the guidelines emphasize that whenever possible, the funds should be used to improve instruction, such as purchasing textbooks or hiring more school staff. Schools in California and New York apply for state funds and must include a plan for how the funds will be used. Education provides technical assistance and research results to states primarily through its Comprehensive Centers Program, consisting of 16 regional centers and 5 content centers (fig. 10). The department replaced its former assistance centers and various education consortiums to meet the requirements of the Education Sciences Reform Act of 2002. The primary task of the content centers is to provide knowledge and assistance by experts in school improvement to regional centers. The regional centers are to provide technical assistance to states on a wide range of topics related to NCLBA, in part based on information provided by the content centers. One content center, the Center on Innovation and Improvement, provides a variety of services related to school improvement. The center developed a guide, Handbook on Restructuring and Substantial School Improvement, which it has disseminated to regional centers, state educational agencies, and other organizations. The handbook provides information on using student data to identify a restructuring option and focusing instruction on state standards, among other topics. Other services include the center’s annual 2-day training for representatives from the regional centers and additional workshops throughout the year on various improvement topics. The center produced a series of Web-based seminars during the spring and summer of 2007, also based on the handbook, for use by the regional centers. In addition, each regional center has developed an annual work plan, negotiated with the states for which it is responsible. For example, the New York Regional Center provides assistance to the state of New York and has negotiated a work plan with several goals related to school improvement. One goal is to help the New York State Education Department build its school improvement capacity by assisting with delivery of research-based professional development related to adolescent literacy. Education developed the What Works Clearinghouse to review studies of educational interventions to determine which studies were conducted with a sound methodology and to what extent the interventions are effective. The clearinghouse has reviewed studies on topics such as preventing dropouts and increasing elementary and middle school achievement in mathematics. While these topics are likely to be of interest for schools in corrective action and restructuring, the clearinghouse has not reviewed studies that specifically deal with practices employed by schools in corrective action and restructuring. Moreover, several state, district, and school officials we interviewed indicated that they needed more information on practices for improving schools in corrective action and restructuring. For example, an official in one district told us that they had been attempting to create their own approaches to improve schools, but said that there was insufficient information, from federal or other sources, on improvement practices. Recognizing the need for information that may be more suited for teachers, principals, and other educators, Education officials reported that the department will launch a Web site in September 2007 related to their initiative, Doing What Works. Through this initiative, Education would review studies identified by the clearinghouse and develop materials, called “practice guides” for educators. According to Education, a practice guide on school restructuring is in development and may be available by the end of 2007. In addition to the Comprehensive Centers and What Works Clearinghouse programs, Education implemented a variety of other initiatives that may assist officials in their efforts to improve schools. The department revised its guidance in July 2006 to provide more information on school restructuring. In addition, Education operates 10 Regional Education Laboratories that provide research on a variety of topics. For example, the Northwest Regional Education Laboratory is currently examining statewide systems of support and the factors that have helped schools make AYP. The laboratories are also available to provide assistance to any entity, such as school districts or schools, that may request information from them. Other resources include the Support for School Improvement newsletter, developed by the Council of Chief State School Officers and funded in part by Education. The newsletter focuses on topics such as school improvement policies and closing achievement gaps among student groups. Education also funds a clearinghouse for Comprehensive School Reform, which disseminates research on effective approaches to school reform through publications such as a recent report on what improvement practices might work for schools in restructuring. Schools that reach corrective action and restructuring status face many challenges in raising the achievement levels of their students. These schools typically serve low-income students, and many report that factors such as neighborhood violence and student mobility pose additional challenges to engaging students and improving their academic performance. While most of these schools have implemented activities that are required by NCLBA, it is possible that a significant number of schools have not. Although Education has made efforts to provide guidance to districts on what actions are required and when, the department’s efforts do not address several specific issues that would allow states, districts, and schools to make well informed decisions that are in compliance with NCLBA. For example, many schools in corrective action continued efforts implemented previously but did not implement a new action. While this course of action may be a reasonable and appropriate path for some schools to take, Education has not provided guidance to districts delineating when continuing a corrective action—and not taking an additional one—is appropriate and when it is not. Without written guidance, some districts and schools that are not demonstrating sustained improvement may continue previous efforts in order to avoid having to make more changes. On the other hand, some districts may not know they can comply with NCLBA by continuing an action that is moving their schools forward and instead may be struggling to choose another prescribed activity that is not needed. While Education monitors states to ensure compliance with NCBLA—and has found deficiencies in some districts’ reviews of schools’ improvement plans—department officials told us that they were unaware that some districts may not be implementing the required corrective action and restructuring activities because they do not collect that specific information. Collecting information on the activities of schools in corrective action and restructuring and on compliance issues identified by states would better position Education to target its guidance and monitoring on areas of greatest need. Finally, our review indicates that many schools may not be receiving all the types of assistance that they are supposed to receive through their districts. However, Education officials told us that they have not found any instances in which schools in corrective action and restructuring have not received required assistance, and officials noted that Education does not track the extent to which states also have found such incidences. Schools that are not receiving this assistance might not be able to make the kinds of dramatic improvement needed for their students, in part because they may not be receiving the resources to improve as envisioned by NCLBA. The Secretary of Education should: Ensure that guidance is provided to states and districts about when it may be appropriate to allow schools to continue corrective action implemented in earlier years of improvement and not take a new activity as the school moves into corrective action status. Obtain more specific information from states on district implementation, such as the primary activity that each school in corrective action and restructuring is implementing as well as more specific information on compliance issues states have identified as part of their monitoring activities. This information should be analyzed to identify areas where further federal guidance is needed and to ensure that areas of noncompliance are being addressed by states. Take additional steps through Education’s monitoring process to ascertain whether states are ensuring that districts provide the assistance required by NCLBA. Education provided us with written comments on a draft of this report. Education agreed with our three recommendations to provide more guidance to states and districts, obtain more information on district implementation of corrective action and restructuring activities, and take additional steps to determine whether districts are providing assistance required by NCLBA. Specifically, Education agreed to explore options for sharing guidance on when schools may continue a corrective action while not taking a new one and commented that it will explore sharing guidance that address other issues related to schools in corrective action and restructuring that it has asked states to identify. While Education noted that it is generally informed on the actions taken in schools in corrective action and restructuring, it agreed that more information is needed from states on district implementation of corrective action and restructuring activities and that it will consider options for gathering additional evidence on how states ensure that districts are complying with corrective action and restructuring requirements. Finally, Education agreed to consider ways for revising its monitoring procedures in order to obtain more information on how states determine whether districts are providing technical assistance to these schools, the types of assistance they provide, and the actions states take to address areas of noncompliance. See appendix III for Education’s comments. Education also provided us with a few technical comments that we incorporated. We are sending copies of this report to the Secretary of Education and other interested parties. We will also make copies available to others upon request. In addition, the report will be made 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 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. Major contributions to this report are listed in appendix IV. To address the objectives of this study, we used a variety of methods. To obtain a national perspective, we conducted descriptive analyses of characteristics of schools in corrective action and restructuring and compared them to all other Title I schools nationwide. We selected a nationally representative sample of these schools and conducted two Web- based surveys—one of principals whose schools were in corrective action and another for schools implementing restructuring—to obtain information on implementation of corrective action and restructuring and school district and state assistance to such schools. We also conducted site visits during which we interviewed state, district, and school officials representing 5 states and 10 school districts within these states, and we conducted phone interviews with state officials from 4 other states. We spoke with officials at Education involved in oversight and implementation of corrective action and restructuring in schools and reviewed Education’s data on schools identified for improvement. We also interviewed several experts in the field of school improvement. We reviewed federal laws, regulations, and agency guidance. We conducted our work from August 2006 through August 2007 in accordance with generally accepted government auditing standards. To address the first objective, we obtained lists of schools in corrective action, planning for restructuring, and implementing restructuring status and their school districts from Education. States submitted these lists to Education through the No Child Left Behind Act (NCLBA) Consolidated State Performance Reports (CSPR) for school year 2004-2005, which contained each school’s improvement status for the 2005-2006 school year, among other data. Because states provided the names of schools in corrective action and restructuring in their 2004-2005 CSPRs, these schools comprised the national population of such schools. In some cases, states used different labels for identifying schools in corrective action and restructuring. For example, one state identified schools in corrective action by labeling them as “Year 3” schools. When states used terms other than corrective action and restructuring to indicate schools’ improvement status, we contacted state officials to clarify the label the state used. Education also provided us with numbers of schools in corrective action and restructuring for the 2006-2007 school year, which we compared to numbers from prior years. On the basis of our review of the data on improvement status for school years 2005-2006 and 2006-2007, we determined these sources to be sufficient for the purposes of our work. We used the lists of schools in corrective action and restructuring for the 2005-2006 school year to develop our survey samples and for comparisons with other Title I schools not identified as needing improvement. Also in the CSPR, states provided each school’s nationally unique identification number, allowing us to link data on these schools with data provided in Education’s Common Core of Data (CCD). The CCD is a database of Education’s National Center for Education Statistics, which annually collects data from state educational agencies about all public schools, public school districts, and state educational agencies in the United States. At the time we began our analysis, the latest CCD data available were from the 2004-2005 school year. Although we based our analysis on schools in corrective action and restructuring in 2005-2006, the characteristics were based on one year prior. Upon linking schools identified in the CSPR to those in the CCD, we obtained data on the following characteristics: locale: whether the school was located was in an urban, suburban, or rural area or town; minority status: the percent of students in the school classified as American Indian/Alaskan Native, Asian/Pacific Islander, Black/Non- Hispanic, or Hispanic; poverty status: the percent of students in the school who qualified for free- or reduced-priced meals; and grade levels served: whether primary, middle, or high school grades. To define these levels, we used the definitions provided in the CCD, as listed in table 9. Schools that did not fit these grade-level configurations were classified as “other,” meaning any other combination, from the low grades of prekindergarten, kindergarten or first grade up to twelfth grade, consistent with the CCD definition. We compared the percentage of schools in corrective action and restructuring with all other Title I schools within each category of the characteristics of locale and grade levels served. For minority status and poverty status, we compared schools in corrective action and restructuring with all other Title I schools by comparing the characteristics of the median school within each group. The median is the school in the middle of a list of schools when they are listed from highest to lowest along any given characteristic, such that one-half of the schools are listed above and the other half are listed below that school. For example, when all corrective action and restructuring schools were listed from highest to lowest in terms of poverty status, the school in the middle of that list had a poverty rate of 96 percent. In contrast, when all other Title I schools were listed from highest to lowest, the school in the middle of that list had a poverty rate of 37 percent. We chose to use the median school instead of calculating the average for all schools or all students, because so many schools had high rates of poverty and minority student representation, that the median more accurately characterized the typical school in our dataset than did the average. We performed a series of tests and took additional steps as needed to assess the reliability of the data used. For the lists of schools obtained in the CSPR and the CCD, we checked to ensure that data were consistent, that subtotals added to overall totals and that data provided for 1 year bore a reasonable relationship to the next year’s data and to data reported elsewhere, including state education reports. We also spoke with Education officials about their follow-up efforts to verify the data. At the time of our review, Education reported that the 2004-2005 data had been verified. On the basis of our review of these data, we determined these sources to be sufficiently reliable for the purposes of our work. We also considered school improvement-related findings from Education studies, including the National Assessment of Title I Interim Report, Vol. 1: Implementation (2006). To ensure the findings from these studies were sufficiently reliable, we reviewed each study’s methodology, including data sources and analyses, limitations, and conclusions. We found these studies to be sufficiently reliable for the purposes of our work. To address the second objective on school’s implementation of corrective action and restructuring and the third objective on district and state assistance, we designed and administered two Web-based surveys to a nationally representative sample of school principals: one for schools in corrective action and one for schools in restructuring, as of the 2005-2006 school year. The surveys were conducted between January and March 2007. To obtain the maximum number of responses, we sent follow-up e-mail notifications with a link to the surveys to those who had not completed the survey approximately 1 week after the initial launch and additional six follow-up notifications every week thereafter. In addition, approximately 3 weeks after the Web surveys began, we provided a mail survey to those who had not responded. The surveys included questions about corrective actions or restructuring options the school had taken. Both surveys included questions about factors that may have influenced student achievement and assistance provided by the state and district. We also conducted site visits to 5 states and 10 school districts and 20 schools within these states, during which we conducted interviews and obtained documentation on school improvement efforts and related topics. Finally, we reviewed Education’s regulations, guidance, and monitoring tools and interviewed department officials about monitoring and guidance related to corrective action and restructuring. Specifically, we reviewed the NCLBA, associated regulations, Local Education Agency and School Improvement Guidance (revised July 2006), monitoring tools and indicators used during Education’s site visits, and selected monitoring reports and findings. Based on data obtained from the CSPR, the study population of 1,163 schools consisted of all public Title I schools that were in corrective action in the 2005-2006 school year. We selected a random sample of schools in the population and calculated the sample size to achieve a precision of plus and minus 8 percent at the 95 percent confidence level for an expected proportion of 50 percent. To ensure the sample sizes were adequate, we set the sample size assuming we would obtain a 70 percent response rate. The total sample size was 240 schools. In the sample, each school in the population had a known, nonzero probability of being selected. Each selected school was subsequently weighted in the analysis to account statistically for all the schools in the population, including those that were not selected. Because we surveyed a sample of schools, survey results are estimates of a population of schools and thus are subject to sampling errors that are associated with samples of this size and type. Since 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. As 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 (for example, plus or minus 8 percentage points). This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. As a result, we are 95 percent confident that each of the confidence intervals in this report will include the true values in the study population. We excluded 8 of the sampled schools, because they were not in corrective action status in the 2005-2006 school year, were not Title I schools or had closed, and therefore were considered out of scope. All estimates produced from the sample and presented in this report are representative of the in-scope population. All percentage estimates included in this report have margins of error of plus or minus 8 percentage points or less, unless otherwise noted. We took steps to minimize nonsampling errors that are not accounted for through statistical tests, like sampling errors. In developing the Web survey, we conducted several pretests of draft instruments. We pretested the survey instrument with school officials in Aurora, Illinois; Berkeley, California; and Orange, New Jersey, between October and November 2006. We selected schools in these states because they contained large numbers of schools in corrective action and thus it was likely that schools from these states would be included in our sample. In the pretests, we were generally interested in the clarity of the questions and the flow and layout of the survey. For example, we wanted to ensure definitions used in the surveys were clear and known to the respondents, categories provided in closed-ended questions were complete and exclusive, and the ordering of survey sections and the questions within each section was appropriate. We revised the survey on the basis of information we gathered in the pretests. A second step we took to minimize nonsampling errors was using a Web- based survey. By allowing respondents to enter their responses directly into an electronic instrument, this method automatically created a record for each respondent in a data file and eliminated the need for and the errors (and costs) associated with a manual data entry process. To further minimize errors, programs used to analyze the survey data and make estimations were independently verified to ensure the accuracy of this work. While we did not fully validate specific information that school officials reported in our survey, we took several steps to ensure that the information was sufficiently reliable for the purposes of this report. For example, data from mailed surveys were double-keyed to ensure data entry accuracy, and the information was analyzed using statistical software. We obtained corroborating evidence of schools’ improvement status when the information provided by the school conflicted with the information we had received from the Department of Education. In addition, we verified the responses of those schools that reported that the school had made AYP. When survey responses did not align with the information that we obtained from state Web sites and school report cards, we made changes to the survey responses based on documentary evidence. After the survey was closed, we also made comparisons between select items from our survey data and another national-level data set. We found our survey data were reasonably consistent with the external sources. On the basis of our checks, we believe our survey data are sufficiently reliable for the purposes of our work. We received survey responses from 68 percent of the Title I schools in corrective action in our sample. After the survey was closed, we analyzed the survey respondents to determine if there were any differences between the responding schools, the nonresponding schools, and the population. We performed this analysis for four characteristics—percentage of minority students, percentage of students with free lunch, region, and locale. We found no significant differences between the estimates for the survey respondents and the overall population values for these characteristics. On the basis of the 68 percent response rate and this analysis, we chose to include the survey results in our report and produce sample-based estimates to the population of schools in corrective action in the 2005-2006 school year. The study population of 920 schools consisted of public Title I schools that were implementing restructuring in the 2005-2006 school year. This population was obtained from the CSPR data provided by Education, as described above. We used the same sample design for the restructuring Web survey as the design used for the corrective action survey. The total sample size was 230 schools. We determined that 12 of the sampled schools were out of scope because they were not implementing restructuring in the 2005-2006 school year. All estimates produced from the sample and presented in this report are representative of the in-scope population. All percentage estimates included in this report have margins of error of plus or minus 8 percentage points or less, unless otherwise noted. As with the corrective action survey, we took steps to minimize nonsampling errors. We pretested the survey instrument with school officials in Detroit, Michigan and Syracuse, New York, between October and November 2006. We selected schools in these states because the states contained large numbers of schools implementing restructuring and thus it was likely that schools from these states would be included in our sample. The pretests were conducted in the same manner as those done for the corrective action survey. On the basis of the pretests, the Web instrument underwent some revisions. Again, use of a Web-based survey also minimized nonsampling errors as did independently verifying programs used to analyze the survey data and make estimations. Steps taken to ensure that the information was sufficiently reliable for the purposes of this report mirror those taken for the corrective action survey, including obtaining corroborating evidence of schools’ improvement status when the information provided by the school conflicted with the information we had received from the Department of Education. When a survey response did not align with the information that we obtained from state Web sites and school report cards, we made changes based on our documentary evidence. We checked a sample of schools that claimed to have made AYP to verify these responses and found that the responses were accurate. Again, we made comparisons between select items from our survey data and other national-level data sets, and found our survey data were reasonably consistent with the external sources. On the basis of our checks, we believe our survey data are sufficient for the purposes of our work. We received survey responses from 74 percent of the Title I schools implementing restructuring in our sample. After the survey was closed, we analyzed the survey respondents to determine if there were any differences between the responding schools, the nonresponding schools, and the population, as was done for the corrective action survey. We found no significant differences between the estimates for the survey respondents and the overall population values for these characteristics. On the basis of the 74 percent response rate and this analysis, we chose to include the survey results in our report and produce sample-based estimates to the population of schools in restructuring in the 2005-2006 school year. Many of the questions on the corrective action survey and restructuring survey were the same. For example, on both surveys we asked about the assistance provided by the state and district, the factors that impeded or facilitated student achievement, and the factors that helped or hindered implementation of school improvement efforts. For such questions, we combined the survey responses for reporting purposes. We weighted the respondents so that the estimates are for the in-scope combined population of corrective action and implementing restructuring schools. Because we surveyed a sample of schools, our results are estimates of a population of Title I schools in corrective action and implementing restructuring and thus are subject to sampling errors that are associated with samples of this size and type. All percentage estimates included in this report have margins of error of plus or minus 8 percentage points or less, unless otherwise noted. To understand corrective action and restructuring implementation at the local level, we conducted site visits to 5 states and 10 districts and 20 schools within these states between October 2006 and March 2007. The 5 states we chose were: California, Illinois, Maryland, New York, and Pennsylvania. Together, these 5 states had 59 percent of schools in corrective action and restructuring nationwide in the 2005-2006 school year and are located in a variety of geographic regions. We interviewed state officials on state efforts to oversee and assist schools in corrective action and restructuring. Within each of the 5 states, we visited 2 school districts, for a total of 10 school districts, as shown in table 10. The 10 districts were selected because they had experience implementing corrective action and restructuring. When viewed as a group, the districts also provided variation across characteristics such as geographic location and district size. During the site visits, we interviewed state and district officials as well as officials representing 20 schools, including principals, teachers, and other school staff involved with school improvement activities in order to provide in-depth information and illustrative examples of our more general findings. The selected schools resembled the population of schools in corrective action and restructuring in terms of the grade levels served, and the students’ racial, ethnic, and economic characteristics. While in many cases district officials selected the schools we visited, all of the schools had experience implementing corrective action or restructuring. Through our interviews with state, district, and school officials, we collected information on corrective actions and restructuring options implemented, factors affecting student achievement, and state and district assistance provided to schools in corrective action and restructuring. To address the fourth objective on Education’s efforts to assist states’ implementation of corrective action and restructuring provisions, we conducted interviews with representatives of the offices of Title I, Planning, Evaluation, and Policy Development, What Works Clearinghouse, Comprehensive Centers Program, and General Counsel. We also interviewed officials with the Center on Innovation and Improvement, the California and New York Regional Centers, and the Northwest Regional Education Laboratory. In addition, we interviewed experts in the field on school improvement, including those at the American Institutes for Research, Center on Education Policy, Council of the Great City Schools, Council of Chief State School Officers, Education Commission of the States, and RAND Corporation. We reviewed several studies on school improvement, corrective action, and restructuring. For the 2005-2006 school year, Georgia required schools in corrective action to plan for restructuring. We reported these schools as in status as corrective action. Bryon Gordon, Assistant Director, and Elizabeth Morrison managed the assignment. Cara Jackson, Jason Palmer, and Nancy Purvine made significant contributions to this report in all aspects of the work. Susannah Compton, Nancy Hess, Jean McSween, and Jerome Sandeau provided analytical assistance. Sheila McCoy provided legal support, and Karen Burke developed the report’s graphics. Teacher Quality: Approach, Implementation, and Evaluation of Key Federal Efforts. GAO-07-861T. Washington, D.C.: May 17, 2007. No Child Left Behind Act: Education Actions May Help Improve Implementation and Evaluation of Supplemental Educational Services. GAO-07-738T. Washington, D.C.: April 18, 2007. No Child Left Behind Act: Education Assistance Could Help States Better Measure Progress of Students with Limited English Proficiency. GAO-07-646T. Washington, D.C.: March 23, 2007. Reading First: States Report Improvements in Reading Instruction, but Additional Procedures Would Clarify Education’s Role in Ensuring Proper Implementation by States. GAO-07-161. Washington, D.C.: February 28, 2007. No Child Left Behind Act: Education Actions Needed to Improve Implementation and Evaluation of Supplemental Educational Services. GAO-06-1121T. Washington, D.C.: September 21, 2006. No Child Left Behind Act: Education Actions Needed to Improve Local Implementation and State Evaluation of Supplemental Educational Services. GAO-06-758. Washington, D.C.: August 4, 2006. No Child Left Behind Act: States Face Challenges Measuring Academic Growth. GAO-06-948T. Washington, D.C.: July 27, 2006. No Child Left Behind Act: Assistance from Education Could Help States Better Measure Progress of Students with Limited English Proficiency. GAO-06-815. Washington, D.C.: July 26, 2006. 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. No Child Left Behind Act: Improved Accessibility to Education’s Information Could Help States Further Implement Teacher Qualification Requirements. GAO-06-25. Washington, D.C.: Nov. 21, 2005. No Child Left Behind Act: Education Could Do More to Help States Better Define Graduation Rates and Improve Knowledge about Intervention Strategies. GAO-05-879. Washington, D.C.: Sept. 20, 2005. No Child Left Behind Act: Most Students with Disabilities Participated in Statewide Assessments, but Inclusion Options Could Be Improved. GAO-05-618. Washington, D.C.: July 20, 2005. Charter Schools: To Enhance Education’s Monitoring and Research, More Charter School-Level Data Are Needed. GAO-05-5. Washington, D.C.: Jan. 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.: Dec. 10, 2004. No Child Left Behind Act: Improvements Needed in Education’s Process for Tracking States’ Implementation of Key Provisions. GAO-04-734. Washington, D.C.: Sept. 30, 2004. No Child Left Behind Act: Additional Assistance and Research on Effective Strategies Would Help Small Rural Districts. GAO-04-909. Washington, D.C.: Sept. 23, 2004. 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. Student Mentoring Programs: Education’s Monitoring and Information Sharing Could Be Improved. GAO-04-581. Washington, D.C.: June 25, 2004. No Child Left Behind Act: More Information Would Help States Determine Which Teachers Are Highly Qualified. GAO-03-631. Washington, D.C.: July 17, 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 of 2001 (NCLBA) focused national attention on improving schools so that all students reach academic proficiency by 2014. In the 2006- 2007 school year, about 4,500 of the 54,000 Title I schools failed to make adequate yearly progress (AYP) for 4 or more years. Schools that miss AYP for 4 years are identified for corrective action, and after 6 years, they must be restructured. GAO examined (1) the characteristics of Title I schools in corrective action and restructuring; (2) the actions that schools in corrective action and restructuring implemented; (3) the assistance those schools received from districts and states; and (4) how Education supports states in their efforts to assist these schools. GAO administered two Web-based surveys to a nationwide sample of schools in corrective action and restructuring status and conducted site visits to five states. Nationwide, the 2,790 Title I schools that were in corrective action or restructuring status in the 2005-2006 school year were more frequently located in urban areas and in a few states. These schools served higher percentages of minority, poor, and middle-school students than other Title I schools, and many report that factors such as neighborhood violence and student mobility pose additional challenges to improving student academic performance. As state proficiency targets continue to increase to 100 percent in 2014, the number of schools in corrective action and restructuring may increase. A majority of schools in corrective action or restructuring status implemented required activities. However, in some cases, schools may not be meeting NCLBA requirements. GAO estimates that 6 percent of schools did not take any of the required corrective actions and that about a third continued corrective actions implemented during earlier years of school improvement but did not take a new action after entering corrective action status. While this course of action may be an appropriate path for some schools to take, the Department of Education has not provided guidance to districts delineating when continuing a corrective action is appropriate and when it is not. In addition, about 40 percent of schools did not take any of the five restructuring options required by NCLBA. While states are required to report annually to the Department of Education the measures taken by schools in improvement status, Education does not require states to report on the specific measures taken for each school. GAO estimates that 42 percent of the schools in corrective action or restructuring did not receive all required types of assistance through their school districts, although most received discretionary assistance from their state educational agencies. Districts are required to ensure that several types of assistance are provided to all schools in improvement status, including those in corrective action and restructuring status. This assistance includes help in analyzing students' assessment data and revising school budgets so that resources are allocated to improvement efforts. NCLBA generally does not require states to provide specific kinds of assistance to schools in corrective action or restructuring; however, they are required to develop a statewide system of support, including school support teams to provide technical assistance to schools and districts. Most schools received some type of assistance from the state educational agency. Education provides technical assistance and research results to states primarily through its Comprehensive Centers Program. Education also has provided more material in its Web-based clearinghouse to address a greater number of topics and is developing an initiative to outline practical steps for schools in improvement, including those in restructuring.

You are an expert at summarizing long articles. Proceed to summarize the following text: NASA’s mission is to drive advances in science, technology, aeronautics, and space exploration and contribute to education, innovation, our country’s economic vitality, and the stewardship of the Earth. To accomplish this mission, NASA establishes programs and projects that rely on complex instruments and spacecraft. NASA’s portfolio of major projects ranges from space satellites equipped with advanced sensors to study the Earth to a spacecraft which plans to return a sample from an asteroid to a telescope intended to explore the universe to spacecraft to transport humans and cargo to and beyond low-Earth orbit. Some of NASA’s projects are expected to incorporate new and sophisticated technologies that must operate in harsh, distant environments. The life cycle for NASA space flight projects consists of two phases— formulation, which takes a project from concept to preliminary design, and implementation, which includes building, launching, and operating the system, among other activities. NASA further divides formulation and implementation into phase A through phase F. Major projects must get approval from senior NASA officials at key decision points before they can enter each new phase. Figure 1 depicts NASA’s life cycle for space flight projects. Formulation culminates in a review at key decision point C, known as project confirmation, where cost and schedule baselines are established and documented in a decision memorandum. To inform those baselines, each project with a life-cycle cost estimated to be greater than $250 million must also develop a joint cost and schedule confidence level (JCL). The JCL initiative, adopted in January 2009, is a point-in-time estimate that, among other things, includes all cost and schedule elements, incorporates and quantifies known risks, assesses the impacts of cost and schedule to date, and addresses available annual resources. NASA policy requires that projects be baselined and budgeted at the 70 percent confidence level. Our ongoing work on NASA’s major projects includes assessments of 18 major NASA projects. Figure 2 includes more information on the projects. Our ongoing work indicates that NASA has made progress over the past 5 years in a number of key acquisition management areas, but it faces significant risks in some of its major projects. On the positive side, the cost and schedule performance of NASA’s portfolio of major projects in development has improved and most current projects are adhering to their committed cost and schedule baselines. In addition, NASA has maintained recent improvements in the implementation of key product development best practices, which can help reduce risk in projects. Our preliminary results indicate that although NASA’s overall performance has improved, its portfolio of major projects continues to experience cost and schedule growth and development risks in major projects, such as Orion and the Space Launch System, warrant the committee’s continued attention. Our preliminary results show that the cost and schedule performance of NASA’s portfolio of major projects in development continues to improve. In 2016, overall development cost growth for the portfolio of 12 development projects, excluding the James Webb Space Telescope (JWST), fell to 1.3 percent and launch delays averaged 4 months. Both of those measures are at or near the lowest levels we have reported since we began our annual reviews in 2009 (see fig. 3). NASA has made positive changes in the past 5 years that have helped contribute to the improved performance of its projects. Among other things, we previously reported that NASA adopted a new policy to help project officials with management, cost and schedule estimating, and maintenance of adequate levels of reserves; established a management review process to enable NASA’s senior management to more effectively monitor a project’s performance, including cost, schedule, and cross- cutting technical and nontechnical issues; and has improved external oversight by increasing transparency into project costs. Congressional action has also helped improve visibility into NASA’s cost and schedule performance. In 2005, Congress required NASA to report cost and schedule baselines for all programs and projects with estimated life-cycle costs of at least $250 million that have been approved to proceed to implementation. Congress also required NASA to report to it when development cost growth or schedule delays exceeded certain thresholds. Our ongoing work indicates that NASA’s most recent improvements in its overall cost performance have also been driven, in part, by the addition of new, large programs to the portfolio. The cost and schedule performance of any portfolio is affected by its composition. New projects are less likely to have experienced cost and schedule growth than older ones, so they generally help improve portfolio performance. Eight of the 12 major projects in development established baselines within the last 2 years, and cost and schedule performance collectively has improved as projects in the portfolio have become, on average, younger. We will continue to monitor these trends as NASA’s current major projects progress through the project life cycle to see if the improvements in the portfolio’s cost and schedule performance are sustained. Our ongoing work shows that most current NASA projects have stayed within the cost and schedule estimates in their development baselines, both this year and throughout their life cycles, but the portfolio continues to experience cost and schedule growth. This growth was driven by projects that experienced significant cost growth and exceeded their development cost baselines. When a project exceeds its development cost baseline by 30 percent, it is rebaselined if it is to be continued. NASA has rebaselined a major project each year for 8 out of the last 9 years. Table 1 shows the development cost growth for each of the rebaselined projects. Our ongoing work also shows that the cost growth associated with rebaselined projects often overwhelms the positive cost performance within the remainder of the portfolio both on an annual and life-cycle basis. In July 2015, NASA approved a new baseline for the Space Network Ground Segment Sustainment (SGSS) project, which increased its estimated development costs from $368 million to $677 million and extended its completion date from June 2017 to September 2019. Cost growth from the SGSS was not offset by better performing projects, such as the Origins-Spectral Interpretation-Resource Identification-Security- Regolith Explorer (OSIRIS-REx) asteroid sampling mission. OSIRIS-REx reported lower than expected development costs for the second consecutive year, even though it is at a stage in the life cycle when projects often realize cost growth. The project attributes its $78.2 million decrease in development cost to several factors, including a mature mission concept and rigorous risk management process. Our preliminary results indicate that the projects in NASA’s current portfolio with the highest development costs, including Space Launch System and Orion, are entering the stage when most rebaselines occur. Projects appear most likely to rebaseline between their critical design and system integration reviews. All eight major projects that rebaselined during the last 9 years did so after their critical design review and the three projects in the 2016 portfolio that rebaselined did so before holding their systems integration review. Nine projects in the current portfolio are in this stage of development—Exploration Ground Systems; Ice, Cloud, and Land Elevation Satellite-2 (ICESat-2); Ionospheric Connection (ICON); JWST; Orion; SGSS; Space Launch System; Solar Probe Plus (SPP); and Transiting Exoplanet Survey Satellite (TESS). Three projects—ICESat-2, JWST, and SGSS—have already rebaselined. If a rebaseline occurs on any of the other six projects, it could add anywhere from almost $60 million to more than $2 billion to the development cost of the portfolio. We will continue to examine these nine projects as part of our annual assessments until they launch, but they also warrant the committee’s continued oversight attention. Our ongoing work has also found that the Space Launch System and Orion, the two largest projects in this critical stage of development, face cost, schedule, and technical risks. For example, the Space Launch System program has expended significant amounts of schedule reserve over the past year to address delays with development of the core stage, which is the Space Launch System’s propellant tank and structural backbone. The Orion program continues to face design challenges, including redesigning the heat shield following the determination that the previous design used in the first flight test in December 2014 would not meet requirements for the first uncrewed flight. The standing review boards for each program have raised concerns about the programs’ ability to remain within their cost and schedule baselines. If cost overruns materialize on these programs, they could have a ripple effect on the portfolio and result in the potential postponement or even force the cancellation of projects in earlier stages of development. We have ongoing work on both of these programs and we plan to issue reports on them later this summer. Our ongoing work indicates that NASA has maintained recent improvements in the technology maturity and design stability of its projects as measured against best practices. As of 2015, 9 of the 11 major projects in NASA’s 2016 portfolio that have passed the preliminary design review have matured all heritage or critical technologies to a technology readiness level (TRL) 6—a large increase since 2010 (see fig. 4). The 12th project in development, Exploration Ground Systems, did not report any critical or heritage technologies, so it was omitted from this analysis. Our prior best practices work has shown that reaching a TRL 6—which indicates that a representative prototype of the technology has been demonstrated in a relevant environment that simulates the harsh conditions of space—can minimize risks for space systems entering product development. Projects falling short of this standard before the preliminary design review, a milestone that generally precedes the project’s final design and fabrication phase, may experience subsequent technical problems, which can result in cost growth and schedule delays. Our ongoing work indicates that NASA has also sustained improvements it has made since 2010 in the design stability of its major projects. The average percentage of engineering drawings released at critical design review for NASA’s 2016 portfolio of major projects was 72 percent, roughly the same percentage as last year. This is a significant improvement since 2010, but is still short of the GAO-identified best practice of 90 percent (see fig. 5). Further, a majority of projects in development maintained mass and power reserves that met or exceeded NASA requirements. NASA projects have also continued to minimize design changes after the critical design review—another measure of design stability. Our prior work on product development best practices shows that at least 90 percent of engineering drawings should be releasable by the critical design review to lower the risk of subsequent cost and schedule growth. The NASA Systems Engineering Handbook also includes this metric. In 2012, NASA established additional technical leading indicators to assess design maturity. These indicators include (1) the percentage of actual mass margin versus planned mass margin and (2) the percentage of actual power margin versus planned power margin. NASA has updated its project management policy and its systems engineering policy to require projects to track these metrics. Projects that do not achieve design stability by critical design review may experience design changes and manufacturing problems, which can result in cost growth and schedule delays. NASA’s portfolio is composed of a few large projects that face a lot of pressures and challenges. Any cost growth within these projects can have grave consequences for smaller projects that are critical to a number of scientific endeavors. In November 2015, the NASA Office of the Inspector General issued its annual report on NASA’s top management and performance challenges. Examples of challenges identified in the report include managing NASA’s science portfolio, space flight operations in low earth orbit, positioning NASA for deep space exploration, and securing NASA’s information technology systems and data. We agree with the challenges identified by the Inspector General and our ongoing and prior work has highlighted additional areas where it will be important for NASA to continue its efforts to reduce acquisition risk, including implementing project management tools, demonstrating sustained cost and schedule performance, and developing plans that will help the agency appropriately direct future investments. As part of our ongoing work, we found that NASA is taking steps to improve its project management tools but has not yet fully implemented best practices. Earned Value Management. NASA has made progress implementing earned value management (EVM) analysis—a key project management tool—but the agency has not yet fully implemented a formal EVM surveillance plan in accordance with best practices. EVM has been a critical part of the agency’s efforts to understand project development needs and to reduce cost and schedule growth. When implemented well, EVM integrates information on a project’s cost, schedule, and technical efforts for management and decision makers by measuring the value of work accomplished in a given period and comparing it with the planned value of work scheduled for that period and the actual cost of work accomplished. NASA has made progress rolling out EVM at its centers and is supporting these efforts with training, including classroom and online training to projects at its various centers. In 2012, we recommended that NASA require projects to implement formal EVM surveillance programs. NASA partially concurred, but according to NASA officials, they have not implemented the recommendation due to resource constraints. Proper surveillance of EVM contractor data is a best practice in the NASA Earned Value Management Implementation Handbook and GAO’s Cost Estimating and Assessment Guide. Without implementing proper surveillance, a project may be utilizing unreliable EVM data to inform its cost and schedule decision making. NASA has taken other steps to address the intent of our recommendation, but we continue to find issues with the quality of EVM data. In our December 2015 review of the James Webb Space Telescope, we found project EVM data anomalies and recommended that project officials require the contractors to explain and document all such anomalies in their monthly EVM reports. A continuous surveillance program could have identified these anomalies earlier, allowing the project to pursue corrective action with its contractors. NASA concurred with this recommendation and recently sent us documentation concerning steps it has taken to address it. We are currently reviewing that information to determine if NASA has implemented the recommendation. Joint Confidence Level. In 2009, in order to ensure that cost and schedule estimates were realistic and projects thoroughly planned for anticipated risks, NASA began requiring that programs and projects with estimated life-cycle costs of $250 million or more develop a JCL prior to key decision point C. However, there is no requirement for NASA projects to update their JCLs and our prior work has found that projects do not regularly update cost risk analyses to take into account newly emerged risks. Our cost estimating best practices recommend that cost estimates should be updated to reflect changes to a program or kept current as it moves through milestones. As new risks emerge on a project, an updated cost risk analysis can provide realistic estimates to decision-makers, including the Congress. This is especially true for NASA’s largest projects as updated estimates may require the Congress to consider a variety of actions. Schedule Development. Our best practices work stresses the importance of a reliable schedule because not only is it a road map for systematic project execution, but also a means by which to gauge progress, identify and resolve potential problems, and promote accountability. According to NASA officials, a project’s ability to efficiently execute a quality JCL analysis is directly tied to the quality of the underlying data, especially a project schedule. Independent assessors—a group of technical experts within NASA who do not actively work on a specific project or program—noted that when they are reviewing a project’s JCL, one of the most common areas that projects struggle with is developing a reliable schedule. For example, our ongoing work found that the Orion program’s standing review board raised concerns that the program’s schedule is missing activities which could affect the program’s ability to accurately identify what is driving the schedule. Officials in NASA’s Cost Analysis Division told us that various schedule related tools have been developed and already made available to projects and additional tools are in development. A key management challenge that NASA faces is whether the improvement in the cost and schedule performance we have seen in the agency’s overall portfolio of major projects can be translated to new, large projects that have been recently baselined and added to the portfolio. These additions include its human spaceflight projects, which includes the Space Launch System, Orion, and Exploration Ground Systems program that is developing systems and infrastructure to support assembly, test, and launch of the Space Launch System and Orion. In our February 2015 High Risk Update, we noted that NASA’s human spaceflight projects are at critical points in implementation and, as I noted earlier, we found that all three projects are entering the stage where most project rebaselines appear most likely to occur—between their critical design and system integrations reviews. This is an area where the agency has not been tested since a similarly large and complex project, the James Webb Space Telescope, underwent a replan in September 2011 that resulted in a 78 percent increase in life-cycle costs—increasing to $8.835 billion— and a schedule delay of 52 months—delaying the planned launch date to October 2018. In addition, NASA will have to demonstrate that it is able to sustain cost and schedule performance in its Commercial Crew Program, which is NASA’s effort to facilitate the private demonstration of safe and reliable transportation services to carry NASA astronauts and cargo to and from the International Space Station. NASA is partnering with commercial providers and its approach includes tailoring its spaceflight project life cycle. Our high-risk report identified key areas where NASA could better anticipate and mitigate risks with respect to these human spaceflight programs, including ensuring that adequate and ongoing assessments of risks are conducted given that the impacts of any potential miscalculations will be felt across the portfolio, ensuring that projects’ JCLs are updated regularly, and ensuring that the long-term project costs are understood. Our ongoing and prior work has also found that NASA has established cost and schedule baselines for the Space Launch System, Orion, and Exploration Ground Systems, but the baselines provide little visibility into long-term planning and costs. The baselines for the Space Launch System and Exploration Ground Systems are through the first Exploration Mission (EM-1), during which NASA plans to fly an uncrewed Orion some 70,000 kilometers beyond the moon, and the Orion program’s baseline is through the second Exploration Mission (EM-2), which NASA plans to fly beyond the moon to further test performance with a crewed Orion vehicle. In October 2015, NASA issued its Journey to Mars, which NASA identifies as a document that, among other things, communicates its strategy and plans to get to Mars. However, the document does not provide additional details on future exploration missions, making it difficult to understand NASA’s vision for what type and how many missions it will take to get to Mars. Without this information, decisionmakers do not have visibility into how NASA expects to invest to develop, operate, and sustain a capability over the long term. Having a complete picture of costs can enable both the Congress and the administration to set priorities for both the short and long term. In May 2014, we recommended that NASA establish separate cost and schedule baselines for each additional capability that encompass all life-cycle costs, to include operations and sustainment. NASA partially concurred with our recommendation and stated that it had established separate programs for Space Launch System, Orion, and Exploration Ground Systems. Further, NASA stated that the Space Launch System program had gone further by adopting a block upgrade approach to ensure more realistic long-range investment planning and more effective resource allocations through the budget process. However, NASA stated that it does not intend to carry life-cycle estimates for the Space Launch System program through an end-of- program date because the strategic parameters of such analysis are in the process of being defined. NASA has yet to take action on this recommendation. The various provisions of the act being discussed today propose changes in NASA’s leadership structure and long-term contracting authorities, among other areas. In a prior testimony, sponsors of the act emphasized that the provisions are aimed at making NASA more professional and less political by giving the agency greater stability. The concept of stability is an important one for NASA since projects require heavy investments— both in terms of time and money—and require cooperation and support from a variety of communities, who sometimes have competing interests, including academic institutions, partnering countries, the science community, and industry, to name a few. We have not studied how the act’s specific provisions, including the types of leadership structures being proposed, could affect stability for NASA’s projects. However, based on our prior work on NASA’s and the Department of Defense’s (DOD) acquisition management efforts, we would like to offer the following observations: If NASA were to implement a board of directors as outlined in the proposed legislation, the board itself must be willing to hold program managers and leadership accountable by canceling programs that do not perform well. If programs with an unsound business case are allowed to continue, their poor performance could have dramatic consequences on the overall portfolio. Insight into program performance, independent assessments, and regular reporting on progress are all necessary tools to enable leadership to hold managers accountable. DOD has used multiyear contracts under other authorities to acquire weapon systems and believes these tools are helpful in negotiating lower prices. However, longer term commitments to contracts will not necessarily produce better results if they are not accompanied by best practices. Our past work at DOD has found that it is difficult to precisely determine the impact of multiyear contracting executed under a different authority on actual procurement costs and that savings did not appear to have materialized as expected in budget justifications to Congress in three case studies we looked at, and ultimately more funding was needed to buy the systems. Further, multiyear procurement contracts can provide stability for contractors doing business with the government, but they also can reduce Congress’s and NASA’s flexibility in making changes to programs and budgets unless the government is willing to pay the cancellation fees associated with doing so. In closing, I would like to emphasize that achieving stability through leadership and contracting changes may offer benefits, but one of the most important factors in achieving stability is a sound business case that balances the necessary resources—technologies, design knowledge, funding, and time—needed to transform a chosen concept into a product. As our ongoing and prior work shows, more effort is still needed to improve NASA’s cost estimating, scheduling practices, and contractor oversight. Robust, long-term plans and realistic estimates are also needed to guide decisions and to secure longer term support. We look forward to continuing to work with NASA and this Committee in instituting these improvements. Chairman Smith, Ranking Member Johnson, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. If you or your staff have any questions about this testimony, please contact Cristina T. Chaplain, Director, Acquisition and Sourcing Management 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. GAO staff who made key contributions to this statement include Ronald Schwenn, Assistant Director; Molly Traci, Assistant Director; Laura Greifner; Kurt Gurka; Katherine Lenane; Erin Preston; Roxanna Sun; and Kristin Van Wychen. 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 proposed Space Leadership Preservation Act of 2015, which includes provisions related to NASA's leadership structure, budget development, and contracting authorities, would affect the way NASA develops its vision for space exploration and executes the projects that implement it. It could also have implications for NASA's acquisition management, which is an area on GAO's High Risk list. In March 2015, GAO found that projects continued a general positive trend of limiting cost and schedule growth, maturing technologies, and stabilizing designs, but that NASA faced several challenges that could affect its ability to effectively manage its portfolio. This statement provides our preliminary observations on (1) the cost and schedule performance of NASA's portfolio of major projects and the implementation of product development best practices on these projects and (2) management challenges. This statement also provides observations on the proposed legislation. This statement is based on ongoing work to be published in March 2016 and GAO's February 2015 High Risk Update, as well as GAO's extensive prior body of work on NASA's major acquisitions. GAO's ongoing work indicates that the National Aeronautics and Space Administration (NASA) has made progress over the past 5 years in a number of key acquisition management areas, but it faces significant risks in some of its major projects. On the positive side, the cost and schedule performance of NASA's portfolio of major projects in development has improved and most current projects are adhering to their committed cost and schedule baselines. In addition, NASA has maintained recent improvements in the implementation of key product development best practices, which can help reduce risk in projects. Although NASA's overall performance has improved, GAO's preliminary results show that NASA has rebaselined a major project for each year 8 out of the last 9 years, which means the projects experienced significant cost or schedule growth. This often occurs as projects prepare to begin system assembly, integration, and test; nine projects will be in that phase of development in 2016, including the Orion Multi-Purpose Crew Vehicle (Orion) and Space Launch System, which are human spaceflight programs with significant development risks. As NASA continues its efforts to reduce acquisition risk, GAO's ongoing and prior work highlights three areas of management challenges that, if addressed, will help the agency appropriately direct future investments: Implementing Management Tools. NASA has continued to implement improved project management tools to manage acquisition risks, but these efforts have not always been consistent with best practices in areas such as cost estimating or fully addressed GAO's prior recommendations. For example, NASA has made progress rolling out earned value management (EVM)—a key project management tool—at its centers but has not implemented formal EVM surveillance, which is considered a best practice by both NASA and GAO. Demonstrating Sustained Cost and Schedule Performance. A key management challenge that NASA faces is whether the improvement in the cost and schedule performance GAO has seen in the agency's overall portfolio of major projects can be translated to large, recently baselined projects that have been added to the portfolio. This includes its human spaceflight projects, which are at critical points of implementation. Long-Term Planning and Stability. NASA has established cost and schedule baselines for Space Launch System, Orion, and Exploration Ground Systems—a program that is developing systems and infrastructure to support assembly, test, and launch of the Space Launch System and Orion—but the baselines provide little visibility into long-term planning and costs. NASA recently issued a strategy for its journey to Mars, but the document does not provide details on future exploration missions making it difficult to understand NASA's vision for what type and how many missions it will take to get to Mars. The proposed Space Leadership Preservation Act of 2015 is aimed, in part, at achieving greater stability at NASA. From an acquisition perspective, GAO's prior work indicates that one of the most important factors for achieving stability is having a sound business case that balances program requirements and resources, such as technology, funding, and time. GAO is not making any new recommendations in this statement, but has made recommendations in prior related reports, which NASA has not yet fully addressed.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Food and Agriculture Organization (FAO), the U.S. government, and others define food security to exist when all people at all times have physical and economic access to sufficient food to meet their dietary needs for a productive and healthy life. Food insecurity exists when the availability of nutritionally adequate and safe foods, or the ability to acquire acceptable foods in socially acceptable ways, is limited or uncertain. Although it is generally agreed that the problem of food insecurity is widespread in the developing world, the total number of undernourished people is unknown, and estimates vary widely. For example, estimates for 58 low-income, food-deficit countries range from 576 million people to 1.1 billion people. Appendix I provides further information about these estimates. The summit resulted in an action plan for reducing undernourishment. Included in the plan were a variety of measures for promoting economic, political, and social reforms in developing countries. To reach their goal, summit participants approved an action plan that included 7 broadly stated commitments, 27 objectives, and 181 specific actions (see app. II). Among other things, the plan highlighted the need to reduce poverty and resolve conflicts peacefully. While recognizing that food aid may be a necessary interim approach, the plan encouraged developing countries to become more self-reliant by increasing sustainable agricultural production and their ability to engage in international trade, and by developing or improving social welfare and public works programs to help address the needs of food-insecure people. The plan further noted that governments should work closely with others in their societies, such as nongovernmental organizations (NGO) and the private sector. Although the summit action plan is not binding, countries also agreed to (1) review and revise as appropriate national plans, programs, and strategies with a view to achieving food security; (2) establish or improve national mechanisms to set priorities and develop and implement the components of the summit action plan within designated time frames, based on both national and local needs, and provide the necessary resources; and (3) cooperate regionally and internationally in order to reach collective solutions to global issues of food insecurity. They also agreed to monitor implementation of the summit plan, including periodically reporting on their individual progress in meeting the plan’s objectives. The summit placed considerable emphasis on the need for broad-based political, economic, and social reforms to improve food security. For example, summit countries called for the pursuit of democracy, poverty eradication, land reform, gender equality, access to education and health care for all, and development of well-targeted welfare and nutrition safety nets. Other international conferences have suggested that major policy reforms were needed in connection with food security issues. For example, countries that attended the 1974 World Food Conference and the 1979 World Conference on Agrarian Reform and Rural Development said they would undertake major economic, social, and political reforms. According to some observers, the most important challenge of food security today is how to bring about major socio-institutional change in food-insecure countries, since previous efforts have met with limited success. According to other observers, there is a growing acceptance on the part of developing countries that policy reform must be addressed if food security is to be achieved. However, reports on progress toward implementing summit objectives that many countries provided to FAO in early 1998 did not contain much information on the extent to which countries have incorporated policy reforms into specific plans for implementing summit objectives. As defined by the summit and others, achieving improved world food security by 2015 is largely an economic development problem; however, the summit did not estimate the total resources needed by developing countries to achieve the level of development necessary to cut in half their undernutrition by 2015, much less assess their ability to finance the process themselves. Many developed countries that attended the summit agreed to try to strengthen their individual efforts toward fulfilling a long-standing U.N. target to provide official development assistance equivalent to 0.7 percent of the gross national product each year. However, the countries did not make a firm commitment to this goal, and the United States declined to endorse this target. Assistance from the Organization for Economic Cooperation and Development’s (OECD)Development Assistance Committee members has been declining in recent years—from about $66.5 billion in 1991 to $52.7 billion in 1997 (measured in 1996 dollars). Total official development assistance from these countries in 1997 represented 0.22 percent of their combined gross national product, compared to 0.32 percent during 1990-94. Many developed countries believe that the private sector is a key to resolving the resources problem. Whether the private sector will choose to become more involved in low-income, food-deficit countries may depend on the extent to which developing countries embrace policy reform measures. Private sector resources provided to the developing world have grown dramatically during the 1990s, and by 1997 the private sector accounted for about 75 percent of net resource flows to the developing world, compared to about 34 percent in 1990. However, according to the OECD, due to a number of factors, most of the poorest countries in the developing world have not benefited much from the trend and will need to rely principally on official development assistance for some time to come. (See app. III for additional analysis on official and private sector resource flows to the developing countries.) Among factors that may affect whether the summit’s goal is realized are trade reforms, conflicts, agricultural production, and safety net programs and food aid. Summit participants generally believed that developing countries should increasingly rely on trade liberalization to promote greater food security, and in support of this belief, the summit plan called for full implementation of the 1994 Uruguay Round Trade Agreements (URA). The participants also recognized that trade liberalization may result in some price volatility that could adversely affect the food security situation of poor countries. To help offset these possible adverse effects, the participants endorsed the full implementation of a Uruguay Round decision on measures to mitigate possible negative effects. The summit participants generally acknowledged that the URAs have the potential to strengthen global food security by encouraging more efficient food production and a more market-oriented agricultural trading system. Reforms that enable farmers in developing countries to grow and sell more food can help promote increased rural development and improve food security. Trade reforms that increase the competitiveness of developing countries in nonagricultural sectors can also lead to increased income and, in turn, a greater ability to pay for commercial food imports. However, trade reforms may also adversely affect food security, especially during the near-term transitional period, if such reforms result in an increase in the cost of food or a reduced amount of food available to poor and undernourished people. Reforms may also have adverse impacts if they are accompanied by low levels of grain stocks and increased price volatility in world grain markets. The summit plan acknowledged that world price and supply fluctuations were of special concern to vulnerable groups in developing countries. As part of the plan, food exporting countries said they would (1) act as reliable sources of supplies to their trading partners and give due consideration to the food security of importing countries, especially low-income, food-deficit countries; (2) reduce subsidies on food exports in conformity with the URA and in the context of an ongoing process of agricultural reform; and (3) administer all export-related trade policies and programs responsibly to avoid disruptions in world food agriculture and export markets. Also, to mitigate the possible adverse effects of trade reforms on food security situations, the summit plan called for full implementation of a Uruguay Round ministerial decision made in Marrakesh, Morocco, in 1994. Under this decision, signatory nations to the URA agreed to ensure that implementing the trade reforms would not adversely affect the availability of sufficient food aid to assist in meeting the food needs of developing countries, especially the poorest, net food-importing countries. To date, however, agreement has not been reached about the criteria that should be used in evaluating the food aid needs of the countries and whether trade reforms have adversely affected the ability of the countries to obtain adequate supplies of food. While trade liberalization by developing countries was especially encouraged by summit participants, some observers believe that developed countries have been slow in removing their trade barriers and that this may inhibit developing countries from achieving further trade liberalization. For example, according to reports by the International Food Policy Research Institute (IFPRI) and the World Bank, member countries of the OECD continue to maintain barriers to free trade that are adversely affecting the means and willingness of developing nations to further liberalize their own markets and to support additional trade liberalization. According to the World Bank, without an open trading environment and access to developed country markets, developing countries cannot benefit fully from producing those goods for which they have a comparative advantage. Without improved demand for developing countries’ agricultural products, for example, the agricultural growth needed to generate employment and reduce poverty in rural areas will not be achieved, the Bank report said. This is critical to food security. If developing countries are to adopt an open-economy agriculture and food policy, they must be assured of access to international markets over the long term, particularly those of the developed nations, according to the Bank. (For a more detailed discussion of these issues, see app. IV.) Officials of the Department of State and the U.S. Department of Agriculture (USDA), however, said that the problem of developed countries’ trade barriers against developing countries is not as severe as portrayed by IFPRI and the World Bank. State acknowledged that there are still some significant barriers to trade but said most barriers are being progressively removed because of the Uruguay Round. In addition, it said, the United States has a number of preferential areas and regimes that favor developing countries and allow most agricultural imports. State said the European Union has similar arrangements. USDA officials generally agreed that it is important for developed countries to remove trade barriers but said it is equally important for developing countries to eliminate domestic policies and restrictions on trade that have adversely affected their own economic growth. The price volatility of world food commodities, particularly grains, and its relationship to the level of food reserves, is a key issue related to trade liberalization and a significant problem for food-insecure countries. Views differ over the level of global grain reserves needed to safeguard world food security, the future outlook for price volatility, and the desirability of holding grain reserves. The summit observed that maintaining grain reserves was one of several instruments that countries could use to strengthen food security; however, the summit did not identify a minimum level of global grain reserves needed to ensure food security nor did it recommend any action by countries individually or in concert. Instead, the summit participants agreed to monitor the availability and adequacy of their individual reserve stocks, and FAO agreed to continue its practice of monitoring and informing member nations of developments in world food prices and stocks. FAO, IFPRI, and the World Bank have observed that agricultural markets are likely to be more volatile as the levels of world grain reserves are reduced, an outcome expected as trade reforms are implemented. However, they and other observers have also noted that as a result of trade market reforms, agricultural producers may respond more quickly to rising prices in times of tightening markets, the private sector may hold more reserves than it did when governments were holding large reserves (though not in an amount that would fully replace government stocks), and the increased trade in grains among all nations will help offset a lower level of world grain reserves. Some observers believe that most countries, including food-insecure developing countries, are better off keeping only enough reserves to tide them over until they can obtain increased supplies from international markets, since it is costly to hold stocks for emergency purposes on a regular basis and other methods might be available for coping with volatile markets. Others support the view that ensuring world food security requires maintaining some minimum level of global grain reserves and that developed countries have a special responsibility to establish and hold reserves for this purpose. Some have also suggested examination of the feasibility of establishing an international grain reserve. The U.S. position is that governments should pursue at local and national levels, as appropriate, adequate, cost-effective food reserve policies and programs. The United States has opposed creation of international food reserves because of the difficulties that would arise in deciding how to finance, hold, and trigger the use of such reserves. (See app. IV for additional analysis on grain reserves.) The summit countries concluded that conflict and terrorism contribute significantly to food insecurity and declared a need to establish a durable, peaceful environment in which conflicts are prevented or resolved peacefully. According to FAO, many of the countries that had low food security 30 years ago and failed to make progress or even experienced further declines since then have suffered severe disruptions caused by war and political disturbances. Our analysis of data on civil war, interstate war, and genocide in 88 countries between 1960 and 1989 shows a relationship between the incidence of these disturbances and food insecurity at the national level. A sharp rise in international emergency food aid deliveries during the early 1990s has been largely attributed to an increasing number of armed conflicts in different parts of the world. Summit countries pledged that they would, in partnership with civil society and in cooperation with the international community, encourage and reinforce peace by developing conflict prevention mechanisms, by settling disputes through peaceful means, and by promoting tolerance and nonviolence. They also pledged to strengthen existing rules and mechanisms in international and regional organizations, in accordance with the U.N. Charter, for preventing and resolving conflicts that cause or exacerbate food insecurity and for settling disputes by peaceful means. The FAO Secretariat analyzed progress reports submitted to FAO by member countries in 1998 and cited several examples of country efforts to support peaceful resolution of domestic and international conflicts. However, the analysis did not provide any overall results on the extent to which countries had made progress in ending already existing violent conflicts and in peacefully resolving or preventing other conflicts. (See app. VI for our analysis on the relationship between conflict and food security.) One objective of the summit was to increase agricultural production and rural development in the developing world, especially in low-income, food-deficit countries. FAO estimates show that achieving the required production increases will require unusually high growth rates in the more food-insecure countries and, in turn, greater investments, especially in the worst-off countries. World Bank officials have said that the Bank is committed to emphasizing rural agricultural development in countries that receive its assistance. Its plan calls for country assistance strategies that treat agriculture comprehensively and include well-defined, coherent, rural strategy components. Despite public statements by the World Bank, there are still differences of opinion within the Bank and among its partners as to the priority that should be given to the rural sector. These opinions range from recognizing a positive role for agricultural growth in an overall development strategy, to benign neglect, to a strong urban bias. Achieving needed agricultural production increases will also require other major changes in the rural and agricultural sector and in society more generally. For example, according to the U.S. mission to FAO, the most critical factor affecting progress toward achieving the summit goal is the willingness of food-insecure countries to undertake the kind of economic policies that encourage rather than discourage domestic production in the agricultural sector and their willingness to open their borders to international trade in agricultural products. There must be an “enabling environment,” the mission said, that favors domestic investment and production in the agricultural sector. Moreover, the mission said, these policies are under the control of the food-insecure countries themselves and can have a far greater impact on domestic food security than international assistance. Another issue involving increased agricultural production concerns promotion of modern farming methods, such as chemicals to protect crops, fertilizers, and improved seeds. Agriculture production in developing countries can be substantially improved if such methods are adopted and properly implemented. However, some groups strongly oppose the introduction of such methods because of concerns about the environment. (See app. VII for additional information on this issue.) The summit’s long-term focus is on creating conditions where people have the capability to produce or purchase the food they need, but summit participants noted that food aid—both emergency and nonemergency—could be used to help promote food security. The summit plan called upon governments of all countries to develop within their available resources well-targeted social welfare and nutrition safety nets to meet the needs of their food-insecure people and to implement cost-effective public works programs for the unemployed and underemployed in regions of food insecurity. With regard to emergency food aid, the summit plan stated the international community should maintain an adequate capacity to provide such assistance. Nevertheless, this goal has been difficult to implement and, since the summit, some emergency food aid needs have not been met. For example, according to the World Food Program, which distributes about 70 percent of global emergency food aid, approximately 6 percent of its declared emergency needs and 7 percent of its protracted relief operations needs were not satisfied in 1997. Also, donors direct their contributions to emergency appeals on a case-by-case basis, and some emergencies are underfunded or not funded at all. In addition, according to the World Food Program, lengthy delays between appeals and contributions, as well as donors’ practice of attaching specific restrictions to contributions, make it difficult for the World Food Program to ensure a regular supply of food for its operations. In 1998, the program’s emergency and protracted relief operations were underfunded by 18 percent of total needs. Other problems affecting the delivery of emergency food aid include government restrictions on countries to which the food aid can be sent and civil strife and war within such countries. Notable recent examples of countries that have not received sufficient assistance, according to the World Food Program, include North Korea and Sudan, where both situations involve complex political issues that go well beyond the food shortage condition itself. (See app. V for additional information on food aid.) Summit participants agreed that an improved food security information system, coordination of efforts, and monitoring and evaluation are actions needed to make and assess progress toward achieving the summit’s goal. Many countries participating in the summit acknowledged that they do not have adequate information on the status of their people’s food security. Consequently, participants agreed that it would be necessary to (1) collect information on the nutritional status of all members of their communities (especially the poor, women, children, and members of vulnerable and disadvantaged groups) to enable monitoring of their situation; (2) establish a process for developing targets and verifiable indicators of food security where they do not exist; (3) encourage relevant U.N. agencies to initiate consultations on how to craft a food insecurity and vulnerability information and mapping system; and (4) draw on the results of the system, once established, to report to CFS on their implementation of the summit’s plan. According to FAO and U.S. officials, improvement in data collection and analysis is necessary if countries are to have reasonably accurate data to design policies and programs to address the problem. However, not much progress has been made in this regard over the past 20 years, and serious challenges remain. A major shortcoming is that agreement has not yet been reached on the indicators to be used in establishing national food insecurity information systems. Following the 1996 summit, an international interagency working group was created to discuss how to create such a system. As of November 1998, the working group had not yet decided on or begun to debate which indicators of food insecurity should be used, and the working group is not scheduled to meet again before the mid-1999 CFS meeting. FAO Secretariat officials told us that a proposal will be ready for the 1999 CFS meeting. Thus far, only a few developed and not many more developing countries have participated. (See app. VIII for additional analysis of this issue.) The summit’s action plan incorporates several objectives and actions for improved coordination among all the relevant players. For example, it calls upon FAO and other relevant U.N. agencies, international finance and trade institutions, and other international and regional technical assistance organizations to facilitate a coherent and coordinated follow-up to the summit at the field level, through the U.N.’s resident coordinators, in full consultation with governments, and in coordination with international institutions. In addition, the plan calls on governments, cooperating among themselves and with international institutions, to encourage relevant agencies to coordinate within the U.N. system to develop a food-insecurity monitoring system, and requested the U.N. Secretary General to ensure appropriate interagency coordination. Since the summit, the United Nations, FAO, the World Bank, and others have endorsed various actions designed to promote better coordination. In April 1997, the United States and others expressed concern to FAO about problems related to FAO efforts to help developing countries create strategies for improving their food security. Donor countries noted that nongovernmental groups had not been involved in the preparation of the strategies, even though the summit plan stressed the importance of their active participation. In June 1997, the European Union expressed concern about the uncoordinated nature of food aid, noting that responsibilities were scattered among a number of international organizations and other forums, each with different representatives and agendas. And in October 1997, the World Bank reported that many agricultural projects had failed due to inadequate coordination among the donors and multilateral financial institutions. (See app. IX for additional information on the coordination issue.) The summit participants acknowledged the need to actively monitor the implementation of the summit plan. To this end, governments of the countries agreed to establish, through CFS, a timetable, procedures, and standardized reporting formats for monitoring progress on the national, subregional, and regional implementation of the plan. CFS was directed to monitor the implementation of the plan, using reports from national governments, the U.N. system of agencies, and other relevant international institutions, and to provide regular reports on the results to the FAO Council. As previously noted, as of November 1998, a monitoring and evaluation system had not yet been developed to provide reasonably accurate data on the number, location, and extent of undernourished peoples. In addition, a system had not been created to assess implementation of the various components of the summit’s action plan (that is, 7 broad commitments, 27 major supporting objectives, and 181 supporting actions). Many of these involve multiple activities and complex variables that are not easily defined or measured. In addition, CFS has requested that the information provided allow for analysis of which actions are or are not successful in promoting summit goals. In April 1997, CFS decided that the first progress reports should cover activities through the end of 1997 and be submitted to the FAO Secretariat by January 31, 1998. Countries and relevant international agencies were to report on actions taken toward achieving the specific objectives under each of the seven statements of commitment. As of March 31, 1998, only 68 of 175 country reports had been received. The Secretariat analyzed the information in the 68 reports and summarized the results in a report to the CFS for its June 1998 session. The Secretariat reported it was unable to draw general substantive conclusions because (1) all countries, to varying degrees, were selective in providing the information they considered of most relevance for their reporting; (2) varied emphasis was given to reporting on past plans and programs, ongoing programs, and future plans to improve food security; and (3) the reports did not always focus on the issues involved. Furthermore, some countries chose to provide a report that was more descriptive than analytical, and some countries reported only on certain aspects of food security action, such as food stocks or reserve policies. CFS had not stipulated or suggested any common standards for measuring the baseline status and progress with respect to actions, objectives, or commitments prior to the preparation of the progress reports. In the absence of common standards, the Secretariat is likely to experience difficulty in analyzing relationships and drawing conclusions about the progress of more than 100 countries. In addition, CFS did not ask countries and agencies to report on planned targets and milestones for achieving actions, objectives, or commitments or on estimated costs to fulfill summit commitments and plans for financing such expenditures. The Secretariat provided the June 1998 CFS session with a proposal for improving the analytical format for future progress reports. CFS did not debate the essential points that should be covered in future reports and instead directed the Secretariat to prepare another proposal for later consideration. Given the complexity of the action plan and other difficulties, CFS also decided that countries will not prepare the next progress report until the year 2000 and will address only half of the plan’s objectives. A progress report on the remaining objectives will be made in 2002. Thus, the second report will not be completed until 6 years after the summit. A third set of progress reports is to be prepared in 2004 and 2006. Under the summit plan, countries also agreed to encourage effective participation of relevant civil society actors in the monitoring process, including those at the CFS level. In April 1997, CFS decided to examine this issue in detail in 1998. However, the issue was not included in the provisional agenda for the June 1998 session. Detailed discussion of proposals by Canada and the United States on the issue was postponed until the next CFS session in 1999. The postponement occurred as a result of opposition by many developing country governments to an increased role for NGOs in CFS. (See app. X for additional analysis of this issue.) The Department of State, USDA, FAO, and the World Food Program provided oral comments and USAID provided written comments on a draft of this report. They generally agreed with the contents of the report. State emphasized the important role that broad-based policy reforms play in helping developing countries address food insecurity and suggested that our report further highlight this factor. We agree with State on this matter, and have reemphasized the need for developing countries to initiate appropriate policy reforms as a prelude to addressing food security issues. State and USDA officials also commented that in their opinion, the World Bank and IFPRI overstated the effect of developed countries’ trade barriers on the food insecurity of least-developed countries. We have modified the report to reflect State’s and USDA’s views on this matter more fully. USAID said that, although an unfortunate circumstance, it believes the level of effort by donor and developing countries will probably fall short of achieving the summit’s goal of reducing chronic global hunger by one-half. While we cannot quantify the extent to which developing countries may fall short, we tend to agree with USAID’s observation. USAID’s comments are reprinted in appendix XII. FAO officials said the report’s general tone of skepticism was justified based on the past record and reiterated that reducing by one-half the number of undernourished people by 2015 requires a change in priorities by countries along the lines spelled out in the summit action plan. They also said that work was underway to further investigate the extent to which the target is feasible at the national level in those countries facing political instability or with a high proportion of undernourished people. FAO officials said that our discussion in appendix IX of coordination issues concerning FAO’s Special Program for Food Security and a Telefood promotion did not reflect FAO members’ support for these initiatives. We provided additional information on the initiatives to reflect FAO’s views (see app. IX). World Food Program officials said food aid for nonemergency and developmental purposes is more effective than is suggested by the discussion in our report. However, the officials did not identify any studies or analysis to support the Program’s position that food constitutes an efficient use of assistance resources. The World Food Program said that it has acted on recommendations for improving its operations, and we modified the report to reflect the World Food Program’s views. However, it is important to note that a recent USAID study on the use of food aid in contributing to sustainable development concluded that while food aid may be effective, it is less efficient than financial assistance, although the report pointed out that financial aid is often not available. World Food Program officials acknowledged that important issues remain unresolved concerning establishment of an international database on food insecurity. All of the above agencies and the Department of Health and Human Services also provided technical comments that were incorporated into the report where appropriate. We are sending copies of this report to Senator Joseph R. Biden, Senator Robert C. Byrd, Senator Pete V. Domenici, Senator Jesse Helms, Senator Frank R. Lautenberg, Senator Patrick J. Leahy, Senator Joseph I. Lieberman, Senator Mitch McConnell, Senator Ted Stevens, and Senator Fred Thompson, and to Representative Dan Burton, Representative Sonny Callahan, Representative Sam Gejdenson, Representative Benjamin A. Gilman, Representative John R. Kasich, Representative David Obey, Representative Nancy Pelosi, Representative John M. Spratt, Representative Henry A. Waxman, and Representative C. W. Bill Young. We are also sending copies of this report to the Honorable Dan Glickman, Secretary of Agriculture; the Honorable William M. Daley, Secretary of Commerce; the Honorable William S. Cohen, Secretary of Defense; the Honorable Donna E. Shalala, Secretary of Health and Human Services; the Honorable Madeline K. Albright, Secretary of State; the Honorable Robert E. Rubin, Secretary of the Treasury; the Honorable J. Brian Atwood, Administrator, Agency for International Development; the Honorable Carol M. Browner, Administrator, Environmental Protection Agency; the Honorable George J. Tenet, Director, Central Intelligence Agency; the Honorable Jacob J. Lew, Director, Office of Management and Budget; the Honorable Samuel R. Berger, National Security Adviser to the President; and the Honorable Charlene Barshefsky, U.S. Trade Representative. Copies will also be made available to others upon request. If you or your staff have any questions about this report, please contact me at (202) 512-4128. The major contributors to this report are listed in appendix XIII. Although the problem of food insecurity is widespread in the developing world, the total number of undernourished people is unknown, and estimates vary widely. An accurate assessment of the number of people with inadequate access to food would require data from national sample surveys designed to measure both the food consumption and the food requirements of individuals. Such studies may include a dietary survey and a clinical survey that involves anthropometric, or body, measurements,and biochemical analyses. According to the Food and Agriculture Organization (FAO), clinical and anthropometric examinations are the most practical and sound means of determining the nutritional status of any particular group of individuals in most developing countries in Africa, Asia, and Latin America because the countries lack vital statistics, accurate figures on agricultural production, and laboratories where biochemical tests can be performed. However, clinical examinations have often been given a low priority by developing countries, and studies of anthropometric measurements have been undertaken very infrequently. National dietary intake surveys are costly and time-consuming and have also been undertaken in very few countries. As a result, there are no internationally comparable, comprehensive survey data for tracking changes in undernutrition for individuals and population groups within countries, according to FAO. For many years FAO has employed a method to estimate the prevalence of chronic undernourishment at the country level that is subject to a number of weaknesses. Nevertheless, FAO estimates are frequently cited in the absence of better estimates. FAO uses (1) food balance sheets that estimate the amount of food available to each country over a 3-year period and (2) estimates of each country’s total population to calculate the average available per capita daily supply of calories during that period. FAO then estimates the minimum average per capita dietary requirements for the country’s population, allowing for only light physical activity. Then, in combination with an estimate of inequality in the distribution of food among households in the country, it derives the percentage distribution of the population by per capita calorie consumption classes. On the basis of this distribution and a cutoff point for food inadequacy based on the estimate of the minimum average per capita dietary energy requirements, the proportion of undernourished is estimated. This is then multiplied by an estimate of the size of the population to obtain the absolute number of undernourished . According to FAO, a minimum level of energy requirements is one that allows for only light physical activity. Depending on the country, FAO says, the minimum level of energy requirements for the average person ranges from 1,720 to 1,960 calories per day. Depending on data availability, FAO’s assessment of equitable food distribution for a country is based on survey data on household food energy intake, food expenditure, total income or expenditure, and/or the weighted average of estimates for neighboring countries. FAO’s method has a number of weaknesses, and the validity of its estimates has not been established. For example, FAO’s food supply figures are based on 3-year averages, and population estimates are for the midpoint of the reference period used. As a result, FAO’s estimates of the prevalence of undernutrition do not reflect the short-term, seasonal variations in food production or availability in countries. In addition, FAO’s method relies on total calories available from food supplies and ignores dietary deficiencies that can occur due to the lack of adequate amounts of protein and essential micronutrients (for example, vitamins essential in minute amounts for growth and well-being). FAO’s method for measuring inequality in food distribution or access is ideally based on food consumption data from household surveys, but the number of developing countries for which such data are available is limited, and the surveys may not be national in scope or may have been done infrequently. FAO uses these data to estimate parameters for countries for which data are not available. FAO acknowledges that the quality and reliability of data relating to food production, trade, and population vary from country to country and that for many developing countries the data are either inaccurate or incomplete. According to one critic of FAO’s method, FAO’s estimates are unreliable indicators of the scope of the undernutrition problem and erroneously find chronic undernutrition to be most prevalent in Africa. The main reasons for the latter finding are systematic bias in methods used by African countries to estimate food production and, to a lesser extent, certain minor food items that are not completely covered in FAO’s food balance sheets. The author concludes that anthropometric measurements, based as they are on measurements of individuals, would be a more promising method for future estimates of undernourishment than estimates based on FAO’s aggregate approach. FAO’s method does not provide information on the effects of chronic undernourishment (for example, the prevalence of growth retardation and specific nutritional deficiencies), does not specify where the chronically undernourished live within a country, and does not identify the principal causes of their undernutrition. According to FAO and other experts, such information is needed to develop effective policies and programs for reducing undernourishment. In addition, FAO does not provide estimates for developed countries and does not provide estimates of chronic undernutrition of less than 1 percent. Overall, according to FAO, its estimates of food availability and/or the prevalence of undernutrition for many countries are subject to errors of unknown magnitude and direction. Nonetheless, FAO believes that its estimates permit one to know generally in which countries undernutrition is most acute. According to FAO, the consensus of a group of experts that it consulted in March 1997 was that (1) despite the deficiencies of its method, FAO had no current substitute for assessing chronic undernutrition than its food balance sheets based on per capita food availability and distribution; (2) FAO’s approach tends to underestimate consistently per capita food availability in African countries because of its inadequate coverage of noncereal crops; (3) attention needs to be given not just to indications of severe malnutrition but also to mild and moderate malnutrition; and (4) more subregional information is needed on malnutrition and on local levels of food stocks and trade, wages and market conditions, and household perceptions of medium-term food insecurity. It was also argued that about 67 percent of child deaths are associated with nonclinically malnourished children. In analyses for the World Food Summit, FAO estimated that about 840 million people in 93 developing countries were chronically undernourished during 1990-92. These countries represented about 98.5 percent of the population in all developing countries. According to the FAO estimates, a relatively small number of countries account for most of the chronically undernourished in the 93 countries (see table I.1). For example, during 1990-92, China and India were estimated to have about 189 million and 185 million chronically undernourished, respectively; collectively, they had nearly 45 percent of the total for all 93 countries. Five countries—Bangladesh, Ethiopia, Indonesia, Nigeria, and Pakistan—accounted for between 20 million and 43 million chronically undernourished each. The next 13 countries represented between about 6 million and 17 million of the chronically undernourished. Altogether, the 20 countries accounted for about 679 million, or nearly 81 percent, of the undernourished in the 93 countries. Number of undernourished (millions) As table I.2 shows, great variation also characterizes the extent to which chronic undernutrition is a problem within countries. According to FAO figures, a majority of the countries were estimated to have chronically undernourished people at a rate ranging between 11 and 40 percent in 1990-92, and 19 had rates ranging between 41 and 73 percent. Total number of chronically undernourished (millions) Table I.3 provides estimates of the number of undernourished people in developing country regions of the world between 1969-71 and 1994-96. (The figures include FAO revised estimates for the periods prior to 1994-96.As a result, the total for 1990-92 is slightly lower than that shown in tables I.1 and I.2.) FAO’s estimates indicate that the developing world as a whole made considerable progress in reducing the level of chronic undernourishment between 1969-71 and 1990-92, from an estimated 37 percent of the total population to 20 percent. However, the absolute number of undernourished was reduced by only 14.3 percent during the period—from 959 million to about 822 million—because the total population of the developing world increased by nearly 1.5 billion people during that time. Also, a large number of states did so poorly that their chronically undernourished people increased both absolutely and as a percentage of their total population. Between 1990-92 and 1994-96, the proportion of undernourished people in the developing world declined another 1 percent, but the number of undernourished increased by about 6 million people. Year (3-year averages) Total population (millions) Persons (millions) Although the percentage of chronically undernourished people in the developing world was considerably reduced between 1969-71 and 1994-96, sub-Saharan Africa’s reduction was very small. According to FAO’s estimates, in 1994-96 the proportion of sub-Saharan Africa’s population that was undernourished greatly exceeded that of the other regions of the world. However, in absolute numbers, the most undernourished persons were still found in East and Southeast Asia and in South Asia. A 1997 U.S. Department of Agriculture (USDA) Economic Research Service (ERS) study employed an alternative indirect method for estimating the amount of undernutrition at the country level that is similar to FAO’s method in some respects. Like FAO, ERS estimates food availability within a country. It also adopts a minimum daily caloric intake standard necessary to sustain life with minimum food-gathering activities. However, the standard is higher than that used by FAO (for light physical activity)—ranging between about 2,000 and 2,200 calories per day, depending on the country. According to ERS, its standard is comparable to the activity level for a refugee; it does not allow for play, work, or any activity other than food gathering. ERS estimates how inequality affects the distribution of available food supplies based on consumption or income distribution data for five different groups of the population. Like FAO’s estimate, ERS’ estimate is highly dependent on the availability and quality of national-level data. In 1997, ERS used its method to estimate the number of undernourished in 58 of the 93 developing countries regularly reported on by FAO. ERS estimated that during 1990-92, about 1.038 billion people could not meet their nutritional requirements—nearly 200 million more than FAO’s estimate of 839 million people for 93 countries. FAO’s data for the same 58 countries indicates 574 million chronically undernourished, about 45 percent less than USDA’s estimate. One reason for the much larger estimates resulting from the USDA approach are the higher standards used for minimum energy requirements that were previously noted . Another important source of data on the status of food security in the developing world is the World Health Organization’s global database on growth in children under age 5. Since 1986, the World Health Organization has sought to assemble and systematize the results of representative anthropometric surveys conducted in different parts of the world. The data indicate that about 2 out of 5 children in the developing world are stunted (low height for age), 1 out of 3 underweight (low weight for age), and 1 out of 11 wasted (low weight for height). In absolute numbers, the estimates for 1990 are 230 million stunted children, 193 million underweight, and 50 million wasted under the age of 5. According to the U.N. Children’s Fund, more than 6 million children in developing countries die each year from causes either directly or indirectly tied to malnutrition. The 185 countries that attended the World Food Summit pledged their actions and support to implement a plan of action for reducing food insecurity. The plan includes 7 major commitments, 27 subordinate objectives, and 181 specific actions. The commitments, subordinate objectives, and 24 of the specific actions relating to a variety of objectives are summarized in table II.1. Table II.1: Commitments, Objectives, and Select Examples of Actions in the World Food Summit’s Plan of Action Ensure an enabling political, social, and economic environment designed to create the best conditions for the eradication of poverty and for durable peace, based on full and equal participation of men and women. Prevent and resolve conflicts peacefully and create a stable political environment through respect for all human rights and fundamental freedoms, democracy, a transparent and effective legal system, transparent and accountable governance and administration in all public and private national and international institutions, and effective and equal participation of all people in decisions and actions that affect their food security. Ensure stable economic conditions and implement development strategies that encourage the full potential of private and public initiatives for sustainable, equitable, economic, and social development that also integrate population and environmental concerns. Establish legal and other mechanisms that advance land reform and promote the sustainable use of natural resources. Ensure gender equality and empowerment of women. Promote women’s full and equal participation in the economy. Encourage national solidarity and provide equal opportunities for all in social, economic, and political life, particularly vulnerable and disadvantaged people. Support investment in human resource development, such as health, education, and other skills essential to sustainable development. Implement policies aimed at eradicating poverty and inequality and improving physical and economic access by all. Pursue poverty eradication and food sustainability for all as a policy priority and promote employment and equal access to resources, such as land, water, and credit, to maximize incomes of the poor. Promote farmers’ access to genetic resources for agriculture. Enable the food insecure to meet their food and nutritional requirements and seek to assist those unable to do so. Develop national information and mapping systems to identify localized areas of food insecurity and vulnerability. Implement cost-effective public works programs for the underemployed. Develop targeted welfare and nutrition safety nets. (continued) Ensure that food supplies are safe, physically and economically accessible, appropriate, and adequate to meet the needs of the food insecure. Promote access to education and health care for all. Pursue participatory and sustainable food, agriculture, fisheries, forestry, and rural development policies and practices, in areas with low as well as high potential, that are essential for adequate and reliable food supplies at the household, national, regional, and global levels and combat pests, drought, and desertification. Pursue, through participatory means, sustainable, intensified, and diversified food production, and increased productivity and efficiency and reduced losses, taking into account the need to sustain resources. Combat environmental threats to food security, in particular droughts and desertification, pests, and erosion of biological diversity, and restore the natural resource base, including watersheds, to achieve greater production. Promote sound policies and programs on the transfer and use of technologies, skills development, and training for food security needs. Strengthen and broaden research and scientific cooperation on agriculture, fisheries, and forestry to support policy and international, national, and local actions to increase productive potential and maintain the natural resource base in agriculture, fisheries, and forestry and in support of efforts to eradicate poverty and promote food security. Formulate and implement integrated rural development strategies, in high and low potential areas, that promote employment, skills, infrastructure, institutions, and services in support of food security. Strengthen local government institutions in rural areas and provide them with adequate resources, decision-making authority, and mechanisms for grassroots participation. Promote the development of rural banking, credit, and savings schemes, including equal access to credit for men and women, microcredit for the poor, and adequate insurance mechanisms. Strive to ensure that food, trade, and overall trade policies are conducive to fostering food security for all through a fair and market-oriented world trade system. Use the opportunities arising from the international trade framework established in recent global and regional trade negotiations. Establish well-functioning internal marketing and transportation systems to facilitate local, national, and international trade. Meet essential food import needs in all countries, considering world price and supply fluctuations and taking into account food consumption levels of vulnerable groups in developing countries. Food-exporting countries should act as reliable sources of supplies to their trading partners and give due consideration to the food security of importing countries. Reduce subsidies on food exports in conformity with the Uruguay Round Agreements. Support the continuation of the reform process in conformity with the Uruguay Round Agreements. Endeavor to prevent and be prepared for natural disasters and man-made emergencies and meet transitory and emergency food requirements in ways that encourage recovery, rehabilitation, and development of a capacity to satisfy future needs. Reduce demands for emergency food assistance through efforts to prevent and resolve man-made emergencies, particularly international, national, and local conflicts. Establish as quickly as possible prevention and preparedness strategies for low-income, food-deficit countries and areas vulnerable to emergencies. (continued) Improve or develop efficient and effective emergency response mechanisms at international, regional, national, and local levels. Strengthen links between relief operations and development programs to facilitate the transition from relief to development. Promote optimal allocation and use of public and private investments to foster human resources, sustainable food and agricultural systems, and rural development. Create the policy framework and conditions that encourage optimal public and private investments in the equitable and sustainable development of food systems, rural development, and human resources necessary to contribute to food security. Endeavor to mobilize and optimize the use of technical and financial resources from all sources, including debt relief, to raise investment in sustainable food production in developing countries. Raise sufficient and stable funding from private, public, domestic, and international sources to achieve and sustain food security. Strengthen efforts towards the fulfillment of the agreed official development assistance target of 0.7 percent of the gross national product. Focus official development assistance (ODA) toward countries that have a real need for it, especially low-income countries. Explore ways of mobilizing public and private financial resources for food security through the appropriate reduction of excessive military expenditures. Implement, monitor, and follow up the summit plan of action at all levels in cooperation with the international community. Adopt actions within each country’s national framework to enhance food security and enable implementation of the commitments of the World Food Summit plan of action. Review and revise, as appropriate, national plans, programs, and strategies to achieve food security consistent with summit commitments. Establish or improve national mechanisms to set priorities and develop, implement, and monitor the components of action for food security within designated time frames. In collaboration with civil society, formulate and launch national food-for-all campaigns to mobilize all stakeholders and their resources in support of the summit plan of action. Actively encourage a greater role for, and alliance with, civil society. Improve subregional, regional, and international cooperation and mobilize and optimize the use of available resources to support national efforts for the earliest achievement of sustainable food security. Continue the coordinated follow-up by the U.N. system to the major U.N. conferences and summits since 1990; reduce duplication and fill in gaps in coverage, making concrete proposals for strengthening and improving coordination with governments. Relevant international organizations are invited, on request, to assist countries in reviewing and formulating national plans of action, including targets, goals, and timetables for achieving food security. Actively monitor the implementation of the summit plan of action. Establish, through FAO’s Committee on Food Security, a timetable, procedures, and standardized reporting formats, on the national and regional implementation of the summit plan of action. Monitor, through the Committee on Food Security, implementation of the summit action.plan. Clarify the right to adequate food and the fundamental right of everyone to be free from hunger, as stated in the International Covenant on Economic, Social, and Cultural Rights and other relevant international and regional instruments. (continued) Share responsibilities for achieving food security for all so that implementation of the summit plan of action takes place at the lowest possible level at which its purpose is best achieved. As defined by the countries at the summit, achieving improved world food security by 2015 is largely a development problem, the primary responsibility for attaining food security rests with individual countries, ODA could be of critical importance to countries and sectors left aside by other external sources of finance, and developing country governments should adopt policies that promote foreign and direct investment and effective use of ODA. There is a growing body of evidence that foreign financial aid works well in a good policy environment. For example, according to a recent World Bank report, financial assistance leads to faster growth, poverty reduction, and gains in social indicators with sound economic management. With sound country management, the report said, 1 percent of gross domestic product in assistance translates into a 1 percent decline in poverty and a similar decline in infant mortality. The report concluded that improvements in economic institutions and policies in the developing world are the key to a quantum leap in poverty reduction and that effective financial aid complements private investment . Conversely, financial aid has much less impact in a weak policy environment. The report’s conclusions are consistent with the approach espoused by the summit. For example, according to the summit countries, a sound policy environment in which food-related investment can fulfill its potential is essential. More specifically, summit participants said governments should provide an economic and legal framework that promotes efficient markets that encourage private sector mobilization of savings, investment, and capital formation. In addition, the participants said that the international community has a role to play in supporting the adoption of appropriate national policies and, where necessary and appropriate, in providing technical and financial assistance to assist developing countries in fostering food security . Table III.1 shows, as could be expected, that a majority of the more food-insecure countries are low-income countries and many of them are also least developed. Of 93 developing countries reported on in the table, 72 had inadequate food supplies in 1990-92. Forty-six of the countries were low income (that is, they had a gross national product per capita of less than $766), and 34 of the 46 countries were designated as “least developed,” meaning they were the poorest countries in the world. Together, the 46 countries accounted for more than 700 million of the chronically undernourished people in developing countries in 1990-92. Table III.1: Relationship Between Income Levels of Developing Countries and Food Security Income level (number of countries) Least developed, low income Average is based on available food supply at the country level. We designated countries as having inadequate or adequate daily per capita energy supplies based on an FAO analysis of the relationship between average per capita daily energy supplies and chronic undernutrition. According to FAO, for countries having an average daily per capita undernutrition threshold ranging between 1,750 calories and 1,900 calories and a moderate level of unequal food distribution, between 21 percent and 33 percent of the population will be below the undernutrition threshold if the average per capita daily energy supply is 2,100 calories. If the average per capita daily energy supply is 2,400 calories, 7 to 13 percent of the population will be undernourished. At 2,700 calories, 2 to 4 percent of the population will be undernourished. If food is distributed more equitably, the percentage of the population that is undernourished decreases, and vice versa. Table III.2 shows that between 1990 and 1997, Organization for Economic Cooperation and Development (OECD) Development Assistance Committee countries’ allocation of ODA averaged $60.9 billion (1996 prices and exchange rates). However, ODA has been steadily declining, from a high of $66.5 billion in 1991 to $52.7 billion in 1997. Table III.2: Total Net Resource Flows From OECD Development Assistance Committee Countries and Multilateral Agencies to Aid Recipient Countries, 1990-97 Dollars in billions (1996 prices and exchange rates) Excluding forgiveness of nonofficial development assistance debt for the years 1990-92. For many years, OECD’s Development Assistance Committee (DAC) has supported a target of providing ODA equivalent to 0.7 percent of the gross national product. This goal was reaffirmed by most DAC countries at the World Food Summit. As table III.3 shows, since the early 1980s ODA as a percent of the gross national product has declined for most DAC countries, including the five largest providers (France, Germany, Japan, the United Kingdom, and the United States). Only four countries met the ODA target in 1997 (Denmark, Norway, the Netherlands, and Sweden), and they represent a small amount of the ODA provided by the DAC countries. For the DAC countries in total, ODA represented 0.34 percent of their combined gross national product during 1980-84 and only 0.22 percent in 1997. Most countries’ ODA in 1997 ranged between only 0.22 percent and 0.36 percent of their gross national product. The United States was the lowest, contributing only 0.08 percent of its gross national product, or about one-ninth of the DAC target. Table III.3: ODA Performance of OECD DAC Countries, 1980-97 1997 ODA in dollars (billions) Target amount of 0.7 percent of GNPThe United States has never approved the ODA target. According to U.S. government officials, the government has no plans to try to meet the target. Apart from ODA, the United States devotes substantial resources to promoting global peace through its participation in a variety of strategic alliances, such as the North Atlantic Treaty Organization, and maintenance of the world’s most sophisticated defense forces. U.S. expenditures on ODA and defense combined in 1995 represented 3.9 percent of the U.S. gross national product—a higher percentage than that for any other DAC country. (The average for all other DAC countries was 2.4 percent, with a range from 1.1 percent for Luxembourg to 3.6 percent for France.) According to the OECD, reasons for the decline include the end of the Cold War, which removed a traditional and well-understood security rationale for development assistance, preoccupation with domestic issues and budgetary pressures in some donor countries, and fiscal restraint policies that have included disproportionate cuts in development assistance budgets. In June 1998, the OECD reported that fiscal restraint programs had succeeded in reducing OECD public deficits from 4.3 percent of combined gross domestic product in 1993 to 1.3 percent in 1997. The OECD said that the continuing decline in ODA ran counter to the widespread improvements in the economic and budgetary situations of the DAC member countries and to their clearly stated policy goals for increasing ODA. According to a June 1998 report by FAO (based on information provided by only some of the DAC countries), Ireland plans to increase its ODA to 0.45 percent of its gross national product by 2002 (compared to 0.31 percent in 1997); Switzerland plans to increase its ODA to 0.45 percent of its gross national product (from 0.32 percent in 1997 ), but the year for reaching this level was not cited; and Norway seeks to raise its assistance to 1 percent of gross national product by the year 2000 (compared to 0.86 percent in 1995). As table III.2 shows, private sector resource flows applied to the developing world have grown dramatically during the 1990s, from $52.4 billion in 1990 to about $286 billion in 1996 (1996 prices and exchange rates), although private flows declined in 1997 to an estimated $222 billion. Although the flow of private resources has increased considerably, the vast majority of the world’s poorest countries continue to rely heavily on official development financing. According to the OECD and the World Bank, with some exceptions, these countries are as yet unable to tap significant, sustainable amounts of private capital; without official assistance, these countries’ progress toward financial independence will be slow and difficult. One measure of the difficulty of attracting private investment to the most food-insecure countries and peoples is shown in table III.4. The table relates creditworthiness ratings of the risk of investing in 92 developing countries to the level of their food security. The ratings are from Euromoney, a leading international publication, that assigns ratings as a weighted average of indicators of economic performance, political risk, debt, credit, and access to bank finance, short-term trade finance, and capital. Ratings can range between a possible low of 0 points (poorest rating) to a possible high of 100 points (most favorable rating). As shown in the table, we grouped countries into four category ranges—0 to 25, 26 to 50, 51 to 75, and 76 to 100 points. The large majority of countries with inadequate average daily calories per capita had a creditworthiness rating of less than 51 points. Only 2 of the 71 countries with inadequate food availability received a creditworthiness rating of more than 75 points. As the table also shows, 358 million chronically undernourished people lived in countries that received a creditworthiness rating of less than 51 points, and another 459 million undernourished people lived in countries that received ratings between 51 and 75 points. Table III.4: Creditworthiness Ratings and Level of Food Security in Developing Countries Average based on available food supply at the country level. We designated countries as having inadequate or adequate daily per capita energy supplies based on an FAO analysis of the relationship between average per capita daily energy supplies and chronic undernutrition. According to FAO, for countries having an average daily per capita undernutrition threshold ranging between 1,750 calories and 1,900 calories and a moderate level of unequal food distribution, between 21 percent and 33 percent of the population will be below the undernutrition threshold if the average per capita daily energy supply is 2,100 calories. If the average per capita daily energy supply is 2,400 calories, 7 to 13 percent of the population will be undernourished. At 2,700 calories, 2 to 4 percent of the population will be undernourished. If food is distributed more equitably, the percentage of the population that is undernourished decreases, and vice versa. The World Food Summit identified trade as a key element for improving world food security and urged countries to meet the challenges of and seize opportunities arising from the 1994 Uruguay Round Trade Agreements (URA). According to the summit plan of action, the progressive implementation of the URA as a whole will generate increasing opportunities for trade expansion and economic growth to the benefit of all participants. The summit action plan encouraged developing countries to establish well-functioning internal marketing and transportation systems to facilitate better links within and between domestic, regional, and world markets and to further diversify their trade. The ability of developing countries to do so depends partly on steps taken by developed countries to further open their domestic markets. Food-insecure countries have concerns about possible adverse effects of trade reforms on their food security and about price volatility in global food markets, particularly in staple commodities such as grains. Trade liberalization can positively affect food security in several ways. It allows food consumption to exceed food production in those countries where conditions for expanding output are limited. Food trade has an important role to play in stabilizing domestic supplies and prices; without trade, domestic production fluctuations would have to be borne by adjustments in consumption and/or stocks. Trade allows consumption fluctuations to be reduced and relieves countries of part of the burden of stockholding. Over time, more liberal trade policies can contribute to economic growth and broaden the range and variety of foods available domestically. However, during the negotiations leading up to the URAs and since then, concerns have been raised about possible adverse impacts of trade liberalization on developing countries’ food security, especially low-income, food-deficit countries. These concerns relate to impacts on food prices, the ability of the developing countries to access developed countries’ markets, food aid levels, and global grain reserves. For example, FAO said that future levels of food aid might be adversely affected, since historically food aid volumes had been closely linked to the level of surplus stocks, and future surplus stocks could be low. FAO also expressed concern that if grain stocks fell to low levels, trade liberalization measures might be less effective in stabilizing world cereal market prices. In 1995, FAO estimated that the effects of the URAs would likely cause a sizable increase in the food import bills of developing countries. For the low-income, food-deficit countries as a whole, FAO projected the food import bill would be 14 percent higher in the year 2000 (about $3.6 billion) as a result of the URAs. However, a World Bank study, issued at about the same time, estimated very modest price increases for most major traded commodities and concluded the changes would have a very minor impact on the welfare of the developing countries. Some more recent studies have also indicated that the impact of the URAs on international food and agricultural prices will be very limited. The authors of one study estimated that grains and livestock product prices will increase by only about 2 to 5 percent by 2005 and concluded that the small increases are not expected to offset a long-term declining trend in food prices. Table IV.1 reports the results of two models that estimated the income effects resulting from reforms in the agricultural sector alone and economywide. Despite the delicate nature of modeling complex trade agreements, both models projected positive economy-wide benefits (from 0.29 percent to 0.38 percent of the base gross domestic product for developing countries as a whole). For agricultural reform alone, one model projected negative benefits and the other positive benefits for developing countries as a whole. Both models projected that Africa and the Near East would experience negative benefits from agricultural reform alone. The study that cited the results concluded that further work was needed to reconcile differences between the various assessments before firm policy recommendations could be made. Elsewhere, FAO commented that studies modeling the impact of the URAs typically cover only the parts of the agreement that are more amenable for quantification. In FAO’s view, estimates of the URA trade and income gains from the increase in market access for goods underestimate the full benefits of the agreement on world trade and income. Economy-wide reform as percent of base gross domestic product $39.6 (Table notes on next page) Legend UR = Uruguay Round In FMN, the Near East region is covered under Africa. Members include Iceland, Liechtenstein, Norway, and Switzerland. Austria, Finland, and Sweden left the association in January 1995. Not applicable. According to some observers, the most important thing that developed countries can do to help food-insecure countries is to open their own markets to developing country exports. Market access is important not only in primary commodities but also in clothing, textiles, footwear, processed foods, and other products into which developing countries may diversify as development progresses. Yet, according to the International Food Policy Research Institute (IFPRI) and the World Bank, the way developed countries are implementing the URAs is adversely affecting the ability of developing countries to improve their food security and may jeopardize their support for further trade liberalization. U.S. government officials state, however, that because of the URAs, most of the relatively few remaining barriers are being progressively eliminated. A State Department official further noted that the United States and the European Union have a number of preferential arrangements that favor developing countries and allow most agricultural imports. One study, by IFPRI, concluded that a large number of developing countries have liberalized foreign trade in food and agricultural commodities in response to structural adjustment programs and the recent URAs, but OECD countries have not matched their actions. While specific quantities of certain commodities from developing countries still receive preferential treatment, OECD countries have been reluctant to open their domestic markets to developing countries’ exports of high-value commodities such as beef, sugar, and dairy products. In IFPRI’s view, this reduces benefits to developing countries and may make continued market liberalization unviable for them. IFPRI recommended that the next round of World Trade Organization (WTO) negotiations emphasize the opening of OECD domestic markets to commodities from developing countries. According to a World Bank report, without an open trading environment and access to OECD country markets, developing countries cannot fully benefit from the goods they produce that give them a comparative advantage. Without improved demand for developing countries’ agricultural products, the agricultural growth needed to generate employment and reduce poverty in rural areas will not occur. Under the Uruguay Round (UR) Agreement on Agriculture, countries generally agreed to eliminate import restrictions, including quotas. However, according to the World Bank, the elimination of agricultural import restrictions through tariffication resulted in tariff levels that in many cases were set much higher than previously existing tariff levels. If developing countries are to adopt an open-economy agricultural and food policy, they must be assured of stable, long-term access to international markets—including those of the OECD, the Bank said. Yet during 1995-96, when international grain prices were soaring, the European Union restricted cereal exports from member countries (by imposing a tax on exports) to protect their domestic customers. An export tax was also applied during a few weeks in 1997. The 1994 URAs included a ministerial decision reached by trade ministers in Marrakesh, Morocco, that recognized that implementation of the UR agricultural trade reforms might adversely affect the least-developed and net food-importing countries. The concern was that as a result of the reforms, these countries might not have available to them adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions and might face short-term difficulties in financing normal levels of commercial imports. To obviate this situation, the decision included, among others, agreements to review the level of food aid established periodically by the Committee on Food Aid under the Food Aid Convention of 1986 and to initiate negotiations in an “appropriate forum” to establish food aid commitments sufficient to meet the legitimate food aid needs of the developing countries during the reform program; adopt guidelines to ensure that an increasing proportion of basic foodstuffs is provided to least-developed countries and net food-importing countries in fully grant form and/or on appropriate concessional terms in line with the 1986 Food Aid Convention; and have the WTO’s Committee on Agriculture monitor, as appropriate, follow-up actions. The decision specifically targeted developing countries whose food aid needs may be adversely affected as a result of the UR agricultural trade reforms. It did not establish or propose criteria for assessing whether trade reforms had adversely affected the availability of and terms and conditions for accessing basic foodstuffs. (Methodologically, it could be difficult to separate the effects of the URAs’ reforms from other factors affecting the ability to access food from external sources.) Nor did the decision establish what criteria would be used in determining the “legitimate needs” of different developing countries. For example, would “legitimate needs” be based on a country’s current overall food aid needs, the amount of food aid it received prior to completion of the URAs, the amount of food aid adversely affected by the agreements, or something else? In addition, the decision did not establish any timetable for resolving these issues. Finally, the decision did not clearly identify what would be the appropriate forum for establishing a level of sufficient food aid commitments. In March 1996, the WTO’s Committee on Agriculture established a list of eligible countries covered by the decision with an understanding that being listed did not confer automatic benefits. During country negotiations over the content of the proposed World Food Summit action plan in the fall of 1996, there was considerable debate about the ministerial decision. Developing countries attributed recent high world grain prices to UR agricultural reforms and wanted the plan to commit countries to prompt and full implementation of the decision. U.S. negotiators disagreed. They recognized that the high market prices for grain had adversely affected the least-developed and net food-importing countries but said that the reforms were just beginning to be implemented and it was thus too early for the reforms to have had any measurable adverse effects. The summit plan that was finally approved by all countries, in November 1996, states that the ministerial decision should be fully implemented. To date, however, decisions still have not been made about criteria that should be used for judging and quantifying the legitimate food aid needs of developing countries. In addition, no decisions have been made about an appropriate forum or criteria for assessing whether the Uruguay Round trade reforms have adversely affected the availability of and terms and conditions for accessing basic foodstuffs. Consequently, no findings have been made as to whether adverse impacts have already occurred. In December 1996, the WTO ministerial meeting in Singapore agreed that the London-based Food Aid Committee, in renegotiating the Food Aid Convention (scheduled to expire in June 1998), should develop recommendations for establishing a level of food aid commitments, covering as wide a range of donors and donatable foodstuffs as possible, sufficient to meet the legitimate needs of developing countries during implementation of the Uruguay Round reform program. In January 1997, Food Aid Committee members indicated they would do so, with an understanding that the committee would direct its recommendations to the WTO and reflect its recommendations in the provisions of a new food aid convention. Agreement on a new convention has not yet been reached. The existing agreement was re-extended and is scheduled to expire in June 1999. According to a U.S. official, if ongoing efforts to negotiate a new agreement are successful, the document should go some distance in assuring food-deficit, low-income countries that the Uruguay Round trade liberalization will not drastically reduce food aid. According to the official, the United States, Australia, Canada, and Japan are pressing hard for conclusion of the negotiations . In January 1998, the FAO Secretariat advised the WTO Committee on Agriculture that there was little it could do in its analyses to isolate the effect of the Uruguay Round from other factors influencing commodity prices. As countries rely more on trade to meet their food needs, they become more vulnerable to possible volatility in world food prices. Price volatility of basic food commodities, especially grains, can be a significant problem for food-insecure countries. Many poor people spend more than half their income on food. FAO and others have suggested that sufficient grain stocks be held to help contain excessive price increases during times of acute food shortages and thus provide support to the most vulnerable countries. However, views differ over the level of global reserves needed to safeguard world food security, the future outlook for price volatility, and the desirability of governments’ holding grain reserves. In response to the world grain crisis of the early 1970s, the 1974 World Food Conference endorsed several principles regarding grain stock-holding policies: (1) governments should adopt policies that take into account the policies of other countries and would result in maintaining a minimum safe level of basic grain stocks for the world as a whole; (2) governments should take actions to ensure that grain stocks are replenished as soon as feasible when they drop below minimum levels to meet food shortages; and (3) in periods of acute food shortages, nations holding stocks exceeding minimum safe levels to meet domestic needs and emergencies should make such supplies available for export at reasonable prices. Subsequently, the Intergovernmental Group on Grains established a stocks-to-consumption ratio of 17 to 18 percent as an indicator of a minimum safe global food security situation. As table IV.2 shows, the world grain stocks-to-use ratio reached and exceeded the minimum level in 1976-77 and remained at or above that level for the next 18 years. In the year before the November 1996 World Food Summit, the ratio fell to 14 percent, the lowest level in the previous 25 years. During 1995-96, world grain prices rose significantly. The price of wheat increased from $151 per ton in April 1995 and reached a peak of $258 in May 1996, a rise of 71 percent. Corn prices rose continuously from $113 in May 1995 to a record $204 in May 1996, an increase of 81 percent. The world price increases were accompanied by high grain prices in many developing countries. In some cases, the latter prices exceeded the world price increases because of simultaneous depreciation of developing countries’ currencies. According to the World Bank, the price increases were a result of a poor U.S. grain harvest in 1995, combined with unusually low world grain stockpiles. Another factor was China’s entry into world grain markets, with a purchase of 5 million tons in 1995 (after exporting nearly 11 million tons of grain in 1993-94). Total carryover stocks as a percent of world grain consumption (Table notes on next page) Not available. Although the high grain prices of 1996 have abated, estimates of the stocks-to-use ratio remained at a low level through early 1998. As recently as April 1998, FAO estimated the ratio would be 15.9 percent for 1997-98. However, FAO revised its figures in June 1998, estimating that the ratio might reach 16.9 percent for 1997-98 and cross the 17-percent threshold in 1998-99. These revisions reflected the expectation of a record grain crop in 1998 and lower feed demand in China, the United States, and some countries affected by the Asian financial crisis. World Food Summit participants said that reserves was one factor, in combination with a number of others, that could be used to strengthen food security. According to the summit action plan, it is up to national governments, in partnership with all actors of civil society, to pursue at local and national levels, as appropriate, adequate and cost-effective emergency food security reserve policies and programs. Summit countries agreed that governments should monitor the availability and nutritional adequacy of their food supplies and reserve stocks, particularly areas at high risk of food insecurity, nutritionally vulnerable groups, and areas where seasonal variations have important nutritional implications. In addition, international organizations and particularly FAO were asked to continue to monitor closely and inform member nations of developments in world food prices and stocks. The summit did not identify a minimum level of global grain reserves needed to ensure food security nor recommend any action by countries individually or in concert to achieve or maintain such a level. In 1996, FAO invited a group of experts to Rome to consider a number of developments that directly or indirectly influence price stability. These included, among others, production variability, the URAs, and the role of cereal stocks. The group agreed that there was little evidence to reach conclusions on whether production variability at the global level would increase or decrease in the future. Price instability caused by shifts in production between countries that may occur because of the URAs was expected to be slight. The group concurred that ongoing market liberalization initiatives, including those under the URAs, regional trading arrangements, and other unilateral initiatives, should as a whole contribute to stability in international markets by inducing greater adjustments to demand/supply shocks in domestic markets. However, changes under the URAs were not considered to be drastic enough for instability to decrease significantly, as many countries, especially some larger trading countries, still retained instruments and institutions (such as policies similar to variable levies and state trading) that had impeded price transmission in the past. The group agreed that a lack of transparency and consistency in government stock-holding and trade policies had been a source of instability in the past and that less involvement of governments in stock management and a more transparent trade policy should contribute to stability in the future. At the same time, there was considerable doubt whether private stocks would increase to the extent required to offset the shocks that previously were countered by the public sector stocks. The group concluded that increased funds in international commodity markets were expected to influence only within-year price volatility and were unlikely to affect annual price levels in the longer run. In addition, there were uncertainties regarding how fast China and countries of the former Soviet Union would be fully integrated into the world agricultural trading system. Overall, the experts agreed that compared to the situation in the past, future world commodity markets would likely retain lower levels of overall stocks but should be less prone to instability due to faster and more broad-based adjustments to production/demand shocks. However, the path to a new market environment was seen as uncertain. The group generally believed that price instability would be greater during the transitional period than after the system had fully adjusted. According to an FAO study prepared for the summit, global stocks are likely to remain relatively low compared with the previous decade, and the chance of price spikes occurring is probably greater than in the past.According to a World Bank study, grain stocks are not likely to return to the high levels of the 1980s, given the current focus on reducing government involvement in agriculture, and with smaller grain stocks, prices could be more volatile than in the past. According to IFPRI, policy changes in North America and Europe could result in a permanent lowering of grain stocks and thus increase future price fluctuations because of a lack of stocks to buffer price variations. IFPRI noted that the moderating or cushioning impact on world price instability that once was exercised by varying world grain stocks has been reduced by the substantial decline in grain stocks in recent years. As a result, IFPRI said, international price instability, if fully transmitted to domestic markets, especially to low-income, food-deficit countries, may raise domestic price instability in these countries. Views differ over whether governments should take action to hold and/or increase grain reserves. Among the views expressed against increasing or maintaining large government-held reserves are the following: Reserves are expensive to accumulate, store, manage, and release. An annual cost of 25 percent to 40 percent of the value of the reserves is not unusual. Developing countries cannot afford such costs; it is cheaper for them to deal with periodic price increases. They should hold only enough stocks to tide them over until replacement supplies can be obtained from international markets. It is much cheaper for most countries to rely on trade, using financial reserves or international loans to make up shortfalls. If reserves are to be held, it is more efficient and cheaper to hold reserves in money than in physical stock. Governments, including the U.S. government, have not been good at managing stocks. Stocks are not the only measures available for coping with price volatility. As a result of market and trade liberalization measures, markets can respond more quickly to shocks, which will lead to much briefer price cycles than those in the past. Free trade permits stocks to be shifted, thereby reducing the need to maintain large amounts of domestic stocks. World food supplies have been adequate since the Second World War. Good and bad weather conditions for growing crops tend to balance out across countries. In addition, some crops and food products can be substituted for others, depending on the weather. The problem is not one of supply but of buying power, including when prices rise to high levels. Other measures are needed, such as policy reforms, that increase economic development and enable people to buy the food they need. Among views advanced for governments’ taking action to increase and maintain emergency reserve levels (some of the views pertain specifically to the United States; others apply to countries more generally) are the following: It is good government policy to store grain during prosperous years in order to survive lean years. Private companies will not hold many reserve stocks, since it is expensive to do so and governments may limit price increases in times of short supply, thus affecting companies’ ability to recoup the added cost of holding emergency reserves. Even if governments do not excel at managing reserves, the social costs of their not doing so may be greater. The use of emergency food reserves to respond quickly to periodic food shortages in developing countries is the most unobtrusive way for governments to intervene in the market. Responsible trade requires that wealthier countries establish and maintain essential grain reserves as a supply safety net (available to other countries when the need arises) and thus to encourage and compensate poorer countries for relying on increased trade liberalization. If a tight U.S. grains supply situation occurs and export customers perceive that a unilateral U.S. export embargo is plausible, they will intensify their food self-sufficiency goals and seek grain commitments from other exporters. A 1996 FAO study identified several possible alternatives for mitigating price volatility problems, including national and international measures. However, it is not clear to what extent developing countries, particularly low-income, food-deficit countries, are capable of establishing such measures or the costs and benefits of such measures relative to one another and to grain reserves. The Uruguay Round Agreement on Agriculture limits the use of quotas and variable levies, two measures traditionally employed to deal with price instability. According to the FAO study, a country may adopt a sliding scale of tariffs related inversely to the level of import prices and keep the maximum rate of duty at a level no higher than its agreed rate of duty in the WTO. If the agreed rate of tariffs is fairly high, which is commonly the case, developing countries may offset variations in import prices by reducing tariffs when prices rise and raising them when prices fall. In addition, at times of sharply rising world prices or sharply rising demand from a neighboring country, it may be possible for a country to limit exports, provided it has taken other countries’ food security into account. (See URA on Agriculture, Article 12.) Commodity exchanges, futures contracts, and options could be used to reduce uncertainty associated with price and income instability. However, not all countries could make use of existing exchanges because of lack of knowledge, lack of economies of scale, and/or higher transaction costs. To ease such constraints, the experts suggested establishing nongovernmental institutions to allow a large number of small entities to pool their risks. Countries with sufficient food reserves or cash to purchase food could seek to mitigate the effect of price spikes by providing food aid to meet the unmet food needs of urban and rural poor. Food aid from international donors could be used to help mitigate the consequences of high increases in the price of imported food. However, with reduced surpluses and budgetary constraints in donor countries, it is not clear how much additional aid would be available when needed. The International Monetary Fund’s Compensatory and Contingency Financing Facility can be used by members to obtain credit if they are experiencing balance of payment difficulties arising from shortfalls in export receipts (that is, foreign exchange) or increases in the costs of grain imports—provided these are temporary and largely attributable to conditions outside the control of the countries. However, partly because of the conditions and interest costs associated with drawings from the facility and the availability of alternative facilities that are more favorable, countries have not used the facility very frequently over the past 15 years. (The International Monetary Fund believes that price spikes have not been sufficiently frequent since the facility’s inception to warrant its use.) The European Union also has a financing mechanism for certain countries, but the financing is limited to covering shortfalls in export earnings (high food import bills are not covered), and the mechanism lacks the funding and concessional terms (below-market interest rates) necessary for wider use by poorer countries. Finally, according to the FAO report, an international insurance scheme could be devised for financing food imports by low-income, food-deficit countries during periods of price instability. Beneficiary countries could finance the system with premium payments. Ideally, such a scheme would operate without conditions. However, according to the FAO study, in practice only a few countries could afford to pay the premiums by themselves. Thus, for countries requiring assistance from developed countries, setting conditions for the use of withdrawals from the insurance facility might be necessary. Following the large increase in grains prices during 1995-96, FAO surveyed the governments of 47 developing countries to determine whether their domestic retail and wholesale prices of grains rose and, if so, how they responded. FAO found that domestic market prices increased considerably in most countries but usually not as much as the world price. (In some countries, prices did not increase or they even fell because of favorable domestic harvests.) Many countries mitigated the price effects by annulling or reducing import duties. Some countries mitigated price effects by further subsidizing already regulated prices of grain products. At the World Food Summit, countries said they would try to prevent and be prepared for natural disasters and man-made emergencies that create food insecurity and to meet transitory and emergency food requirements in ways that encourage recovery, rehabilitation, development, and a capacity to satisfy future needs. The summit’s action plan said that food assistance can also be provided to help ease the plight of the long-term undernourished, but concluded that food aid is not a long-term solution to the underlying causes of food insecurity. The plan called upon countries’ governments to implement cost-effective public works programs for the unemployed and underemployed in regions of food insecurity and to develop within their available resources well-targeted social welfare and nutrition safety net programs to meet the needs of their food insecure. The summit did not recommend an increase in development assistance for the specific purpose of helping countries to establish or improve such programs. However, donor countries generally agreed to strengthen their individual efforts toward providing official development assistance equivalent to 0.7 percent of gross national product each year. Over the past several decades, food aid has helped meet some of the emergency and nonemergency food needs of many food-insecure countries. In recent years, food aid has declined significantly. As table V.1 shows, world grain aid shipments increased from 6.8 million tons in 1975-76 to a peak of 15.2 million tons in 1992-93. Shipments in 1997 were 5.9 million tons, about 40 percent of the peak value and about 60 percent of the former World Food Conference target. FAO estimates that shipments in 1997-98 were at about the same level as in 1996-97 (that is, at about 5.3 million tons). According to FAO, grain shipments in 1996-97 were at the lowest level since the start of food aid programs in the 1950s. Table V.1 also shows a substantial decline in the proportion of food aid provided for program purposes and a steady increase in the proportion of food aid allocated for emergency purposes. In absolute terms, in 1997 project food aid equaled about 54 percent of its peak level (1986-87), emergency food aid was about 55 percent of its peak level (1992), and program aid was about 17 percent of its peak level (1993). Program and project aid combined peaked in 1993 at 11.3 million tons. The combined total for 1997 was 3.5 million tons or 31 percent of the peak-year total. Type of aid (percent) All donors (million tons) According to a recent FAO forecast, cereal food aid shipments are expected to increase substantially in 1998-99, after 4 years of decline, and reach 9 million tons. FAO attributed the increase to a greater availability of grain supplies in donor countries and higher food aid needs, particularly in Asia. According to FAO, food aid availabilities have been growing in recent months, triggered by relatively low international grain prices and accumulating grain stocks, mostly in the European Union and the United States. (The United States announced in July 1998 that it would increase its wheat donations by up to 2.5 million tons, most of which has been allocated.) On the demand side, financial and economic turmoil has affected the economies of many food import-dependent countries, raising the need for food aid. Although grain prices have declined, countries experiencing severe food emergencies will not necessarily be able to increase commercial cereal imports, FAO said. And, the slower growth of the world economy, combined with falling cash crop prices and export earnings, could force some developing countries to sharply cut back on their imports of essential foods. Table V.2 shows how food aid trends have affected the low-income, food-deficit countries (for total food aid, not just grains). Food aid received in 1995-96 was at the lowest level since 1975-76 and represented about 50-55 percent of previous peak-year deliveries. During the 1990s, food aid provided to low-income, food-deficit countries has averaged about 78 percent of food aid deliveries to all developing countries; by way of comparison, between 1983-84 and 1986-87, low-income, food-deficit countries averaged more than 92 percent of deliveries. In 1995-96, the proportion of these countries’ food imports covered by food aid fell to 8 percent, the lowest level in more than 20 years. Food aid to low-income, food-deficit countries (million tons) In 1996, FAO estimated that it would take an additional 30 million tons of grain and over 20 million tons (grain equivalent) of other foods simply to bring 800 million chronically undernourished people up to “minimum nutritional standards” (assuming perfect targeting of food assistance and local absorptive capacity). FAO estimated the value of the additional required food at about $13 per person per year (in 1994 dollars), or about $10.4 billion. According to FAO, the world produces enough food to meet the needs of all people, but hundreds of millions remain chronically undernourished because they are too poor to afford all the food they need. In addition, others are undernourished because they are otherwise unable to provide for themselves (for example, because of humanitarian crises), because not enough food assistance has been provided, or because the assistance has not been sufficiently effective. The provision of food aid costing $10.4 billion would require a large commitment compared to recent expenditures on foreign assistance more generally. For example, during 1996 and 1997, net disbursements of ODA by the Development Assistance Committee members of the OECD averaged about $55 billion (1996 prices and exchange rates). Several studies have questioned whether food aid is an efficient means of satisfying nonemergency, chronic food shortage needs. A joint 1991 study by the World Bank and the World Food Program on food aid for Africareported that food aid may in some cases be a second-best solution and there are problems in its implementation. The study concluded, however, that it is unlikely that an equal amount of financial aid would be available if the food aid is not provided. The study included a number of specific recommendations for improving the effectiveness of food aid and concluded that food aid contributes substantially to growth, long-term food security, and the reduction of poverty and that its use should continue. A 1993 evaluation of the World Food Program found that while emergency food aid was quite effective, food aid for development had a number of weaknesses. There was little evidence that country strategies seriously addressed the use of food aid to support national priorities. At the project level, many weaknesses were found: the targeting of food aid on the poorest areas and the poorest people was often unsatisfactory, the technical content of projects often left much to be desired, and the phasing out of projects was often not planned. The study made several recommendations to improve the effectiveness and efficiency of the food aid development program. In addition, a 1996 study prepared for European Union member states evaluated food aid commodities that were provided directly to a recipient government or its agent for sale on local markets. Such aid was intended to provide some combination of balance of payments support (by replacing commercial imports) and budgetary support (through governments’ use of counterpart funds generated from the sale of the commodities). This study noted the following: The impacts of the food aid on food security were marginally positive, but transaction costs were very high, suggesting the need for radical changes to improve effectiveness and efficiency. Minor, short-term negative impacts on local food production were common. Food aid was still being used, though to a decreasing extent, to support subsidized food sales, which in some countries favored food-insecure and poor households and, in others, urban middle-class and public sector groups. The little available evidence suggested that the food aid had modest positive impacts on the nutritional status of vulnerable groups. The European Commission and the member states should consider (1) either phasing out such assistance, especially in the case of donors with smaller programs or (2) making radical changes in policies and procedures to increase effectiveness and reduce transaction costs to acceptable levels. A group of experts meeting at FAO in June 1996 opposed food aid as a regular instrument to deal with market instability because of its market displacement and disincentive effects. A 1997 report prepared for the Australian government recommended that Australia considerably reduce its food aid commitment to the Food Aid Convention and in the future use food aid primarily for emergency relief. In October 1998, USAID reported on the results of a 2-year study that it conducted to assess the role of U.S. food aid in contributing to sustainable development during the past 40 years. It examined 6 case studies. The U.S. Agency for International Development (USAID) concluded that U.S. food aid had at times been successfully used to leverage or support a sound economic policy environment and thus promote sustainable development. At other times, however, U.S. food aid had hampered sustainable development by permitting governments to postpone needed economic policy adjustments and, at still other times, had no discernible effect on a country’s economic policy environment. USAID found that providing large quantities of food aid for sale on the open market at the wrong time has at times been a disincentive to domestic food production. However, targeting food aid to those who lack purchasing power and are unable to buy food has at other times increased food consumption and incomes without adversely affecting domestic food production. In addition, USAID concluded that it is normally more efficient to transfer resources as financial aid rather than as food aid, but in practice this is a moot point because generally the choice is between U.S. food aid or no aid. According to the World Food Program, which distributes about 70 percent of global emergency food aid, some of its emergency relief projects tend to be underfunded or not funded at all because donors direct their contributions to the program’s emergency appeals on a case-by-case basis. In addition, the program has problems in ensuring a regular supply of food to its operations more generally because of lengthy delays between its appeals and donor contributions and donors’ practice of attaching specific restrictions to their contributions. In 1997, about 6 percent of the program’s declared emergency needs were unmet and 7 percent of its protracted relief operations needs were not satisfied. Table V.3 shows the program’s resource shortfall for emergency food aid, including emergency operations and protracted relief operations, for 1998. As the table shows, 33 operations were underfunded and 18 percent of total 1998 needs were not covered. Dollars (millions) Assistance to victims of Kosovo crisis Vulnerable groups, refugees, others Refugees, returnees, internally displaced persons, war victims Displaced persons and vulnerable groups Displaced persons and vulnerable groups Food assistance for Afghan refugees Food assistance to refugees, returnees, internally displaced persons (continued) Dollars (millions) Central America regional “El Niño” Crop failure caused by drought (“El Niño”) Assistance to Western Sahara refugees Food assistance for Somali refugees Locust infestation and crop losses Ethiopia, Somalia, Djibouti refugees Somalia, Sudanese, Djibouti, Kenya refugees Victims of Meher crop failure Somalia, Ethiopia, Sudanese refugees Feeding for schools affected by unrest Internally displaced persons & returning Sierra Leone refugees (continued) Dollars (millions) The countries attending the World Food Summit acknowledged a clear relationship between conflict and food insecurity and agreed that an environment in which conflicts are prevented or resolved peacefully is essential to improving food security. They also noted that conflicts can cause or exacerbate food insecurity. Table VI.1 presents the results of an analysis in which we examined the relationship between four different types of conflict (genocide, civil war, interstate war, and revolution) and the level of food security in 88 developing countries. In general, the table shows an association between countries experiencing conflict and food inadequacy. For example, countries with low levels of average daily calories per capita generally experienced more involvement in conflict proportionately than did countries with higher levels of average daily calories per capita. In terms of types of conflict, for each of the 3 decades shown, all countries that experienced genocide had an inadequate level of food security. For 2 out of the 3 decades (that is, the 1960s and the 1980s), countries that experienced civil war were more likely to have experienced food inadequacy. Similarly, for 2 out of the 3 decades (the 1960s and the 1970s), countries that experienced interstate war on their own territory were more likely to have been food insecure. In the case of revolution, the relationship is more in the other direction; for 2 out of the 3 decades, food-secure countries were more likely to have experienced revolution than food-inadequate countries. Average daily calories per capita(Table notes on next page) The summit’s policy declaration and action plan stress the importance of promoting sustainable agricultural development in developing countries. In an analysis prepared for the summit, FAO concluded that it was technically possible for the more food-insecure developing countries to increase their agricultural production by substantial amounts and in so doing to contribute significantly to the summit’s goal of halving the number of their undernourished people by 2015. According to a U.S. official, the FAO analysis was an important basis underlying the agreement of summit countries to try to halve undernutrition by 2015. At issue is whether the developing countries will be able to achieve the kind of production increases indicated by the FAO study. Table VII.1 shows the key results of the FAO analysis. FAO differentiated between three levels of food-insecure countries: (1) countries with an estimated average per capita daily energy supply (DES) of less than 1,900 calories, (2) countries with an estimated average per capita DES of 2,300 calories, and (3) countries with an estimated average per capita DES of more than 2,700 calories. As the table shows, the proposed goal for 17 group 1 countries is to raise their DES to at least 2,300 and if possible 2,500 calories by 2010. The normative goal for 38 group 2 countries is to raise their DES to at least 2,500 calories and, if possible, to 2,700 calories by 2010. The normative goal for 38 group 3 countries is to maintain DES above 2,700 calories and to achieve a more equitable distribution of food supplies among their citizenry. Table VII.1: FAO Analysis of Daily Per Capita Calorie Levels, Grain Production Growth Rates, and Millions of Undernourished to 2010 for 93 Developing Countries (percent per year) (millions) Not available. According to FAO’s analysis, if the normative goals were achieved, additional production would deliver 60 percent of the developing countries’ additional needed food for consumption. The balance would have to be covered by net imports, which would increase from the 24 million tons in 1990-92 to 70 million tons in 2010 (instead of the 50 million tons projected by a 1995 FAO study). FAO estimated that the additional export supply was within the bounds of possibility for the main grain exporting countries. Achieving the production increases previously discussed is not likely to be easy because it requires unusually high growth rates in the more food-insecure countries and, in turn, higher amounts of investments, especially in the worst-off countries. In addition, it requires numerous major changes in these countries, particularly in the rural and agricultural sector. According to FAO, aggregate production must increase rapidly in countries with too-low daily caloric levels and must also contribute to development and generate incomes for the poor. As table VII.1 shows, the group 1 countries would have to more than double their aggregate agricultural production growth rate during 1970-92, from 1.7 percent to 3.8 percent per year. FAO considered 3.2 percent the most likely production increase. For several group 1 countries, production increases of 4 to 6 percent annually are implied, according to FAO. For group 2 countries, the goal is to slow an expected decline in the agricultural production growth rate per year relative to the 3 percent rate during 1970-92. FAO estimated the most likely production increase for these countries at 2.3 percent but said the rate would need to be at least 2.5 percent to achieve the summit goal of halving the number of food insecure by 2010. FAO based its normative targets on fairly optimistic assumptions about expanding domestic production and access to imports, including food aid.In fact, FAO said, extraordinary measures would have to be taken to realize the normative goals. FAO offered the following rationale to justify the targets. Previously, some of the countries had already achieved average per capita daily caloric levels above the proposed minimum of 2,300 calories. For most of the countries, daily caloric levels were at the minimum or near the minimum recorded for them during the previous 30 years. There was a marked correlation between these low levels and the prevalence of unsettled political conditions, which suggested that progress could be made during a recovery period if more peaceful conditions prevailed. Finally, FAO said, the historical record showed that periods of 10-20 years of fairly fast growth in production and consumption had not been uncommon—mostly during periods of recovery (usually from troughs associated with war, drought, or bad policies). Thus, if conditions were created for the onset of a period of recovery, policies and efforts to achieve the required high growth rates could bear fruit. According to one expert, most low-income developing countries and countries of the former Soviet Union and Central and Eastern Europe have large, unexploited gaps in agricultural yields. He estimated that yields can be increased by 50-100 percent in most countries of South and Southeast Asia, Latin America, the former Soviet Union and Eastern Europe and by 100-200 percent in most of sub-Saharan Africa. According to the expert, it is technically possible for the world population to meet growing food demands during the next few decades, but it is becoming increasingly difficult because of groups that are opposed to technology, whether it be developed from biotechnology or more conventional methods of agricultural science. The expert has expressed particular concern about the effect of these groups on the ability of small-scale farmers in developing countries to obtain access to the improved seeds, fertilizers, and crop protection chemicals that have allowed affluent nations plentiful and inexpensive foodstuffs. Under its scenario of the most likely increase in agricultural production in developing countries by 2010, FAO roughly estimated, in a presummit analysis, that gross investment in primary agricultural production in the developing countries would require an increase from $77 billion annually in the early 1990s to $86 billion annually during 1997-2010 (constant 1993 dollars). FAO estimated that another $6 billion of investment would be needed to halve the number of undernourished people in countries with low daily per capita caloric levels. While the $6 billion increase represented only a 7-percent rise, FAO noted that all of the additional investment would be required in the lagging countries. Thus, group 1 countries (table VII.1) would require a 30-percent annual increase in investment, and group 2 countries a 17-percent increase. However, according to FAO, the low-income, food-deficit countries will mostly continue to have very low domestic savings and access to international credit. As a result, both private and public sectors will have difficulty, at least in the short and medium term, in raising the investment funds needed to respond to new production opportunities, even when they have a comparative economic advantage, and there will be a continuing need for external assistance on grant or concessionary lending terms. FAO’s presummit analysis did not address, for countries with low daily per capita caloric levels, added investment needs for (1) post-production agriculture and improved rural infrastructure (excluding irrigation), (2) public services to agriculture, and (3) social support in rural areas. Consequently, the analysis may understate the amount of additional investment required in those countries to attain the normative production goals. In addition, there is no indication that bilateral or multilateral donors will increase their assistance by the amounts indicated by the FAO study. In fact, ODA for primary agriculture steadily declined from a peak of $18.9 billion in 1986 (1990 constant prices) to $9.8 billion in 1994. According to FAO, external assistance is almost the only source of public investment in agriculture for many of the poorer developing countries. According to an October 1997 World Bank report, several major regions of the world and many countries that receive the Bank’s assistance are agricultural underperformers. These regions and countries have institutions and agricultural policies that discriminate against the rural sector, underinvest in technology development, maintain inappropriate agrarian structures, use arable land for low-productivity ranching, undervalue natural resources and therefore waste them, seriously underinvest in the health and education of their rural populations, discriminate against private sector initiatives in food marketing, and fail to maintain existing or invest in new rural infrastructure. Unless these policies, institutions, and public expenditure patterns are corrected, the Bank said, they will not have abundant food supplies. In the Bank’s view, rural areas have not been developed for three reasons. First, countries are not politically committed to the broad vision of rural development. Second, for many reasons, international interest in agricultural and rural matters has waned over the past decade. Third, the Bank has in the past been poorly committed to rural development, and its performance on rural development projects has been weak. For example, according to a Bank official, a 1993 review found that Bank expenditures on agriculture and rural development had declined from $6 billion to about $3 billion and that less than half of the Bank’s projects in the area were successful. Following the review, the Bank conducted additional analyses and developed a vision statement for its future work in the area. In September 1996, the Bank’s President announced that rural development would be one of six key Bank objectives. To tackle the issue of weak commitment at the country level, the Bank is focusing on improving its strategies for country assistance. According to the Bank, the strategies define the key issues for development, analyze the current and future prospects for dealing with the issues, and provide the overall context within which Bank operations are undertaken. The Bank believes that the strategies are crucial to renewing the commitment by countries and the Bank to rural growth. The Bank plans to build a comprehensive rural development strategy into each of its overall country assistance strategies. According to the Bank, no approach to rural development will work for all countries, and developing and implementing rural strategies will be complex for most countries. The Bank believes that if country assistance strategies include well-defined, coherent rural strategies and treat agriculture comprehensively, the chances for a sustained and effective rural sector program will be substantially improved. Even so, in October 1997, a Bank report acknowledged that there were still wide differences of opinion within the Bank and among its partners as to the priority that should be given the rural sector. Summit countries agreed to set out a process for developing targets and verifiable indicators of national and global food security where they do not exist, to establish a food insecurity and vulnerability information and mapping system, and to report to the Committee on World Food Security on the results produced by the system. On March 24-25, 1997, FAO convened a group of experts to discuss ways and means of implementing such a system. This group recommended a series of initial steps to take prior to the CFS meeting in June 1998. Subsequently, an interagency working group was established to promote development of the information and mapping system. (Membership included 21 international agencies and organizations, including bilateral donor agencies.) The working group met in December 1997 and April 1998. The FAO Secretariat helps staff the work of the group between meetings. According to FAO, among some of the key tasks identified for establishing the information and mapping system are the following: Designate country focal points for all the information and mapping system matters. Develop an awareness and advocacy strategy for end-users of the system; where key national policymakers are not fully aware of the need for strong food insecurity and vulnerability information systems, secure their commitment to provide adequate and continuing support for the establishment and maintenance of such systems. Inventory available as well as planned data collection systems at both the international and national levels, and evaluate the quality and coverage of their data; at the national level, identify and prioritize the information needs of key food security decisionmakers and determine to what extent needs are already met; define a priority set of information required by national decisionmakers and a set of verifiable objectives; set out a scheduled program of initiatives and activities to meet those objectives. Define the conceptual framework and scope of the information and mapping system, including the indicators to be used at both national and international levels for identifying (down to at least the household level) people who are food insecure or at risk of becoming food insecure, the degree of their undernutrition or vulnerability, and the key factors or causes for their food insecurity or vulnerability. When agreement on system indicators is reached, complete and issue guidelines for the establishment of the system at the national level. Inventory national systems to determine to what extent the information and mapping system indicator needs are already met; identify significant gaps and weaknesses; assess the cost and time required to implement the information and mapping system and to what extent, if any, countries require technical or financial assistance; and set out a scheduled program of initiatives and activities for establishing an effective system. Identify and prepare a computerized system for compiling and analyzing multisectoral data and an information system for mapping, posting, and disseminating information accessible to all users. Ensure the exchange of information among international agencies and organizations on all aspects related to food insecurity and vulnerability information and mapping. Do the same at the national level. By the time of the June 1998 CFS meeting, none of these tasks was complete. Two reports, based on the interagency working group’s work, were provided to CFS for its June 1998 meeting. The first was a proposed plan for continuing and future work on the information and mapping system. The plan included a long list of tasks, but the items were not prioritized, and no schedule for completing them was suggested. The second was a report providing background information and principles that could be followed in establishing national information and mapping systems. The report could be useful to officials interested in how to go about developing an awareness and advocacy strategy for end-users of the system within their countries, including securing the support of national decisionmakers. The interagency working group and FAO Secretariat had been taking an inventory of available information for use in the information and mapping system at the international level. However, no report on the results was available for the June 1998 CFS. The Secretariat, interagency working group, and member countries had not yet begun to debate what indicators should be used for the system. At the June 1998 CFS meeting, a number of countries stressed the need for a decision on what indicators to use so that member countries could take steps toward measuring progress in achieving the overall summit goal. A March 1997 technical advisory group and the CFS have stressed the need to involve FAO countries in the design of the information and mapping system. However, the interagency working group has not asked member countries to identify and prioritize their information needs, determine the extent to which those needs have already been met, and share the results with the interagency working group. Only a few developing countries sent representatives to the first interagency working group meeting. Fourteen developing countries were invited to the second meeting, and 12 countries sent representatives. The interagency working group met for the third time in November 1998. No developing countries sent representatives to the meeting. There was some discussion of indicators that might be used at the national and international levels for a food insecurity and vulnerability mapping system and of existing international data systems from which some indicators could be drawn. However, no proposals were offered and no attempt was made to reach agreement on a common set of indicators for use at the national or international level. The group is not scheduled to meet again before the next CFS meeting, which will be held in June 1999. Since agreement had not been reached on the information and mapping system indicators, detailed technical guidance to countries on how to develop information on the indicators and establish the system at the national level also had not been developed. Similarly, member countries had not been able to identify whether their existing systems meet their needs or assess the time, financial resources, and technical assistance required to establish national systems. The interagency working group and the Secretariat have made progress in identifying a computer system for compiling and analyzing data and an information system for mapping, posting, and identifying the information. However, the work is not yet complete. A cooperative process is underway among U.N. and other international agencies. For example, FAO and the International Fund for Agricultural Development hosted the first and second meetings of the interagency working group, respectively, and the World Bank hosted the third meeting. Agreements have been reached for sharing information among some of the agencies, for example, between FAO and the World Food Program. However, FAO officials told us that problems have arisen in the exchange of information and that the World Food Program and the World Health Organization had not yet made important data sets available. As of mid-December 1998, only about 60 countries had identified focal points. In commenting on a draft of this report, FAO officials said considerable progress has been made in addressing the key tasks for establishing an information and mapping system, and implementation of many of the tasks requires a longer period of time. In addition, FAO said, many developing countries have difficulty in mobilizing the required resources. According to FAO, only about 15 countries are currently engaged in establishing national food insecurity and vulnerability mapping systems, with or without international assistance. FAO said that the interagency group is working on a technical compendium, to be issued in mid-1999, which will provide more detailed technical guidance to prospective users on technical issues related to the selection of indicators, the cut-off points, the analysis of data, and so forth. World Food Program officials noted that their program is actively involved in the interagency working group that is promoting development of a food insecurity and vulnerability information mapping system, cited several specific areas of cooperation that involve the agency and FAO, and said the program recently made available a data base on China that includes data at the provincial and county level. At the same time, program officials said that the November 1998 meeting of the interagency working group did not resolve the issue of mechanisms to be used in the development of an international food insecurity and vulnerability mapping system data base as well as the possible technical composition of the data base. Several different systems (FAO, World Bank, and the World Health Organization) offer possible alternatives, the officials said. They said the meeting discussed the issue of availability of data sets and data-sharing, and all participants are aware that many complications relate to data copyrights issues. Such issues will need to be resolved at the political level, officials said, before free data-sharing becomes a practical reality. The summit action plan stressed a need to improve coordination among governments, international agencies, and civil society. Numerous organizations are involved in food security issues, including FAO, the World Health Organization, the U.N. Development Program, the World Bank, the International Monetary Fund, the WTO, regional development banks, key donor countries, for-profit private sector companies, and NGOs. Since the summit, international groups have taken steps to promote better coordination, but problems still exist. In February 1997, FAO and the International Fund for Agricultural Development proposed that the U.N. resident coordinator in each country facilitate inter-U.N. coordination and that FAO headquarters establish and manage a network among the U.N. and non-U.N. agencies. The Administrative Coordination Committee of the United Nations (ACC)endorsed this proposal in April 1997 and authorized FAO to consult with other U.N. agencies on detailed arrangements to establish the network and a detailed work plan. The United States succeeded in placing the issue of food security coordination on the agendas of the 1997 Group of Seven developed countries’ economic summit in Denver, Colorado, and the 1997 U.S.-European Union Summit. Despite these actions, coordination problems continued. For example, at a June 1997 meeting of the Food Aid Forum, the European Union and 11 other countries attending the meeting expressed concern about the uncoordinated nature of food aid in contributing to food security goals.The European Union and 11 of the other countries attending the meeting said global food aid policy components were scattered among a number of international organizations and other forums, each with different representatives and agendas, and that they lacked effective coordination. In addition, they said that systemic coordination of food aid at the regional and national levels was needed. To improve coordination and the effectiveness of food aid, the European Union is drafting a proposed code of conduct for food aid. The code of conduct is to include a statement of responsibility for both food aid donors and recipients and stress the need to ensure optimal use of food aid resources. Another coordination problem concerned rural agricultural development. In October 1997, the World Bank reported that in virtually all of the countries it works with, many donors and multilateral financial institutions are promoting often disjointed projects. According to the Bank, these projects are launched when the policy environment is not favorable and a coherent rural strategy is lacking. Consequently, many of the projects fail to achieve their development objectives and undermine local commitment and domestic institutional capacity. Other examples of coordination problems concern FAO’s Special Program on Food Security, a telefood promotion to raise money, efforts to assist developing countries develop food security action plans for implementing summit commitments, FAO coordination with NGOs, and FAO coordination with other U.N. agencies. The intent of FAO’s Special Program for Food Security, an initiative of FAO’s Director-General, is to provide technical assistance to help low-income, food-deficit countries increase their agricultural production. The program began in 1995 with a pilot phase involving 18 countries. At a spring 1997 meeting of the CFS, many developed countries expressed concern about the program. For example, the European Union representative said FAO was not sufficiently emphasizing the need for policy reform, donor coordination, and rural development, as called for by the summit, and was not developing the program in a sufficiently participatory manner to allow recipient countries to take ownership of the program. The United States and other countries also complained about a lack of information on the costs and results of the program and expressed concern that the program was using FAO resources needed for summit implementation and FAO’s traditional normative work. According to a U.S. official, the United States was concerned that FAO was using the special program to become a development agency rather than an agency that sets standards for countries to follow. The official also said that the FAO Director-General had not been responsive to donor concerns about the program. In commenting on a draft of this report, FAO officials said that we did not adequately reflect the views of developing countries that are the main beneficiaries of the program, nor did we recognize that the special program was an initiative of the Director-General that was approved by the FAO membership. Moreover, FAO said that the special program is now part of its regular Program of Work and Budget. USDA officials advised us that our discussion of the April 1997 events was correct, but that since then, the FAO Director-General had been responsive to concerns expressed about the program. For example, FAO has provided factual data on the program’s activities, and that while early discussions about the program had emphasized supporting large capital projects that were questionable, the focus of the program has since shifted to encourage many small projects. In 1997, the FAO Director-General announced plans to put on a 48-hour global television program to mobilize public opinion and financial resources to pay for the Special Program and other food security activities. Participating countries were to organize national broadcasts, to be held on October 18 and 19, 1997, centered on World Food Day, an annual event designed to raise awareness about food security problems. According to the Director-General, the telecast was an important way to raise money for FAO’s Special Program in light of declining aid levels from donor countries. The main purpose originally was to raise public awareness of food problems and, only as a secondary suggestion from member countries, to mobilize resources for micro-projects providing direct support to small farmers. In general, donor countries did not initially support the telefood initiative when it was discussed at the April 1997 CFS meeting. Some key donor countries, such as the United States, Australia, and Canada, announced they would not participate in the telecast, because the proposal (1) had not been reviewed or approved by FAO members; (2) lacked participation by civil society in each country; (3) was designed to help fund the Special Program, which was viewed as not fully reflecting World Food Summit commitments; and (4) would impinge upon national NGO fundraising activities centered on World Food Day. In November 1997 FAO indicated the operation was successful, and invited FAO members to take all measures they deem appropriate to promote Telefood in the future. According to FAO, 58 countries participated in awareness-raising activities in the 1997 Telefood, including 5 developed countries (France, Greece, Italy, Japan, and Turkey). Twenty of the countries also engaged in fundraising, including one developed country (Japan). For the 1998 Telefood, 45 countries participated in awareness activities and 35 of these countries also engaged in fund-raising. Five developed countries participated , including in both sets of activities (Italy, Japan, Portugal, Spain, and Turkey). In commenting on this report, FAO officials acknowledged that concerns had been expressed about supporting events that might be seen as competing with the activities of nongovernmental organizations (NGO) but said that most Telefood supporters came from civil society. USDA officials said that the United States was critical of Telefood in spring 1997 but expressed support for the program later in the year. They said that the United States now recognizes that Telefood may be a significant activity for other countries and that it can help in raising consciousness about food insecurity. Shortly before the summit was held, the FAO Director-General ordered that food security strategy papers be drafted for each member country, including developed countries. (According to FAO officials, papers for the developed countries would simply describe the food security situation in each country and not include recommendations.) The Director-General did so without advising or securing the approval of at least some member countries, including the United States. The strategies for the developing countries reportedly included recommendations for improving food security that focused on the agricultural sector. FAO officials told us that each paper cost approximately $2,000 to produce and was drafted over a 2-week period. Sixty strategy papers, prepared before the summit was held, were reviewed jointly by FAO, the associated member country governments, and the World Bank. By April 1997, about 90 papers had been drafted, and parliaments in about 20 countries had approved the documents as national action plans for implementing World Food Summit commitments, according to FAO officials. At the April 1997 CFS session, donor countries expressed concern that civil societies of the countries had not been involved in preparation of the strategies, even though the summit action plan stressed the need for civil society to participate in planning, promoting, and implementing measures for improving food security. Donors were also concerned that the presummit strategies would not reflect the full range of commitments and actions agreed upon by summit participants. Also of concern was the short amount of time allotted for drafting the papers. Several FAO officials indicated that 2 weeks was not sufficient time to prepare sound country strategy papers. They noted that prior FAO preparation of country strategies typically took about 6 months. FAO officials also acknowledged that FAO lacked expertise in several key areas related to food security, such as macroeconomic and political policy reform, that were emphasized by the summit. In general, the donors were also displeased about FAO’s funding of country briefs for the developed countries. Countries had written position papers on their individual approaches to food security during preparations for the summit. Representatives from several developed countries noted that neither FAO nor FAO contractors had contacted their governments to obtain key data and information on the status of country efforts to develop country action plans. The European Union representative instructed FAO to stop preparing briefs on the European Union’s member states unless one of its countries specifically requested that FAO do so. FAO staff told us that the country strategies had been well received by the developing countries, were not meant to substitute for action plans developed by the civil society of each country, and were only a starting point to stimulate discussion and debate. However, donor country governments and other key groups were not invited to critique the drafts. Moreover, completed strategy papers and briefs have not been made available to other FAO members. According to FAO, as of June 1998, FAO had provided assistance to 150 countries in preparing strategy briefs. The summit action plan said coordination and cooperation within the U.N. system, including the World Bank and the International Monetary Fund, are vital to the summit follow-up. Governments agreed to cooperate among themselves and with international agencies to encourage relevant agencies within the U.N. system to initiate consultations on the further elaboration and definition of a food insecurity and vulnerability information and mapping system. As part of an already existing effort by U.N. agencies to coordinate follow-up with major U.N. conferences and summits since 1990, these governments also agreed to seek to reduce duplications and fill gaps in coverage, defining the tasks of each organization within its mandate, making concrete proposals for their strengthening, for improved coordination with governments, and for avoiding duplication of work among relevant organizations. The summit plan also requested that the ACC ensure appropriate interagency coordination and, when considering who should chair any mechanisms for interagency follow-up to the summit, recognize the major role of FAO in the field of food security. In April 1997, the ACC approved a proposal to establish a network on rural development and food security as the mechanism for providing interagency follow-up to the summit. At the country level, the network consists of thematic groups established under the U.N. Resident Coordinator System. According to FAO, these groups typically include U.N. agencies, national institutions, bilateral donors, and civil society representatives. At the headquarters level, the network includes 20 U.N. organizations that participate in and support the country-level groups. The network is jointly coordinated and backstopped by FAO and the International Fund for Agricultural Development, in close cooperation with the World Food Program. Despite these efforts, FAO, other U.N. agency officials, and U.S. officials advised us that coordination problems continue. For example, an FAO official said that in May 1998, the U.N. Economic and Social Council met to review a set of indicators for measuring follow-up to the various U.N. conferences and summits. According to the official, FAO had not been involved in the exercise to create the indicators, and the proposed indicators did not adequately represent food security issues. As discussed in appendix VIII, FAO officials told us that although the World Food Program and World Health Organization have been cooperating in establishing an information and mapping system, FAO was still waiting to receive previously promised data from the organizations. According to both FAO and U.N. Children’s Fund officials, their two agencies have had problems coordinating with each other. In commenting on a draft of our report, FAO officials noted that coordination problems exist even at the national level among ministries and agencies, and said that such problems cannot be absent in the U.N. system of agencies. However, FAO said great efforts had been made, particularly in the framework of the Administrative Committee on Coordination, to improve the cooperation and synergy among the different institutions. According to officials, the network on rural development and food security is growing rapidly and proceeding satisfactorily. The summit directed FAO’s Committee on Food Security to monitor and evaluate progress toward national, subregional, regional, and international implementation of the action plan, using reports from national governments, the U.N. system of agencies, and other relevant international institutions. Governments are to provide regular reports on progress made to the FAO Council and the U.N. Economic and Social Council. The summit also directed that NGOs and other interested parties should play an active role in this process, at the national level and within CFS itself. Since the summit, countries have provided their first progress report to CFS and the FAO Secretariat, and planning has begun for a revised format for future reports. NGOs have made some progress in increasing their involvement in food security efforts, but not as much as they would like. In April 1997, CFS decided that the first report would cover progress through the end of 1997 and the reporting procedure would be provisional. Reports would be prepared by national governments, U.N. agencies, and other relevant international institutions and were to be received by the FAO Secretariat by January 31, 1998. Countries agreed to report on actions taken toward achieving the specific objectives under each of the seven statements of commitment (following the format of the summit plan of action) and include information on the actors and, if available, results, including quantitative assessments, under each of the objectives. CFS allowed each country to decide whether to report on the specific actions included in the summit’s action plan. CFS emphasized that the information should include some analysis on how national policies and actions were geared toward, and effective in, achieving the food security objective of reducing the number of undernourished. A more detailed reporting format, proposed to CFS by the Secretariat, was not approved. CFS did not set any other requirements concerning the information to be provided. A proposal by some delegates that countries provide baseline information on actions taken to implement each of the seven commitments was noted but not endorsed as a requirement. Countries were not asked to provide baseline information on the number of their undernourished, the extent of undernourishment, or the principal causes of undernourishment. Nor were they asked to provide baseline information regarding actions already underway or planned or information on targets and milestone dates for implementing actions. They were not asked to provide information on actual or planned expenditures for implementing actions. Although CFS did not ask for baseline or target information, in a July 1997 letter to countries, FAO’s Director-General said that the first report after the World Food Summit was of the utmost importance and would be of critical value in setting baselines and the orientations that governments intend to pursue. He also said it was expected that governments’ reports would cover the contributions of all relevant partners at the national level, including governmental institutions, as well as nongovernmental and private sector actors. In addition, he asked for a one-page summary of the major food security issues that each country was facing and the priority targets being addressed through implementation of the plan. By the January 31, 1998, due date, only 5 countries had provided progress reports to the Secretariat; as late as March 31, 1998, only 68 of 175 country reports had been received. The Secretariat analyzed and summarized the results in a report for the CFS’ June meeting but drew no overall substantive conclusions because (1) information on policies and programs predominantly covered continuing actions already taking place at the time of the summit, (2) the Secretariat’s analysis of country actions was limited to 68 reports, (3) the countries only provided selective information rather than focusing on all the issues involved, (4) some countries provided descriptive rather than analytical information, and (5) some countries reported only on certain aspects of food security action such as food stocks or food reserve policies. The Secretariat said future reports need to be oriented more toward providing a precise analysis of selected situations, actions conducted over time to address them, results obtained, and reasons for such results. To date, CFS’ approach to monitoring and evaluation of country performance has focused on encouraging countries to report on actions taken and the impact of the actions on food security. Under this approach, the FAO Secretariat seeks to summarize the results across all countries. CFS has not considered directly assessing the quality of a country’s overall action plan—including strategy, programs, resources, targets, and milestones for achieving the summit commitments, objectives, and actions. Secretariat officials told us that they lack sufficient staff to evaluate action plans for all CFS members. The Secretariat prepared a report for the June 1998 CFS session that included a proposed standard format for reporting future progress in implementing the plan. The proposal was considerably more structured than that which CFS asked members to use for the provisional report provided in 1998. The proposal included suggestions regarding essential substantive points to be addressed in future reports. Prior to convening on June 2, CFS held a 1-day working group meeting on June 1 to examine the Secretariat’s proposals and report on them to CFS. However, the working group did not debate and CFS did not reach any decisions on the essential points to be included in future progress reports . CFS directed the Secretariat to collaborate with member states and other concerned partners in the continuing preparation of a set of indicators for measuring progress in implementing the plan and said the work should be completed sufficiently in advance to be used by CFS in preparing for its session in the year 2000. CFS also directed the Secretariat to further develop an analytical framework for preparing future reports and assessing progress in implementing the summit action plan. The summit action plan directed that civil society be involved in CFS’ monitoring and that governments, in partnership with civil society, report to CFS on national implementation of the plan. The plan’s directive is consistent with a growing interest in involving civil society to help promote the objectives and work of international agencies during the past decade in response to various transformations within and across countries. For example, the globalization of the economy has reduced the ability of individual governments to control the direction of development. Structural adjustment reforms have led to a redefinition of the role of the state in many countries, reducing its function as a doer and provider and leaving it to the private sector and citizen initiatives to take on responsibilities for services it no longer provides. The demise of authoritarian regimes in many countries has created opportunities for groups and collective initiatives of many kinds to spring up and make their voices heard. Increasing the role of civil society in CFS is not easily accomplished since FAO was created as an intergovernmental forum and operates by consensus of all the members. Unless the members of CFS agree to allow for NGO participation, this cannot occur. According to several U.N. officials with whom we spoke, developing countries are generally opposed to greater involvement by NGOs in U.N. agencies, including FAO. According to FAO and other participants, if CFS member countries agree that civil society should have a greater role, a variety of practical questions must be addressed. For example, how can FAO deal effectively and equitably with the large number of civil society organizations that would like to be heard, the variety and number of conflicting views and interests that they express, the disparities in their legitimacy and representativeness, and the difficulties many NGOs in developing countries have in gaining access to information and policy forums? In addition, given limited resources, where should priorities lie in promoting policy dialogue, and how can links between national and global levels be promoted? Some NGOs believe that some of these issues could be addressed if NGOs were allowed to hold separate meetings for developing consensus positions and selecting a few NGOs to represent them in CFS meetings. At the April 1997 CFS session, several delegates suggested that ways be considered for strengthening or widening the participation of civil society organizations in the work and deliberations of CFS. CFS asked the Secretariat to take interim measures to broaden NGO participation at the 1998 session of CFS and agreed to examine the issue in greater detail at that time. In responding to the April 1997 CFS session, the Secretariat took several positive actions prior to June 1998. It increased the number of NGOs invited to the June 1998 CFS meeting, made documents available on the FAO website about 1 month prior to the meeting, and provided FAO countries with a copy of a proposal by a group of NGOs for enhanced civil society participation. The proposal identified a number of specific actions that could be taken to increase NGO opportunities for participation before and around CFS meetings. NGOs expressed particular disappointment about not being allowed to make prepared statements in CFS meetings until after government delegates have spoken and said if they were to make the effort of participation, they needed to be assured of a say in decision-making and to know that NGO positions could at least be reflected in CFS reports. environment for civil society organizations and building dialogue with governments and how civil society’s views could be better taken into account given the intergovernmental nature of FAO. The seven NGOs provided their views in an information paper that was made available for the CFS June meeting. In addition, the Secretariat drafted its own paper on how the NGOs’ role could be enhanced in CFS and invited the CFS Bureau to approve the paper for use at the June 1998 meeting. Notwithstanding the positive steps taken by the Secretariat and CFS’ April 1997 decision, CFS did not seriously consider the issue in 1998. For example, the CFS Bureau, a small executive committee, did not approve the Secretariat’s paper for use at the June 1998 CFS session, and the issue was not included in the provisional agenda for the meeting. At the opening of the session, Canada, with support from the United States, proposed that the provisional agenda be amended to include a discussion of the role of civil society. However, rather than permitting debate on the proposal, the CFS Chairman announced that he had decided to seek to satisfy NGOs’ interests by holding informal discussions with them. Subsequently, the Chairman advised the NGOs that he and the CFS Bureau would meet with representatives of five NGOs. During the morning of the second day of the CFS meeting, the United States again proposed that civil society participation be added to the agenda and asked that it be addressed without further delay. The Chairman agreed to add the item to the agenda but postponed discussion until the end of the third day’s meeting. During the abbreviated discussion, various ideas for broadening civil society participation were noted. However, some delegates, including China, stressed that CFS is an intergovernmental forum and that any measures taken to broaden participation would need to respect that principle. At the conclusion of the June session, CFS countries agreed to make the issue of increased civil society participation in its activities a main agenda item for the 1999 meeting. It asked the Secretariat to prepare and circulate a discussion paper at least 6 months prior to the next meeting to allow ample time for consultations between governments and national civil society organizations. The Secretariat was also asked to analyze the pros and cons of proposals, including their legal, procedural, and financial implications. According to a statement presented on behalf of NGOs that attended the June 1998 CFS session, the involvement of civil society organizations in preparing national reports on progress in implementing the summit’s action plan was varied. In some cases, NGOs had written inputs; in other cases, NGOs gave their views orally in meetings with government officials; and in numerous other cases, civil society was not invited to participate in the drafting of the national report. At the request of Senator Russell D. Feingold, Ranking Minority Member of the Subcommittee on African Affairs, Senator John Ashcroft, and Congressman Tony P. Hall, we reviewed the outcome of the 1996 World Food Summit and key factors that could affect progress toward achieving the summit’s goal. Our overall objective was to comment on key issues and challenges related to developing countries’ achieving the summit’s goal of reducing undernourishment by half by 2015. Our overall approach was to analyze and synthesize information from a wide variety of primary and secondary sources. To address the current status of global food security, the summit’s approach to reducing food insecurity, and the summit’s possible contribution to reducing hunger and undernutrition, we did the following: reviewed documents and studies by the FAO, the U.N. Children’s Fund, the World Health Organization, the World Bank, and the World Food Program; the Organization for Economic Cooperation and Development; the Consultative Group on International Agricultural Research; IFPRI; USDA, USAID, the Department of State, and the Department of Health and Human Services; and various academics, NGOs, and private sector entities concerned with past and possible future efforts to reduce poverty and undernutrition; discussed issues concerning the extent and causes of undernutrition with national and international experts in food security, including experts at FAO, the World Food Program, the World Bank, IFPRI, USDA, USAID, the Department of State, various NGOs, and universities and international food companies; observed presummit negotiations over the text to be included in the World Food Summit’s policy declaration and plan of action, the World Food Summit, and subsequent FAO follow-up meetings to the summit (the latter include the April 1997 CFS meeting, the November 1997 FAO Conference meeting, and the June 1998 CFS meeting; attended various other conferences and seminars where food security and related issues were discussed; and developed a database on country-level estimates of undernutrition and various economic, political, and social variables possibly associated with food insecurity. private sector resource flows, and investors’ ratings of the risk associated with investing in countries. We did not validate the reliability of these data. To address the current status of global food security, more specifically, we reviewed methodological issues associated with efforts to accurately identify and measure the extent of undernutrition; reviewed FAO, USDA, and World Health Organization estimates of the number of undernourished people or children in up to 93 developing countries that collectively account for about 98 percent of the population in the developing world; used FAO estimates of the number of undernourished people in 93 developing countries to calculate and describe (1) the distribution of the total number of undernourished people across countries and (2) the variation across countries in the proportion of population that is undernourished; and compared FAO and USDA estimates of the number of undernourished people in 58 low-income, food-deficit countries to show to what extent the estimates differ. To describe the summit’s policy declaration and action plan for reducing food insecurity, we reviewed both and prepared a table summarizing the 7 major commitments, 27 supporting objectives, and 24 of the 181 supporting actions. The latter were selected to further illustrate the depth and specificity of the summit’s plan. To provide perspective on the summit’s goal of halving the number of undernourished people by 2015, we reviewed and compared FAO and USDA estimates on the number of undernourished people in developing countries. In addition, we analyzed a variety of key issues associated with the summit’s proposed commitments, objectives, and actions for halving undernutrition by no later than 2015. These issues concern the ability and willingness of countries to reasonably measure the prevalence of undernourishment and the possible effects of trade liberalization, grain reserves, food aid, conflict, increased agricultural production, policy reforms, resources, coordination, and monitoring and evaluation of progress in reducing food insecurity. production growth rates relative to food insecurity levels and the aggregate number of undernourished people of the countries. To assess the impact of trade liberalization on food security, we reviewed various analyses of the subject, including two detailed estimates of the projected income impacts of the URAs on major regions of the world and several major trading countries. To provide perspective on trends and issues associated with grain reserves and food aid, we analyzed data on (1) world private and government grain reserves and the ratio of total grain reserves to world cereal consumption; (2) world and U.S. cereals shipments of food aid in terms of total quantities and the proportion provided as program, project, and emergency aid; and (3) total food aid deliveries to low-income, food-deficit countries and as a percent of total global food aid deliveries. We also analyzed country-level data on average per capita caloric levels and related this measure of food security to other country-level variables, including (1) the incidence of civil war, war, revolution and genocide during 1960-89; (2) the level of income; and (3) creditworthiness ratings of the risk associated with investing in these countries; related country-level data on the number of undernourished people to (1) income levels of developing countries, (2) total official and private resources provided to these countries, and (3) creditworthiness ratings of the risk associated with investing in the countries; and analyzed data on the role of official development assistance and private sector investment in developing countries during 1990-97. To comment on the issues of (1) improving coordination among governments, international agencies, and civil society and (2) monitoring and evaluating their progress in implementing the summit action plan, we considered information that became available to us in some of our previously discussed actions. For example, we relied heavily on the FAO Secretariat’s assessment of individual developing and developed country progress reports that were provided to the Secretariat during early 1998. We did not undertake a comprehensive study of actions taken by governments, international agencies, and civil society to improve coordination and monitor and evaluate progress toward achieving summit commitments. We conducted our review from February 1997 to September 1998 in accordance with generally accepted government auditing standards. Phillip J. Thomas Wayne H. Ferris Gezahegne Bekele Edward George The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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Pursuant to a congressional request, GAO provided information on the outcome of the 1996 World Food Summit, focusing on factors that could affect progress toward meeting world food security goals. GAO noted that: (1) the 1996 World Food Summit brought together officials from 185 countries and the European Community to discuss the problem of food insecurity and produced a plan to guide participants' efforts in working toward a common goal of reducing undernutrition; (2) to reach this goal, they approved an action plan, the focus of which is to assist developing countries to become more self-reliant in meeting their food needs by promoting broad-based economic, political, and social reforms at local, national, regional, and international levels; (3) the participants endorsed various actions but did not enter into any binding commitments; (4) they also agreed to review and revise national plans, programs, and strategies, where appropriate, so as to achieve food security consistent with the summit action plan; (5) according to U.S. officials, a willingness on the part of food-insecure countries to undertake broad-based policy reforms is a key factor affecting whether such countries will achieve the summit goal; (6) other important factors that could affect progress toward achieving the summit goal are: (a) the effects of trade reform; (b) the prevalence of conflict and its effect on food security; (c) the sufficiency of agricultural production; and (d) the availability of food aid and financial resources; (7) also needed are actions to monitor progress, such as the ability and willingness of the participant countries to develop information systems on the status of food security and to coordinate, monitor, and evaluate progress in implementing the summit's plan; (8) given the complexity of the problems in each of these areas, participants acknowledged that progress will be difficult; (9) the Food and Agriculture Organization's (FAO) Committee on World Food Security requested that countries report to the FAO Secretariat on their progress in meeting the summit's goal in 1998, but many countries did not respond in a timely fashion; (10) in addition, some reports were more descriptive than analytical, and some reported only on certain aspects of food security actions; (11) thus, the Secretariat was unable to draw general substantive conclusions on progress made to reduce food insecurity; and (12) the Agency for International Development said that the level of effort by both donor and developing countries will probably fall short of achieving the summit's goal of reducing chronic global hunger by one-half.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Aviation and Transportation Security Act established TSA as the federal agency with primary responsibility for securing the nation’s civil aviation system, which includes the screening of all passenger and property transported by commercial passenger aircraft. TSA currently has direct responsibility for, or oversees the performance of, security operations at approximately 457 TSA-regulated airports in the United States implementing security requirements in accordance with TSA- approved security programs and other TSA direction. At TSA-regulated airports, prior to boarding an aircraft, all passengers, their accessible property, and their checked baggage are screened pursuant to TSA- established procedures, which include, for example, passengers passing through security checkpoints where they and their identification documents are checked by TSOs and Travel Document Checkers, or by Screening Partnership Program employees. TSA uses multiple layers of security to deter, detect, and disrupt persons posing a potential risk to aviation security. These layers include three principal types of screening employees at airport checkpoints—Travel Document Checkers, who examine tickets, passports, and other forms of identification; TSOs, who examine property, including checked baggage, and persons using x-ray equipment and magnetometers, as well as other devices; and BDOs, using SPOT to assess passenger behaviors and appearance. BDOs are the only type of TSA screening employees not deployed to all TSA-regulated airports and all checkpoints within the airports where it is deployed on a regular basis. TSA deployed SPOT as an added layer of security to help deter terrorists attempting to exploit TSA’s focus on prohibited items and other potential security weaknesses. Other security layers cited by TSA include intelligence gathering and analysis; passenger prescreening; random canine team searches at airports; federal air marshals; reinforced cockpit doors; federal flight deck officers; the passengers themselves; as well as other measures both visible and invisible to the public. Figure 1 shows TSA’s 20 aviation security layers. The grey area in figure 1 highlights four layers that apply to passengers and their property as they seek to board an aircraft. Airport LEOs, another layer of security cited by TSA, do not report to TSA and may not maintain a physical presence at smaller TSA-regulated airports. According to TSA, each one of these layers alone is capable of stopping a terrorist attack. In combination, TSA states that their security value is multiplied, creating a much stronger system, and that a terrorist who has to overcome multiple security layers in order to carry out an attack is more likely to be preempted, deterred, or to fail during the attempt. The SPOT program utilizes behavior observation and analysis techniques to identify potentially high-risk passengers. Individuals who exhibit suspicious behaviors, including both physical and appearance indicators, may be required to undergo additional screening. Field agents and law enforcement officers of other federal agencies and entities—such as the FBI, the Secret Service, CBP, and FAMS—utilize elements of behavior detection analysis as a part of their work. In addition, some foreign entities, such as Israel’s El Al airlines, use behavior detection and analysis techniques as part of their security efforts. However, TSA emphasized to us that the SPOT program is unique among these entities because it uses a point system to help identify suspicious persons on the basis of their behavior and appearance and because behavior detection and analysis are the central focus of SPOT. Officials from the other agencies stated that their field personnel incorporate behavior detection as one of many skills used in their work; in contrast, behavior detection is the primary element of the BDOs’ work. SPOT trains BDOs to look for and recognize facial expressions, body language, and appearance that indicate the possibility that an individual is engaged in some form of deception and fears discovery. These behaviors and appearances are listed on a SPOT score sheet used in SPOT training. Passenger behavior and appearance are to be compared by the BDOs— who typically work in two-person teams. BDOs are expected to “walk the line”—that is, to initiate casual conversations with passengers waiting in line, particularly if their observations led them to question someone exhibiting behaviors or appearances on the SPOT checklist. As the BDOs walk the line, and the passenger with SPOT indicators is reached, a casual conversation is used to determine if there is a basis for observed behaviors or appearances on the checklist. In most instances, these conversations provide information to the BDOs that permits them to consider the issue resolved, and hence not a security concern. Figure 2 below illustrates the first step of the three-step SPOT process, the BDO-passenger interaction at a checkpoint prior to the passenger passing through a magnetometer. As shown in figure 2, passenger behavior and appearance are observed by the BDOs as passengers wait in line for screening at a security checkpoint. Even if the checkpoint is busy, the BDOs must attempt to visually scan all the passengers waiting in line, as well as persons near the checkpoint, to determine if any are showing behaviors or appearances on the SPOT checklist. According to TSA, on average a BDO has approximately 30 seconds to assess each passenger while the passenger waits in line. For passengers exhibiting indicators above baseline conditions, the BDOs are to (mentally) add up the points assigned to each indicator they observe. Both BDO team members must agree that observed indicators have exceeded the predetermined numerical threshold, although they do not have to identify the same indicators the passenger exhibited. In instances when a passenger’s SPOT indicators place them above the numerical threshold, and the passenger has placed their property on the conveyor belt for x-raying, and has walked through the magnetometer or equivalent screening device for passengers, he or she will be directed to the second step of SPOT, referral screening. This involves additional questioning and physical search of their person and property by BDOs and TSOs. This referral screening occurs in the checkpoint area. If the passenger’s behavior escalates further—accumulating more points based on the SPOT checklist—the BDOs are to refer the passenger to a LEO. A referral to a LEO is a potential third step in the SPOT process. BDOs are not LEOs—they do not conduct criminal investigations, carry weapons, or make arrests. After a passenger has been referred by the BDOs to a LEO, the LEO is then expected to independently determine, through additional investigation, such as questioning the passenger and, if appropriate, by conducting an identity verification and background check through the FBI’s National Crime Information Center (NCIC), whether sufficient grounds exist to take further action, such as detaining or arresting the passenger. TSA officials who are LEOs also have access to NCIC, such as an airport’s Assistant Federal Security Director for Law Enforcement or federal air marshals. NCIC is the FBI’s computerized index of criminal justice information (i.e., criminal record history information, fugitives, stolen properties, and missing persons), available to federal, state, and local law enforcement and other criminal justice agencies at all times. Similarly, other federal LEOs also have such access, including CBP, and Drug Enforcement Agency (DEA) personnel. However, since both local and federal LEOs have other responsibilities, and may not be present at each operating checkpoint, BDOs may have to seek them out to request an NCIC check. According to TSA, aside from requiring that an airport maintain a law enforcement presence, it exercises no jurisdiction over the law enforcement activities of non-TSA officers or entities at an airport; thus, it cannot require LEOs to conduct an NCIC check or to provide BDOs with information about the ultimate disposition of cases referred by them to LEOs. Once the LEO concludes his or her investigation and determines whether the passenger will be arrested or detained, TSA officials are to evaluate the security concerns to determine whether to allow the passenger to proceed to the boarding gate. (In some instances, a LEO might choose not to arrest or detain a passenger; TSA would then decide whether the infraction was sufficiently serious to necessitate barring the passenger from boarding.) After a referral incident has been resolved, BDOs are to enter information about the incident into TSA’s SPOT referral database. The data entered are to include time, date, location of the incident, behaviors witnessed, prohibited items found (if any), and information on the LEO’s response (if applicable), such as whether the LEO questioned the passenger, arrested the individual, or released the passenger. The SPOT referral database contains no personal identifying information about passengers. The SPOT program began with pilot tests in 2003 and 2004 at several New England airports, in which TSA began using uniformed BDOs at airport checkpoints. After some initial pilot projects and test deployments, 644 BDOs were deployed to 42 airports in the first phase of the program from November 2006 through June 2007. As of March 2010, about 3,000 BDOs utilizing SPOT were deployed at 161 of 457 TSA-regulated airports. BDO eligibility is restricted to TSOs with at least 12 months of TSO experience, or others with related security experience. Applicants must apply and be accepted into the BDO training program. The training includes 4 days of classroom courses, followed by 3 days of on-the-job training. BDOs must memorize all of the behaviors and appearances on the SPOT checklist, as well as the point value assigned to each, in order to be able to add these up to determine if a passenger should be sent to SPOT referral screening. BDO applicants must also pass a job knowledge test at the conclusion of the training. The test includes related multiple choice questions, true or false statements, and case-based scenarios. Although DHS is in the process of validating the way in which the SPOT program utilizes the science of behavior detection in an airport environment, TSA deployed SPOT nationwide before first determining whether there was a scientifically valid basis for using behavior and appearance indicators as a means for reliably identifying passengers as potential threats in airports. TSA reported that it deployed SPOT before a scientific validation of the program was completed in response to the need to address potential threats to the aviation system that would not necessarily be detected by existing layers of aviation security. TSA stated that no other large-scale U.S. or international screening program incorporating behavior- and appearance-based indicators has ever been rigorously scientifically validated. While TSA deployed SPOT on the basis of some risk-related factors, such as threat information and airport passenger volume, it did not use a comprehensive risk assessment to guide its strategy of selectively deploying SPOT to 161 of the nation’s 457 TSA- regulated airports. TSA also expanded the SPOT program over the last 3 years without the benefit of a cost-benefit analysis of SPOT. Additionally, TSA’s strategic plan for SPOT could be improved by the inclusion of desirable characteristics identified in our prior work, such as risk assessment information, cost and resources analysis, and a means for collaboration with other key entities. TSA proceeded with deploying SPOT on a nationwide basis before determining whether the list of passenger behaviors and appearances underpinning the SPOT program were scientifically validated, and whether these techniques could be applied for counterterrorism purposes in an airport environment. In 2008, a report issued by the National Research Council of the National Academy of Sciences noted that behavior and appearances monitoring might be able to play a useful role in counterterrorism efforts but stated that a scientific consensus does not exist regarding whether any behavioral surveillance or physiological monitoring techniques are ready for use in the counterterrorist context given the present state of the science. The report also stated that the scientific evidence for behavioral monitoring is preliminary in nature. According to the report, an information-based program, such as a behavior detection program, should first determine if a scientific foundation exists and use scientifically valid criteria to evaluate its effectiveness before going forward. The report added that programs should have a sound experimental basis and documentation on the program’s effectiveness should be reviewed by an independent entity capable of evaluating the supporting scientific evidence. The report also stated that often scientists and other experts can help independently assess the scientific evidence on the effectiveness of a program. A contributor to the National Research Council report also stated that no conclusive research has been conducted to determine if behavior detection can be reliably used on a larger scale, such as in an airport setting, to identify persons intending to cause harm to the aviation system. While TSA and DHS’s Science and Technology (S&T) Directorate officials agreed that SPOT was deployed before its scientific underpinnings were fully validated, they stated that no large-scale U.S. or international operational screening program incorporating behavior- and appearance- based indicators has been rigorously scientifically validated. These officials also questioned the findings of the National Research Council report and stated that the study lacked sufficient information for its conclusions because it did not consider recent findings from unpublished DHS, defense, and intelligence community studies. However, National Research Council officials stated that an agency should be cautious about relying on the results of unpublished research that has not been peer reviewed, such as that generated by DHS and the defense and intelligence community, and using unpublished work as a basis for proceeding with a process, method, or program. Moreover, we have previously reported that peer review is widely accepted as an important quality control mechanism that helps prevent the dissemination of potentially erroneous information. In addition to the unpublished research, TSA told us that the SPOT program was based on operational best practices from law enforcement, defense, and the intelligence communities. According to TSA officials, the agency based its choice of SPOT behavior, appearance, and deception indicators on existing research and training programs. For example, TSA cited research on emotions and their behavior indicators by Dr. Paul Ekman, interviewing and interrogation by Stan Walters, and nonverbal indicators by Dr. David Givens and Dr. Mark Frank as support for the choice of several of the behavior indicators. According to TSA, its development of the SPOT program was based on related DHS research and information from the training curricula of other federal agencies, such as the Federal Transit Administration and the Bureau of Alcohol, Tobacco, Firearms, and Explosives. As with the SPOT behavior indicators, TSA told us that it sought input in creating the SPOT point scoring system from subject matter experts and from participants in TSA’s SPOT working group, which consisted of law enforcement officials from agencies such as FBI, DEA, and local law enforcement officials. While TSA officials said that they coordinated with relevant subject matter experts, such as Dr. Ekman, and based the SPOT scoring system on existing research and training programs, no validation of the behavior, appearance, and deception indicators was conducted prior to the deployment of SPOT in November 2006. According to TSA officials, they used professional judgment in developing the SPOT point system and stated that the purpose of developing the scoring system was to increase the objectivity of the SPOT process. Dr. Ekman stated that, in his opinion, and after reviewing the scoring system and observing the program in operation, it was not clear whether the SPOT behaviors and appearances, and the related point system, could be used effectively in an airport environment because no credible validation research on this issue had been conducted. He noted, for example, that research is needed to identify how many BDOs are required to observe a given number of passengers moving at a given rate per day in an airport environment, or the length of time that such observation can be conducted before observation fatigue affects the effectiveness of the personnel. He commented that observation fatigue is a well-known phenomenon among workers whose work involves intense observation, and that it is essential to determine the duration of effective observation and to ensure consistency and reliability among the personnel carrying out the observations. DHS has recognized the need to conduct additional research to scientifically validate the use of the SPOT behavioral indicators in an airport environment. DHS’s S&T Directorate began research in 2007 to determine if there is a statistically significant correlation between the SPOT behaviors exhibited by airport passengers and finding airport passengers with prohibited items (such as weapons), false documents, and illegal drugs or who pose a potential risk to aviation security. According to S&T, this research is expected to be completed in fiscal year 2011 and is to include three key elements. First, the study’s purpose is to assess the reliability of the SPOT program by analyzing TSA’s SPOT database to determine patterns of BDO scoring to measure consistency across BDOs, teams, locations, and other variables. Second, the study aims to compare the current implementation of SPOT to random passenger screening. Specifically, according to S&T officials, 130,000 passengers are to be randomly selected for additional SPOT referral screening. The study’s design states that data collected about these passengers will be compared to data for passengers screened through the normal SPOT process. S&T officials expect that the results of this element of the study will provide a better understanding of how SPOT compares to random selection, as well as providing a baseline of each indicator present in the traveling public. Third, the study also aims to utilize live and video data, as available, to measure SPOT score ratings by BDOs of behaviors exhibited by passengers against ratings of the same passengers by subject matter experts. This element of the study could help determine whether BDOs are using, or are continuing to use, the SPOT score sheet correctly as time passes after their initial training. According to S&T officials, the study is to form the basis for BDO performance and training requirements. The S&T Directorate reported some preliminary findings associated with this research in February 2008. The Directorate reported that although some of the existing literature supported the possibility of using behavioral and physiological cues, the results are not methodologically strong enough to support standardized applications in an operational setting. The preliminary findings also noted that it is not known whether behavioral and physiological cues linked to deception in planning a hostile action will be the same or different as those indicators linked to deception by an individual after they have already engaged in a hostile action. However, an S&T program director stated that although early literature can be characterized as methodologically weak, more recent unpublished research sponsored by DHS, the Department of Defense, and the intelligence community is promising in that it has demonstrated some linkages between behavioral and physiological indicators and deception. In March 2009, the Under Secretary (Acting) for DHS’s S&T Directorate testified that the Directorate had performed an initial validation of the behavior indicators used by BDOs. The Under Secretary stated that this analysis provided statistically significant support that persons demonstrating select behavioral indicators are more likely to possess prohibited items and that behaviors can distinguish deceptive from nondeceptive individuals. According to S&T, this validation was the result of statistical analyses performed by S&T using operational data from the SPOT program database. However, we identified weaknesses in TSA’s process for maintaining these data. For example, controls over the SPOT database to help ensure the completeness and accuracy of the data were missing. Specifically, the SPOT database did not have computerized edit checks built into the system to review the format, existence, and reasonableness of data. For example, we found that discrepancies existed between the number of passengers arrested by local law enforcement at the screening checkpoints and the number of screened passengers recorded as arrested. In another example, we found that the total number of LEO referrals differed from the number of passenger records with information on the reasons for LEO referral. Internal control standards state that controls should be installed at an application’s interfaces with other systems to ensure that all inputs are received and are valid and that outputs are correct and properly distributed. TSA officials explained these issues as data anomalies and planned to change instructions to staff entering data to reduce these problems. Although TSA is taking steps to update the SPOT database, which are discussed later in this report, the data used by S&T to conduct its preliminary validation of related behaviors lacked such controls. In addition, BDOs could not input all behaviors observed in the SPOT database because the database limits entry to eight behaviors, six signs of deception, and four types of prohibited items per passenger referred for additional screening. Because of these data-related issues, meaningful analyses could not be conducted to determine if there is an association between certain behaviors and the likelihood that a person displaying certain behaviors would be referred to a LEO or whether any behavior or combination of behaviors could be used to distinguish deceptive from nondeceptive individuals. As a result, TSA lacks assurance that the SPOT data can be used effectively to determine that the person poses a risk to aviation security. S&T has recognized weaknesses in the procedures for collecting data on passengers screened by SPOT and plans to more systematically collect data during its study by, for example, requiring BDOs to record more complete and accurate information related to a passenger referral immediately following resolution. The S&T study is an important step to determine whether SPOT is more effective at identifying passengers who may be threats to the aviation system than random screening. However, S&T’s current research plan is not designed to fully validate whether behavior detection and appearances can be effectively used to reliably identify individuals in an airport terminal environment who pose a risk to the aviation system. For example, research on other issues, such as determining the number of individuals needed to observe a given number of passengers moving at a given rate per day in an airport environment or the duration that such observation can be conducted by BDOs before observation fatigue affects effectiveness, could provide additional information on the extent to which SPOT can be effectively implemented in airports. In another example, Dr. Ekman told us that additional research could help determine the need for periodic refresher training since no research has yet determined whether behavior detection is easily forgotten or can be potentially degraded with time or lack of use. While S&T officials agree on the need to validate the science of behavior detection programs, they told us that some of these other issues could be examined in the future but are not part of the current plan due to time and budgetary constraints. According to S&T, some additional analysis is underway to inform the current BDO selection process. This analysis is intended to provide information on the knowledge, skills, abilities, and other characteristics of successful BDOs. Since the analysis is scheduled for completion in May 2010, it remains unclear to what extent the findings will help to validate the science related to SPOT. While we recognize the potential benefits of these efforts, we believe that an assessment by an independent panel of experts of the planned methodology of DHS’s study could help DHS assess the costs and benefits associated with a more comprehensive methodology designed to fully validate the science related to SPOT. Our prior work has recommended the use of such independent panels for comprehensive, objective reviews of complex issues. In addition, according to the National Research Council, an independent panel could provide an objective assessment of the methodology and findings of DHS’s study to better ensure that SPOT is based on validated science. Thus, an independent panel of experts could help DHS develop a comprehensive methodology to determine if the SPOT program is based on valid scientific principles that can be effectively applied in an airport environment for counterterrorism purposes. According to DHS’s National Infrastructure Protection Plan (NIPP), risk assessments are to be documented, reproducible (so that others can verify the results), defensible (technically sound and free of significant errors), and complete. The NIPP states that comprehensive risk assessments are necessary for determining which assets or systems face the highest risk, for prioritizing risk mitigation efforts and the allocation of resources, and for effectively measuring how security programs reduce risks. For a risk assessment to be considered complete, the NIPP states that it must specifically assess threat, vulnerability, and consequence; after these three components have been assessed, they are to be combined to produce a risk estimate. According to TSA, SPOT was deployed to TSA-regulated airports on the basis of threat information in TSA’s Current Airport Threat Assessment list. TSA deployed SPOT to 161 of 457 TSA-regulated airports. TSA officials told us that this selective deployment creates unpredictability for persons seeking to cause harm to the aviation system because they would not know which airports had BDO teams and because BDOs are occasionally sent out to the smaller airports that do not have BDOs on a permanent basis. Although TSA’s selective deployment of SPOT was based on threat information, TSA did not conduct vulnerability and consequence assessments to inform the deployment of BDOs. As a result, it could not combine the results to conduct a comprehensive risk assessment to inform the deployment of BDOs to those airports with the highest risks. TSA officials told us that while they have not completed a comprehensive risk assessment for airport security, they have prepared and are currently reviewing a draft of a comprehensive, scenario-based Aviation Modal Risk Assessment—known as the AMRA—which is to serve as a comprehensive risk assessment for aviation security. According to TSA officials, the AMRA is to address all three elements of risk for domestic commercial aviation, general aviation, and air cargo. Although TSA planned to release the AMRA in February 2008, it now expects to finalize the AMRA in 2010. According to TSA, the AMRA may help provide information for the prioritization of BDO deployment within airports, but could not provide specifics on how it would do so. Further, TSA officials noted that information from AMRA would inform BDO deployment in conjunction with other TSA priorities not related to SPOT. Since the AMRA is not yet complete, it is not clear whether it will provide the risk analysis— including assessments of vulnerability and consequence—needed to inform TSA’s decisions and planning for any revisions or future deployment of SPOT. If AMRA lacks information relevant to the deployment of SPOT and further research determines that SPOT has a scientifically validated basis for using behavior detection for counterterrorism purposes in the airport environment, then conducting a comprehensive risk assessment of airports could strengthen TSA’s ability to establish priorities and make cost-effective resource decisions regarding the deployment of BDOs to those airports deemed to have the highest priority risks. DHS and other federal guidance recommend conducting a cost-benefit analysis before implementing new programs to avoid unnecessary costs and identify the best way to achieve goals at the lowest costs among potential alternatives. Our prior work has also supported the use of cost- benefit analyses during retrospective reviews to validate the agency’s original assumptions regarding costs and benefits. In addition, the DHS February 2006 Cost-Benefit Analysis Guidebook and OMB guidance both recommend the use of cost-benefit analysis, both in the planning stage for a program, and when significant milestones or financial options are to be assessed. The DHS Guidebook states that a cost-benefit analysis is designed to identify optimal financial solutions among competing alternatives. OMB guidance also identifies cost-benefit analysis as one of the key principles to be considered when making capital expenditures, that expected benefits of proposed actions should be explained, and that a baseline should be identified discussing costs and benefits in comparison with clearly defined alternatives. DHS’s 2006 and 2009 NIPPs also state that priority is to be given to those protective measures that provide the greatest mitigation of risk for the resources that are available. The DHS NIPPs add that effective protective programs seek to use resources efficiently by focusing on actions that offer the greatest mitigation of risk for any given expenditure. In addition, measuring cost effectiveness of SPOT was a key TSA goal in an October 2005 version of the SPOT strategic plan. Although the DHS and OMB guidance recommend that a cost-benefit analysis be conducted prior to deploying a program nationwide—and potentially incurring substantial costs—TSA did not conduct such an analysis of SPOT to inform its pilot testing prior to full-scale nationwide deployment. In early 2003, TSA began conducting a pilot test of the SPOT program at Boston Logan airport to better understand the benefits of the program. According to Boston Logan’s Federal Security Director, the primary purpose of this pilot test was to understand the potential of the program, not to validate its success. TSA officials stated that the program had several benefits, one of which was its “negligible cost.” However, TSA did not analyze the pilot test results to determine if SPOT was more cost effective than other alternatives, such as random screening of passengers. In October 2004, TSA implemented additional pilot programs in Providence, Rhode Island and Portland, Maine with the goal of providing Federal Security Directors with an additional layer of security to identify high-risk passengers for additional screening using behavior detection techniques. TSA concluded that the pilot program was successful and cited several security benefits of these pilots. For example, TSA personnel in Providence identified two individuals in possession of illegal drugs, who were then arrested. Law enforcement also arrested another individual referred to them for providing a fraudulent passport. In another example, BDOs in Portland discovered a passenger with multiple passports and a hidden luggage compartment. The passenger was interviewed by LEOs and later released. TSA determined that these initial pilot tests at three airports were successful without comparing pilot test data to other possible security alternatives. For example, the results of random screening of passengers at the pilot airports could have provided TSA with objective baseline data. Specifically, these data could have been compared to data collected during the SPOT pilots to determine if SPOT was more effective than random screening in detecting passengers who pose a potential risk to aviation security. TSA concluded that the pilot tests were successful because pilot airports were able to easily incorporate SPOT into their security program, train personnel in SPOT, and implement procedures for an additional layer of security according to TSA. TSA conducted additional pilot tests at the Minneapolis-St. Paul, Minnesota and Bangor, Maine airports in October 2005. TSA also deployed the program to nine additional airports in response to TSA’s holiday preparedness plan in December 2005 to further operationally test the program. Senior SPOT program officials explained that TSA did not conduct an analysis of the pilot testing because the program was in its infancy and officials were focused on deploying SPOT to additional airports. Since that time, TSA has not conducted a cost-benefit analysis, which could help the agency establish the value of the program relative to other layers of aviation security. Moreover, a cost-benefit analysis could also be useful considering recent program growth. For example, from fiscal year 2007 through fiscal year 2009, TSA allotted about $383 million for SPOT. During this period, SPOT’s share of TSA’s total screening operations budget increased from 1 percent to 5 percent. The conference report accompanying the fiscal year 2010 DHS appropriations act designates $212 million of the appropriated aviation security funding for the SPOT program. A cost-benefit analysis could have provided TSA management with analysis on whether this allocation was a prudent investment, as well as whether this level of investment in SPOT is appropriate. Figure 3 shows the growth in the budget and personnel numbers for SPOT from fiscal years 2007 through 2010. Our previous work, and the Government Performance and Results Act, set forth several key elements of a strategic plan. Such plans can guide agencies in planning and implementing an effective government program. Table 1 summarizes the desirable characteristics of an effective strategic plan, as identified in our prior work. In April 2009, we reported that these characteristics are the starting point for developing a strategic plan. TSA officials at Boston Logan airport told us that they completed the first strategic plan for SPOT in 2006. The strategic plan was last updated in March 2007. The March 2007 plan includes some of the desirable characteristics described above, such as an overall purpose. However, incorporating additional characteristics of an effective strategic plan could enhance the plan’s usefulness in program management and resource allocation decisions to effectively manage the deployment of SPOT if TSA determines that the program has a scientifically valid basis. TSA officials stated that they believed the plan was sufficiently comprehensive to develop a national program, such as SPOT. However, these officials told us that the plan was not updated after TSA expanded the program in 2008 and 2009. They also stated that the program’s focus remained on deploying SPOT to additional airports. Our assessment of the extent to which the SPOT strategic plan addresses these characteristics is presented below. Purpose, scope, and methodology: The SPOT strategic plan addresses why the plan was developed (i.e., purpose) and the scope of its coverage. Specifically, the plan describes a strategy to utilize behavior detection screening as an additional layer of security. The plan also notes that the primary focus is to expand SPOT in the aviation environment while also developing a capability to deploy BDOs to support security efforts in all modes of transportation. However, the plan does not discuss the process by which it was developed (i.e., methodology). According to TSA, officials responsible for developing the plan received input from relevant stakeholders at Boston Logan airport and TSA headquarters. We believe incorporating the methodology into the plan could make the document more useful to TSA and other organizations, such as local law enforcement, responsible for implementing the plan. Problem definition and risk assessment: The plan addresses the particular threat it is directed towards. Specifically, the plan describes the need to implement SPOT to counter terrorist activities, improve security, and incorporate additional layers of protection within aviation security. However, the plan does not incorporate risk assessment information to identify priorities or guide program implementation because TSA has not conducted a comprehensive risk assessment related to the deployment of SPOT. Using available risk assessment information to inform the development of a strategic plan would help ensure that clear priorities are established and focused on the areas of greatest need. Specifically, incorporating the results of a risk assessment in the program’s strategic plan could help inform TSA’s decisions such as whether to deploy SPOT to additional TSA-regulated airports, to shift SPOT teams from one airport to another, or to remove SPOT at airports where the benefit of addressing the risk does not outweigh the costs, as well as to identify and communicate the risks to aviation security if SPOT was not deployed to all TSA- regulated airports. Goals, subordinate objectives, activities, and performance measures: The plan outlines several goals, objectives, and activities for the SPOT program to achieve. For example, the plan outlines a goal to develop multimodal partnerships, including at the local level, to support SPOT. An associated objective for this goal includes identifying and fostering advocates within each mode of transportation by developing transportation, intelligence, and law enforcement working groups with relevant officials to share information and foster cooperation. The plan also includes a goal to develop and implement performance measures for SPOT. However, the plan did not include performance measures for SPOT. Incorporating performance measures into the plan could help TSA officials measure progress in implementing the plan’s goals, objectives, and activities. Resources, investments, and risk management: The plan does not identify the costs and resources needed to achieve program objectives discussed in the plan. Incorporating information about cost and resources would facilitate TSA’s ability to allocate resources across programs according to priorities and constraints, track costs and performance, and shift such investments and resources as appropriate. Organizational roles, responsibilities, and coordination: The SPOT program relies on a close partnership with law enforcement officers at airports. TSA provides briefings to law enforcement on the SPOT program, and TSA officials conduct outreach efforts to local law enforcement as needed. The SPOT SOP guidance and SPOT training include guidance about ensuring that LEOs receive complete and accurate information about each SPOT referral. However, while the strategic plan identifies TSA officials and offices as responsible parties for implementing the strategic plan, it does not provide guidance on how to effectively link the roles, responsibilities, and capabilities of federal, state, and local officials providing program support. Moreover, although SPOT SOP guidance discusses the need for BDOs to coordinate with other TSA personnel, such as TSOs and TDCs, TSA does not identify their roles and responsibilities in regards to the SPOT program in the program’s strategic plan. Integrating these elements into the strategic plan could help to clarify the relationships between these various implementing parties, which would thereby increase accountability and improve the effectiveness of implementation. Integration and implementation: The SPOT strategic plan does not discuss how its scope complements, expands upon, or overlaps with other related strategic documents. For example, TSA’s April 2008 Office of Security Operations Organizational Business Plan for Fiscal Year 2010 describes how its goals—including those for SPOT—relate to DHS and TSA strategic goals. However, TSA does not link goals in the SPOT strategic plan with other related strategic documents, such as the Aviation Implementation Plan of DHS’s Transportation Systems Sector-Specific Plan and the Passenger Checkpoint Screening Program Strategic Plan. By linking goals in its SPOT strategic plan to other TSA efforts, TSA could better ensure that the program’s objectives are integrated with other TSA security programs and that resources are used effectively by minimizing any unnecessary duplication with these other actions. Inconsistencies in the use of available information technology to aid in the collection and recording of data on passengers by BDOs during referrals to LEOs, lack of guidance on, or a mechanism for, BDOs to request the TSA’s Transportation Security Operations Center to run the names of passengers exhibiting suspicious behaviors against law enforcement and intelligence databases, and the Center’s not checking all of the databases available to it—have limited TSA’s ability to identify potential terrorist threats to the aviation system. Among other information, these databases include terrorism-related watch lists. TSA is not fully utilizing the resources it has available to systematically collect the information obtained by BDOs on passengers whose behaviors and appearances resulted in either SPOT referral screening, or in a referral to LEOs, and who thus may pose a risk to the aviation system. TSA’s July 2008 Privacy Impact Assessment on the TSA Transportation Security Operations Center, and its August 2008 Privacy Impact Assessment on SPOT, state that information may be obtained by BDOs to check an individual’s identity against intelligence, terrorist, and law enforcement databases and to permit intelligence analysts to conduct trend analysis. The August 2008 SPOT Privacy Impact Assessment states that information about a passenger who has exceeded the SPOT behavior threshold, leading to LEO referral, may be collected and entered into DHS’s Transportation Information Sharing System. According to the SPOT Privacy Impact Assessment, information collected may be submitted to the Transportation Information Sharing System database for analysis, and, through it to other linked intelligence databases and the intelligence analysts who study them, to detect, deter, and defeat a criminal or terrorist act in the transportation domain before it occurs. The SPOT Privacy Impact Assessment notes that terrorist acts that threaten transportation security are most vulnerable in the planning stages and that the timely passage of SPOT referral information may assist in identifying such efforts before they become operational. A June 2008 Transportation Information Sharing System Privacy Impact Assessment similarly states that one goal is to use the system data to find trends and patterns that may indicate preoperational terrorist or criminal activity—that is, to “connect the dots” about a planned terrorist attack or criminal enterprise. Information in TSA’s Transportation Information Sharing System is primarily activity or behavioral information but may also contain personal information regarding the individuals identified by the BDO through SPOT. According to TSA, BDOs do not analyze the data obtained during referrals; if they have the appropriate training, they may enter the data by computer into the Transportation Information Sharing System, where they can be analyzed by intelligence analysts. Other appropriately trained and officially designated TSA officials, such as Federal Security Directors, may also enter data into the system. According to TSA, a 2008 pilot program it conducted that involved BDOs entering data into the Transportation Information Sharing System database was “invaluable,” in part because over 40 referrals have since been passed on to other LEO organizations for further investigation, most of which came from BDO input. A February 2006 TSA memorandum describes the Transportation Information Sharing System as “a critical element in the success of SPOT” because it provides the necessary platform for the reporting of information obtained as a result of SPOT referrals. TSA noted that through the use of the Transportation Information Sharing System, two different BDO teams had separately identified and selected the “same extremist” for secondary questioning. TSA officials also told us about an incident in which an individual sought to board an aircraft with a handgun on two separate occasions, at two different airports. Although the handgun was detected both times, the individual was released after providing what seemed to be a credible explanation. After the second incident, however, intelligence analysts who reviewed the system information saw that this individual had tried twice in 2 weeks to bring a weapon onto an aircraft. A LEO was dispatched to the person’s home, and an arrest was made. Without the data inputted into the system both times, no pattern would have been detected by the analysts, according to TSA. Although the pilot program illustrated the benefits of BDOs entering data into the system, access to the system was not expanded to all SPOT airports in 2008 or 2009. Internal control standards call for management to develop policies, procedures, and techniques to help enforce management directives. TSA does not provide official guidance on how or when BDOs or other TSA personnel should enter data into the Transportation Information Sharing System or which data should be entered. Official guidance on what data should be entered into the system on passengers could better position TSA personnel to be able to consistently collect information to facilitate synthesis and analysis in “connecting the dots” with regard to persons who may pose a threat to the aviation system. On March 18, 2010, TSA officials told us that TSA recognizes the value of recording SPOT incidents for the purposes of intelligence gathering. As a result, TSA decided that certain data would be entered into the Transportation Information Sharing System, and would, in turn, be analyzed as a way to potentially “connect the dots” with other transportation security incidents. TSA officials said that the Federal Security Director at each SPOT airport has been given the discretion to decide which personnel should have access to the Transportation Information Sharing System. However, TSA has not developed a plan detailing how many personnel would have access to the system, or when they would have access at SPOT airports. TSA officials said that training is currently being provided to personnel responsible for using the system at all SPOT airports although they did not provide information on the number being trained. Standard practices for defining, designing, and executing programs include developing a road map, or program plan, to establish an order for executing specific projects needed to obtain defined programmatic results within a specified time frame. However, TSA stated that it has not developed a schedule or milestones by which database access will be deployed to SPOT airports, or a date by which access at all SPOT airports will be completed. Setting milestones for expanding Transportation Information Sharing System access to all SPOT airports, and setting a date by which the expansion will be completed, could better position TSA to identify threats to the aviation system that may otherwise go undetected and help TSA track its progress in expanding Transportation Information Sharing System access as management intended. Internal control standards state that policies, procedures, techniques, and other mechanisms are essential to help ensure that actions are taken to address program risks. The current process makes the BDOs dependent on the LEOs with regard to the timeliness that LEOs respond to BDO calls for service, as well as with regard to whether the LEOs choose to question the passengers referred to them or conduct a background check. Our analysis of the SPOT referral database found a wide variation in the percent of times that LEOs responded to calls for service at SPOT airports. Moreover, if a local LEO decides to run a background check on a passenger referred to them, they would be accessing the FBI’s NCIC and not other intelligence and law enforcement databases. Although LEOs may not always respond to calls for service, question passengers, or check passenger names against databases available to TSA, TSA has not developed a mechanism allowing BDOs to send information to the Transportation Security Operations Center about passengers whose behavior indicates that they may be a possible threat to aviation security. According to TSA’s July 2008 Transportation Security Operations Center Privacy Impact Assessment, passenger information may be submitted to the Transportation Security Operations Center to ascertain, as quickly as possible, the individual’s identity, whether they are already the subject of a terrorist or criminal investigation, or to analyze suspicious behavior that may signal some form of preoperational surveillance or activity. Our survey of Federal Security Directors at SPOT airports found a notable inconsistency in the rates at which BDOs at different airports contacted the Transportation Security Operations Center. Developing additional guidance in the SPOT operating procedures could help improve consistency in the extent to which BDOs utilize Transportation Security Operations Center resources. Given the range of responses we received from SPOT airports about whether the BDOs contact the Transportation Security Operations Center to verify passenger identities and run their names against terrorist and intelligence databases and the inconsistencies identified related to LEO responses to BDO requests for service, developing a standard mechanism and providing BDOs with additional guidance could help TSA achieve greater consistency in the SPOT process. Such a mechanism would provide designated TSA officials with a means of verifying passenger identities and help them determine whether a passenger was the subject of a terrorist or criminal investigation and thus posed a risk to aviation security. Standards for internal control state that effectively using available resources, including key information databases, is one element of functioning internal controls. In this connection, it is widely recognized among intelligence entities and police forces that a capability to “run” names against databases that contain criminal and other records is a potentially powerful tool to both identify those with outstanding warrants and to help discover an ongoing criminal or security-related incident. Additionally, TSA recommended in an April 2008 Organizational Business plan for its Office of Security Operations that the SPOT program should establish a mechanism and policy for allowing real-time checks of federal records for individuals whose behavior indicates they may be a threat to security. The Office of Security Operations plan also states that BDOs should communicate the data to U.S. intelligence centers, with the purpose of permitting rapid communication of this information to local LEOs to take action. However, TSA officials told us that because of safety concerns, the Transportation Security Operations Center does not provide information from database checks directly to BDOs because BDOs are not LEOs, are unarmed, and do not have the training needed to deal with potentially violent persons. If the mechanism discussed in the Office of Security Operations business plan were implemented, it would allow the Transportation Security Operations Center to use BDO information to conduct real-time record checks of passengers and communicate the results to LEOs for action. Such a mechanism could increase the chances to detect ongoing criminal or terror plans. The final report of the National Commission on Terrorist Attacks Upon the United States (the “9/11 Commission Report”) recommends that in carrying out its goal of protecting aviation, TSA should utilize the larger set of information maintained by the federal government, that is, the entire Terrorist Screening Database—the U.S. government’s consolidated watch list that contains information on known or suspected international and domestic terrorists—as well as other government databases, such as intelligence or law enforcement databases. However, the Transportation Security Operations Center is not using all the resources at its disposal to support BDOs in verifying potential risks to the aviation system. This reduces the opportunities to “connect the dots” that would increase the chances of detecting terrorist attacks in their planning stage, which the SPOT Privacy Impact Assessment states is when they are the most vulnerable. According to TSA, the Transportation Security Operations Center has access to multiple law enforcement and intelligence databases that can be used to verify the identity of airline passengers; these include among others: 1. the Selectee list, which identifies persons who must undergo enhanced screening at the checkpoint prior to boarding; 2. the No-Fly list, which lists persons prohibited from boarding aircraft; and 3. the Terrorist Identity Datamark Environment terrorist list. TSA stated that the Transportation Security Operations Center checks passenger names submitted to it against these three databases if the passenger has been referred by a BDO to a LEO, but has not been arrested. Of the three databases that the Transportation Security Operations Center is to check in the case of a referral, passengers would have already been screened against two—the Selectee and No-Fly lists—in accordance with TSA passenger prescreening procedures when purchasing a ticket. The third database checked—the Terrorist Identity Datamark Environment— tracks terrorists but not persons wanted for other crimes. The FBI’s NCIC information system would contain names of such persons, but is not among the three databases checked for nonarrest referrals. If the passenger has been arrested, the Transportation Security Operations Center will run the passenger’s name against the additional law enforcement and intelligence databases available to it. In addition, TSA told us that the Operations Center does not have direct electronic access to the Terrorist Screening Database and must call the FBI’s Terrorist Screening Center to provide it with a name to verify. TSA stated that this is done if a passenger’s identity could not be verified using the Operations Center databases. In effect, if a passenger has been referred to a LEO, but not arrested, the Operations Center is to check the three databases shown above to verify the passenger’s identity. If a passenger has been arrested, but the three databases do not list the person, the Center can check the additional databases available to it. If none of these databases can verify the person’s identity, the Operations Center can contact the Terrorist Screening Center by telephone to request further screening. screening database (the watch list) and to provide for the use of watch-list records during security-related screening processes. See GAO-08-136T, Aviation Security: TSA Is Enhancing Its Oversight of Air Carrier Efforts to Screen Passengers against Terrorist Watch-List Records, but Expects Ultimate Solution to Be Implementation of Secure Flight (Washington, D.C.: Sept. 9, 2008). For passengers who have risen to the level of a LEO referral at an airport checkpoint, having the Transportation Security Operations Center consistently check their names against all the databases available to it could potentially help TSA identify threats to the aviation system and aid in “connecting the dots.” TSA indicated that there are no obstacles to rapidly checking all databases rather than the three listed. We did not analyze the extent to which the law enforcement and intelligence databases available to TSA may contain overlapping information. TSA has established some performance measures by tracking SPOT referral and arrest data, but lacks the measures needed to evaluate the effectiveness of the SPOT program and, as a result, has not been able to fully assess SPOT’s contribution to improving aviation security. TSA emphasized the difficulty of developing performance measures for deterrence-based programs, but stated that it is developing additional measures to quantify the effectiveness of the program. The SPOT program uses teams to assess BDO proficiency, provide individual and team guidance, and address issues related to the interaction of BDOs with TSA checkpoint personnel. However, TSA does not systematically track the teams’ recommendations or the frequency of the teams’ airport visits. TSA states that it is working to address these issues and plans to do so by the end of fiscal year 2010. TSA agreed that the SPOT program lacked sufficient performance measures in the past, but stated that it has some performance measures in place including tracking data on passengers referred for additional screening and the resolution of this screening, such as if prohibited items were found or if law enforcement arrested the passenger and the reason for the arrest. TSA is also working to improve its evaluation capabilities to better assess the effectiveness of the program. DHS’s NIPP, internal controls standards, and our previous work on program assessment state that performance metrics and associated program evaluations are needed to determine if a program works and to identify adjustments that may improve its results. Moreover, standard practices in program management for defining, designing, and executing programs include developing a road map, or program plan, to establish an order for executing specific projects needed to obtain defined programmatic results within a specified time frame. Congress also needs information on whether and in what respects a program is working well or poorly to support its oversight of agencies and their budgets; and agencies’ stakeholders need performance information to accurately judge program effectiveness. For example, in the Senate Appropriations Committee report accompanying the fiscal year 2010 DHS appropriations bill, the committee noted that while TSA has dramatically increased the size and scope of SPOT, resources were not tied to specific program goals and objectives. In addition, the conference report accompanying the fiscal year 2010 DHS appropriations act requires TSA to report to Congress, within 60 days of enactment, on the effectiveness of the program in meeting its goals and objectives, among other things. This report was completed on March 15, 2010. Although TSA tracks data related to SPOT activities including prohibited items, law enforcement arrests related to SPOT referrals, and reasons for the arrests (output measures), it has not yet developed measures to gauge SPOT’s effectiveness in meeting TSA strategic goals (outcome measures), such as identifying individuals who may pose a threat to the transportation system. OMB encourages the use of outcome measures because they are more meaningful than output measures, which tend to be more process- oriented or means to an end. For example, TSA’s Assistant General Manager for the Office of Operation Process and Performance Metrics told us that SPOT staffing levels are currently used as one performance metric. The official said that since the SPOT is an added layer of security, additional SPOT staffing would add to security effectiveness. While staffing levels may help gauge how fast the program is growing, they do not measure the effectiveness in meeting strategic goals. Similarly, TSA also cited the number of prohibited items discovered by BDOs in SPOT metrics reports as a measure of program success. However, TSA told us that possession of a prohibited item is often an oversight and not an intentional act; moreover, other checkpoint screening layers are intended to find such items, such as the TSOs and the property screening equipment. TSA also cited measures of BDO job performance as some of the existing measures of program effectiveness, but noted that these are “pass/fail” assessments of individual BDOs, rather than overall program measures. TSA notes that one purpose of the SPOT program is to deter terrorists, but that proving that it has succeeded at deterring terrorists is difficult because the lack of data has presented challenges for the SPOT program office when developing performance measures. We agree that developing performance measures, especially outcome measures, for programs with a deterrent focus is difficult. Nevertheless, such measures are an important tool to communicate what a program has accomplished and provide information for budget decisions. TSA uses proxy measures—indirect measures or indicators that approximate or represent the direct measure—to address deterrence, other security goals, or a combination of both. For example, TSA tracks the number of prohibited items found and individuals arrested as a result of SPOT referrals. According to OMB, proxy measures are to be correlated to an improved security outcome, and the program should be able to demonstrate—such as through the use of modeling—how the proxies tie to the eventual outcome.In using a variety of proxy measures, failure in any one of the identified measures could provide an indication on the overall risk to security. However, developing a plan that includes objectives, milestones, and time frames to develop outcome-based performance measures could better position TSA in assessing the effectiveness of the SPOT program. With regard to more readily quantifiable output performance measures, such as the number of referrals by BDOs, or the ratio of arrests to referrals, TSA was limited in its ability to analyze the data related to these measures. The SPOT database includes information on all passengers referred by BDOs for additional SPOT screening including the behaviors of the passengers that led to the additional screening, as well as the resolution of the screening process (e.g., no further action taken, law enforcement notification, law enforcement investigation, arrested, and reason for arrest). However, TSA reported that any analysis of the data had to be done manually. In March 2010, TSA migrated the SPOT referral data to its Performance Management Information System, allowing for more statistical and other analyses. According to TSA, migrating the SPOT referral database will enhance the SPOT program’s analytic capabilities. For example, TSA stated that it would be able to conduct trend analyses, better segregate data, and create specific reports for certain data. This includes better tracking of performance data at specific airports, analyzing by categories of airports (threat or geographic location), and tracking the performance data of individual BDOs, such as number of referrals, number of arrests, arrest to referral ratios, and other analyses. However, since these changes to the database were not complete at the time of our audit, we could not assess whether the problems we identified with the database had been corrected. The SPOT referral database records the total number of SPOT referrals since May 29, 2004, how many were resolved, how many passengers BDOs referred to LEOs, the recorded reasons for the referral, and how many referrals led to arrests, among other things. As shown in figure 4, we analyzed the SPOT referral data for the period May 29, 2004, to August 31, 2008. Figure 4 shows that approximately 2 billion passengers boarded aircraft at SPOT airports from May 29, 2004, through August 31, 2008. Of these, 151,943 (less than 1/100th of 1 percent) were sent to SPOT referral screening, and of these, 14,104 (9.3 percent) were then referred to LEOs. These LEO referrals resulted in 1,083 arrests, or 7.6 percent of those referred, and less than 1 percent of all SPOT referrals (0.7 percent of 151,943). We also analyzed the reasons for arrests resulting from SPOT referrals, for the May 29, 2004, through August 31, 2008, period. Table 2 shows, in descending order, the reasons for the arrests. While SPOT personnel did not determine a specific reason for arrest for 128 cases categorized as “other” or 16 other cases categorized as “no reason given,” our analysis of the SPOT database found that a specific reason for arrest could have been determined for these cases by using the LEO resolution notes included in the database. For example, we identified 43 additional arrests related to fraudulent documents, illegal aliens, and suspect documents, among others. The remaining 101 arrests originally characterized as “other” or “no reason given” included arrests for reasons such as intoxication, unruly behavior, theft, domestic violence, and possession of prohibited items. Many of the arrests resulting from BDO referrals would typically fall under the jurisdiction of various local, state, and federal agencies and are not directly related to threats to aviation security. For example, the 427 individuals arrested as illegal aliens, and the 166 arrested for possession of fraudulent documents, are subject to the enforcement responsibilities shared by U.S. Immigration and Customs Enforcement (ICE) and CBP. Although outstanding warrants and the possession of fraudulent or suspect documents could be associated with a terrorist threat, TSA officials did not identify any direct links to terrorism or any threat to the aviation system in any of these cases. According to TSA, anecdotal examples of BDO actions at airports show the value added by SPOT to securing the aviation system. However, because the SPOT program has not been scientifically validated, it cannot be determined if the anecdotal results cited by TSA were better than if passengers had been pulled aside at random, rather than as a consequence of being identified for further screening by BDOs. Some of the incidents cited by TSA include the following. A BDO referred two passengers who were traveling together to referral screening due to suspicious behavior. During secondary screening, one passenger presented fraudulent travel documents. The other could not produce any documentation of his citizenship and it was determined he was in the United States illegally. ICE responded and interviewed both passengers. ICE stated one passenger was also in possession of $10,000 dollars which alarmed positive for narcotics when swept by a K-9 team. ICE arrested one passenger on a federal charge of possession of fraudulent identification documents and entry without inspection. ICE stated charges are still pending for the possession of $10,000. The second passenger was charged with a federal charge of entry without inspection. A BDO referred a passenger to referral screening for exhibiting suspicious behavior. Port Authority of Portland (Oregon) Police responded and interviewed the passenger who did not give a statement. LEOs conducted an NCIC check which revealed that there was an outstanding warrant for the failure to appear for a theft charge. LEOs arrested the passenger on a state charge for an outstanding warrant for the failure to appear for theft. A BDO referred a passenger for referral screening due to suspicious behavior. During the referral, the passenger admitted that he was unlawfully present in the United States. The Orlando (Florida) Police Department and CBP responded and interviewed the passenger who stated he had $100,000 in his checked baggage, which was confirmed by CBP. The passenger was arrested on a federal charge of illegal entry. Because these are anecdotal examples, they cannot be used to reliably generalize about the SPOT program’s overall effectiveness or success rate. Our analysis of the SPOT referral database found that the referral data do not indicate if any of the passengers sent to referral screening, or those arrested by LEOs after being referred to them, intended to harm the aircraft, its passengers, or other components of the aviation system. Additionally, SPOT officials told us that it is not known if the SPOT program has ever resulted in the arrest of anyone who is a terrorist, or who was planning to engage in terrorist-related activity. Studying airport video recordings of the behaviors exhibited by persons waiting in line and moving through airport checkpoints and who were later charged with or pleaded guilty to terrorism-related offenses could provide insights about behaviors that may be common among terrorists or could demonstrate that terrorists do not generally display any identifying behaviors. TSA officials agreed that examining video recordings of individuals who were later charged with or pleaded guilty to terrorism- related offenses, as they used the aviation system to travel to overseas locations allegedly to receive terrorist training or to execute attacks, may help inform the SPOT program’s identification of behavioral indicators. In addition, such images could help determine if BDOs are looking for the right behaviors or seeing the behaviors they have been trained to observe. Using CBP and Department of Justice information, we examined the travel of key individuals allegedly involved in six terrorist plots that have been uncovered by law enforcement agencies. We determined that at least 16 of the individuals allegedly involved in these plots moved through 8 different airports where the SPOT program had been implemented. Six of the 8 airports were among the 10 highest risk airports, as rated by TSA in its Current Airport Threat Assessment. In total, these individuals moved through SPOT airports on at least 23 different occasions. For example, according to Department of Justice documents, in December 2007 an individual who later pleaded guilty to providing material support to Somali terrorists boarded a plane at the Minneapolis-Saint Paul International Airport en route to Somalia to join terrorists there and engage in jihad. Similarly, in August 2008 an individual who later pleaded guilty to providing material support to Al-Qaeda boarded a plane at Newark Liberty International Airport en route to Pakistan to receive terrorist training to support his efforts to attack the New York subway system. Our survey of Federal Security Directors at 161 SPOT airports indicated most checkpoints at SPOT airports have surveillance cameras installed. As we previously reported, best practices for project management call for conducting feasibility studies to assess issues related to technical and economic feasibility, among other things. In addition, Standards for Internal Control state that effectively using available resources is one element of functioning internal controls. TSA may be able to utilize the installed video infrastructure at the nation’s airports to study the behavior of persons who were later charged with or pleaded guilty to terrorism- related offenses, and determine whether BDOs saw the behaviors. The Director of Special Operations in TSA’s Office of Inspection told us that video recordings could be used as a teaching tool to show the BDOs which behaviors or activities they did or did not observe. In addition, TSA indicated that although the airports may have cameras at the security screening checkpoints, the cameras are not owned by TSA, and in many cases, they are not accessible to TSA. However, TSA officials lack information on the scope of these potential limitations because prior to our work TSA did not have information on the number of checkpoints equipped with video surveillance. We obtained this information as part of our survey of Federal Security Directors at SPOT airports. While TSA officials noted several possible limitations of the use of the existing video surveillance equipment, these images provide TSA a means of acquiring information about terrorist behaviors in the checkpoint environment that is not available elsewhere. If current research determines that the SPOT program has a scientifically validated basis for using behavior detection for counterterrorism purposes in the airport environment, then conducting a study to determine the feasibility of using images captured by video cameras could better position TSA in identifying behaviors to observe. TSA sends standardization teams to SPOT airports on a periodic basis to conduct activities related to quality control. Teams observe SPOT operations at an airport for several days, working side by side with the BDOs, on multiple shifts, observing their performance, offering guidance, and providing training when required. According to TSA, the purpose of a standardization team visit is to provide operational support to the BDOs, which includes additional training, mentoring, and guidance to help maintain a successful SPOT program. The standardization teams are comprised of at least two G-Band, or Expert BDOs who have received an additional week of training on SPOT behaviors and mentoring skills. SPOT officials stated that the SPOT program uses its standardization teams to assess overall BDO proficiency by observing BDOs, reviewing SPOT score sheet data, and other relevant data. Standardization teams may also provide a Behavior Observation and Analysis review class to refresh BDOs if the team determines that such a class is needed. The SPOT program director also said that the standardization teams aim to monitor the airport’s compliance with the SPOT program’s Standard Operating Procedures. As part of this mentoring approach, the standardization teams provide individual and team guidance to the BDOs, offer assistance in program management, and cover issues related to the interaction of BDOs with other TSA checkpoint personnel. TSA reported to us that it does not systematically track the standardization teams’ recommendations or the frequency of the teams’ airport visits. Standards for Internal Control state that programs should have controls in place to assess the quality of performance over time and ensure that the findings of audits and other reviews are promptly resolved. Managers are to (1) promptly evaluate findings from audits and other reviews, including those showing deficiencies and recommendations reported by auditors and others who evaluate agencies’ operations; (2) determine proper actions in response to findings and recommendations from audits and reviews; and (3) complete, within established time frames, all actions that correct or otherwise resolve the matters brought to management’s attention. Although the standardization teams may provide an airport Federal Security Director with recommendations on how to improve SPOT operations, the SPOT program director stated that Federal Security Directors are not required to document whether they have implemented the team recommendations. TSA officials told us that standardization teams can follow up on recommendations made during previous visits. However, TSA did not track whether corrective actions were implemented or the frequency of the team’s airport visits to ensure the implementation of the airport’s SPOT program. TSA officials stated that they are currently examining ways to compile data to address this issue, and expect to have a system in place in fiscal year 2010. Although TSA has taken steps to incorporate all four elements of an effective training program by planning, designing, implementing, and evaluating training for BDOs, further action could help enhance the training’s effectiveness. TSA initially consulted outside experts for help in the training’s development, which began as a half-day course and has grown to include classroom, on-the-job, and advanced training. TSA also has efforts underway to improve its training program, such as the deployment of SPOT recurrent training. However, TSA evaluations of SPOT program instructors found mixed quality among them, from 2006 onwards. Additionally, TSA has ongoing plans to evaluate the SPOT training for effectiveness, but has not yet developed time frames and milestones for completing the evaluation. In 2003, TSA officials at Boston Logan International airport developed the initial half-day training course for SPOT based on an existing course developed for the Massachusetts State Police. Their goal was to take the behavior detection program designed for law enforcement and apply it to screeners at airport checkpoints. According to TSA officials at Boston Logan, after they recognized that the lecture-style course they originally designed was not effective, they tasked an instructional system designer from TSA’s Workplace Performance and Training (the former name of TSA’s Operational and Technical Training Division) and an industrial psychologist from the Office of Human Capital to redesign and expand the course, which was piloted in 2005. The 2007 SPOT strategic plan included training objectives for the SPOT program as follows: reviewing existing behavior observation training providers, establishing and prioritizing multimodal training and assistance efforts based on threat assessments and critical infrastructure, establishing a Center of Excellence for Behavior Detection Program training that would continually enhance the quantity and quality of training to selected candidates, and developing a recurrent training program designed to refresh and hone skills needed for an effective Behavior Detection Program. Since that time, the SPOT program implemented, or is in the process of implementing, some of these objectives. For example, in 2008, as part of its effort towards establishing a center for excellence in behavior detection training (third objective), the SPOT program participated in a meeting with behavior detection training officials from various DHS components facilitated by DHS’s Screening Coordination Office to promote the sharing of information about behavior detection training and foster future collaboration. Additionally, the SPOT program worked with TSA’s Operational and Technical Training Division to create a recurrent training component for BDOs (fourth objective). For example, in 2008, the SPOT program office added a course on detecting microfacial expressions called Additional Behavior Detection Techniques. This 3-day course builds on the behavior detection skills taught in basic training, by teaching BDOs how to detect microfacial expressions. After pilot testing, the course began implementation nationwide in January 2009. In developing an effective training program, we previously reported that consultation with subject matter experts and expert entities is a core characteristic of the strategic training and development process. TSA SPOT program staff told us that they consulted with experts on behavior detection and observed existing behavior detection courses before deploying the SPOT training program. According to SPOT program officials, a TSA staff member from Boston Logan International Airport attended other training programs offered by other federal agencies and private training organizations to inform the design of SPOT training. TSA officials told us that information from the training courses was used to help develop the list of behaviors or “stress elevators” for the program, and that the point system used to identify passengers for referral screening was based in part on consultations with several subject-matter experts. TSA documentation also notes that a SPOT working group created in February 2004 consulted with the FBI’s Behavioral Science Unit. The Behavioral Science Unit specializes in developing and facilitating training, research, and consultation in the behavioral sciences for the FBI, law enforcement, intelligence, and military communities. While TSA officials from Boston Logan told us that the FBI was included in this initial SPOT working group, these officials agree that coordination with the FBI lapsed until June 2009 when the SPOT Program Office reengaged with the Behavioral Science Unit, and held a meeting with the unit at the FBI Academy in Quantico, Virginia. Since that meeting, a subject matter expert from the SPOT Program Office has been invited to be a member of the Terrorism Research and Analysis Project, which is an ongoing working group sponsored by the unit. In July 2008, DHS’s Screening Coordination Office facilitated a collaborative discussion on behavior detection that included TSA, CBP, and Secret Service officials to better ensure that components within DHS share information regarding their efforts in behavior detection and provide a forum for components to have an informed and collaborative discussion on current capabilities, best practices, and lessons learned. According to TSA, no further contact has occurred between the DHS Behavior Detection Working Group and the SPOT program. Thus, the extent to which the working group’s expertise will be used to refine or augment SPOT training in the future is not yet clear. Along with basic and remedial training required by the Aviation and Transportation Security Act, TSA policy requires its screening force to regularly complete recurrent (refresher) training. TSA recognized that ongoing training of screeners on a frequent basis and effective supervisory training are critical to maintaining and enhancing skills learned during basic training. According to agency officials, TSA is currently working with DHS S&T to determine the necessary frequency for refresher training for each training course within the SPOT program. Furthermore, TSA plans to place BDOs under TSA’s Performance and Accountability Standards System (PASS) beginning in fiscal year 2010. This will include a recertification module. In 2008, the SPOT program office began the process for developing recurrent SPOT training. Our internal control standards and training assessment guidance suggest that such refresher training should be considered integral to an effective training program from the start because work conditions and environments can be expected to change over time, and additional or updated training is essential to ensuring that the program mission continues to be accomplished. According to the SPOT program office, the recently deployed recurrent training will be semiannual. TSA’s Operational and Technical Training Division initially planned to pilot test recurrent training in April 2009 followed by full implementation of the course in approximately May 2009. Because the Operational and Technical Training Division focus was shifted to completing the revisions for the SPOT basic certification course, recurrent training was delayed until September 2009 when they released the training on TSA’s Online Learning Center. Our previous work on elements of effective training states that instructors must be both knowledgeable about the subject matter and issues involved, as well as able to effectively transfer these skills and knowledge to others. Moreover, internal control standards state that all personnel need to possess and maintain a level of competence that allows them to accomplish their assigned duties. Management needs to identify appropriate knowledge and skills needed for various jobs and provide needed training, as well as to ensure that those teaching the skills are themselves competent. TSA conducted internal assessments of SPOT instructors episodically from 2006 through March 2008. These assessments involved a few instructors being rated at a time, and found a wide range of competency among the instructors. In January 2009, TSA’s Office of Inspections and Investigations began an investigation of the SPOT training manager, who resigned shortly thereafter. TSA investigators determined that the training manager and other trainers had created a hostile training environment that intimidated some trainees. To address this problem, TSA stated that the program office reexamined the SPOT training program nationally. This included recertifying 47 of 54 SPOT instructors in March 2009, which included evaluation by TSA’s Office of Human Capital, Quality Assurance assessors. Additionally, in July 2009, TSA centralized SPOT training at five permanent, regional training facilities in Orlando, Florida; Houston, Texas; Phoenix, Arizona; Denver, Colorado; and Philadelphia, Pennsylvania. According to the SPOT program director, this will allow the SPOT program office more oversight over training. Previously, training was provided at individual airports. After the March 2009 recertification training, ratings scores of SPOT instructors showed less variation than did previous ratings. We reviewed the quality assurance instructor evaluations of two SPOT instructors conducted by TSA’s Office of Human Capital, Training Standards and Evaluation Branch, and the 167 SPOT program instructor evaluations of 54 SPOT instructors conducted by the SPOT program office and TSA’s Operational and Technical Training Division since the program started in October 2006. After the recertification training, 93 percent of instructors were rated as exceeding expectations, compared to 30 percent in the 2006 to September 2008 ratings. Table 3 shows the ratings of instructors for March 2009 compared to the period of 2006 to September 2008. In addition to the variation in numeric scores and rating levels for the 2006 to September 2008 period, as shown in table 3, we found substantial variation in the comments about instructor competency for the same period. For example, in 32 out of 74 instructor evaluation forms that we reviewed where comments were made about the instructor prior to 2009, the comments ranged from superb to needs more experience as an instructor, as well as needs more time performing the job as a BDO to be able to teach others. In the comments on an instructor who was rated as “meets expectations,” the instructor was described as having “limited experience within the SPOT program,” that this was “a major concern,” and it was recommended that the instructor spend as much time as possible functioning as a BDO. In other cases, however, SPOT instructors were described as competent, solid, and outstanding. For example, one instructor who received a rating of “exceeds expectations” was described as a superb instructor who “is a valued member of the National Training Team.” As noted above, following the March 2009 recertification training, 93 percent of the instructors received a rating of “exceeds expectations” with only 1 percent “needing improvement.” Of the 94 instructor evaluations completed in March 2009, 82 contained written comments. Of these, multiple SPOT instructors were described as excellent, knowledgeable, and effective. For example, an instructor who received a rating of “exceeds expectations” was noted as demonstrating a high degree of material knowledge and great presentation skills. TSA attributed the increase in instructor ratings to two factors. The first is low turnover among SPOT instructors, which allows instructors to hone both their technical and instructor skills. The second factor cited by TSA is that TSA conducted a 2-day instructor refresher training immediately prior to the evaluations in March 2009. To ensure all instructors were reevaluated within a specific time frame, evaluations were scheduled and conducted in a controlled environment. Instructors knew in advance they were going to be evaluated and delivered modules of the BDO certification course to other BDO instructors. We previously reported that evaluation is an integral part of training and development efforts, and that agencies need to systematically plan for and evaluate the effectiveness of training and development. Employing systematic monitoring and feedback processes can help by catching potential problems at an early stage, thereby saving valuable time and resources that a major redesign of training would likely entail. Similarly, in 2006, TSA’s Operational and Technical Training Division issued general evaluation standards for training programs, stating that training programs should be comprehensively evaluated on a periodic basis to identify program strengths and weaknesses. Moreover, standard practices in program management for defining, designing, and executing programs include developing a road map, or program plan, to establish an order for executing specific projects needed to obtain defined programmatic results within a specified time frame. The former SPOT training manager told us that the SPOT program internally evaluates the effectiveness of SPOT training through the job knowledge tests that BDO candidates must pass following the classroom portion of the training and the SPOT Proficiency/On-the-Job Training Checklist following the on-the-job portion of the training. Furthermore, the former training manager told us that TSA knows that the SPOT training is effective because BDOs are able to recognize behaviors at the checkpoint, and because of BDOs’ demonstrated ability to identify criminals—such as drug couriers or people with outstanding arrest warrants—through the screening process. Although TSA has not conducted a comprehensive analysis of the effectiveness of the SPOT training program, TSA’s Office of Human Capital, Training Standards and Evaluation Branch conducted training evaluations to assess how students use what they were taught in the SPOT basic training course. Specifically, from July through September 2008, the Training Standards and Evaluation Branch conducted evaluations at 5 of the 161 airports where the SPOT program is currently operating. Based on BDO feedback at the 5 airports, the Training Standards and Evaluation Branch’s final report contained a series of recommendations for improving the SPOT training program. These recommendations and TSA’s actions to address them are summarized in table 4. Additionally, in conjunction with S&T, TSA conducted a training effectiveness evaluation on the Additional Behavior Detection Techniques course, which showed a statistically significant increase in knowledge and skills following completion of the course. S&T is currently conducting a BDO job task analysis, which may be used to evaluate and update the SPOT training curriculum. Following the completion of the job task analysis—anticipated in mid-May 2010—TSA’s Operational and Technical Training Division intends to conduct an in- depth training gap analysis, which will take approximately 2 months to complete. Following completion of the training gap analysis, the agency will develop project plans, including milestones for future development efforts, to address any training concerns. However, to date, the agency does not have an evaluation plan including time frames and milestones for completion. According to the Operational and Technical Training Division, TSA will conduct periodic evaluations as the BDO position evolves. By conducting a comprehensive evaluation of the effectiveness of its training program, TSA will be in a better position to determine if BDOs are being taught the knowledge and skills they need to perform their job. Furthermore, by developing milestones and time frames for conducting such evaluations systematically, as well as on a periodic basis, TSA could help ensure that the SPOT training program is evaluated in accordance with its directives to help ensure that the program continues to provide BDOs with the necessary tools required to carry out their responsibilities. TSA developed the SPOT program in the wake of September 11, 2001, in an effort to respond quickly to potential threats to aviation security by identifying individuals who may pose a threat to aviation security, including terrorists planning or executing an attack who were not likely to be identified by TSA’s other screening security measures. Because TSA did not ensure that SPOT’s underlying methodology and work methods were scientifically validated prior to its nationwide deployment, an independent panel of experts could help determine whether a scientific foundation exists for the way in which the SPOT program uses behavior detection analysis for counterterrorism purposes in the aviation environment. With approximately $5.2 billion devoted to screening passengers and their property in fiscal year 2009, it is important that TSA provides effective stewardship of taxpayer funds ensuring a return on investment for each layer of its security system. As one layer of aviation security, the SPOT program has an estimated projected cost of about $1.2 billion over the next 5 years if the administration’s requested funding of $232 million for fiscal year 2011 remains at this level. The nation’s constrained fiscal environment makes it imperative that careful choices be made regarding which investments to pursue and which to discontinue. If an independent expert panel determines that DHS’s study is sufficiently comprehensive to determine whether the SPOT program is based on valid scientific principles that can be effectively applied in an airport environment for counterterrorism purposes, then conducting a comprehensive risk assessment including threat, vulnerability, and consequence could strengthen TSA’s ability in making resource allocation decisions and prioritizing its risk mitigation efforts. Moreover, conducting a cost-benefit analysis could help TSA determine whether SPOT provides benefits greater than or equal to other security alternatives and whether its level of investment in the SPOT program is appropriate. Revising its strategic plan for SPOT to incorporate risk assessment information, cost and resource analysis, and other essential components could enhance the plan’s usefulness to TSA in making program management and resource allocation decisions to effectively manage the deployment of SPOT. Providing guidance on how to use TSA’s resources for running passenger names against intelligence and criminal databases available to the Transportation Security Operations Center and helping DHS to connect disparate pieces of information using the Transportation Information Sharing System and other related intelligence and crime database and data sources could better inform DHS and TSA regarding the identity and background of certain individuals and thereby enhance aviation security. In addition, implementing the steps called for in the TSA Office of Strategic Operations plan to provide BDOs with a real-time mechanism to verify passenger identities and backgrounds via TSA’s Transportation Security Operations Center could strengthen their ability to rapidly verify the identity and background of passengers who have caused concern, and increase the likelihood of detecting and disrupting potential terrorists intending to cause harm to the aviation system. Additionally, developing outcome-oriented performance measures, making improvements to the SPOT database, and studying the feasibility of utilizing video recordings of individuals as they transited checkpoints and who were later charged with or pleaded guilty to terrorism-related offenses, could help TSA evaluate the SPOT program, identify potential vulnerabilities, and assess the effectiveness of its BDOs. Further, developing a plan for systematic and periodic evaluation of the training provided to BDOs along with time frames and milestones for its completion could help ensure that the SPOT training program is evaluated in accordance with its directives to help ensure that the program continues to provide BDOs with the necessary tools required to carry out their responsibilities. To help ensure that SPOT is based on valid scientific principles that can be effectively applied in an airport environment, we recommend that the Secretary of Homeland Security convene an independent panel of experts to review the methodology of the DHS S&T Directorate study on the SPOT program to determine whether the study’s methodology is sufficiently comprehensive to validate the SPOT program. This assessment should include appropriate input from other federal agencies with expertise in behavior detection and relevant subject matter experts. If this research determines that the SPOT program has a scientifically validated basis for using behavior detection for counterterrorism purposes in the airport environment, then we recommend that the TSA Administrator take the following four actions: Conduct a comprehensive risk assessment to include threat, vulnerability, and consequence of airports nationwide to determine the effective deployment of SPOT if TSA’s ongoing Aviation Modal Risk Assessment lacks this information. Perform a cost-benefit analysis of the SPOT program, including a comparison of the SPOT program with other security screening programs, such as random screening, or already existing security measures. Revise and implement the SPOT strategic plan by incorporating risk assessment information, identifying cost and resources, linking it to other related TSA strategic documents, describing how SPOT is integrated and implemented with TSA’s other layers of aviation security, and providing guidance on how to effectively link the roles, responsibilities, and capabilities of federal, state, and local officials providing program support. Study the feasibility of using airport checkpoint-surveillance video recordings of individuals transiting checkpoints who were later charged with or pleaded guilty to terrorism-related offenses to enhance understanding of terrorist behaviors in the airport checkpoint environment. Concurrent with the DHS S&T Directorate study of SPOT, and an independent panel assessment of the soundness of the methodology of the S&T study, we recommend that the TSA Administrator take the following six actions to ensure the program’s effective implementation: To provide additional assurance that TSA utilizes available resources to support the goals of deterring, detecting, and preventing security threats to the aviation system, TSA should: Provide guidance in the SPOT Standard Operating Procedures or other TSA directive to BDOs, or other TSA personnel, on inputting data into the Transportation Information Sharing System and set milestones and a time frame for deploying Transportation Information Sharing System access to SPOT airports so that TSA and intelligence community entities have information from all SPOT LEO referrals readily available to assist in “connecting the dots” and identifying potential terror plots. Implement the steps called for in the TSA Office of Security Operations Business plan to develop a standardized process for allowing BDOs or other designated airport officials to send information to TSA’s Transportation Security Operations Center about passengers whose behavior indicates that they may pose a threat to security, and provide guidance on how designated TSA officials are to receive information back from the Transportation Security Operations Center. Direct the TSA Transportation Security Operations Center to utilize all of the law enforcement and intelligence databases available to it when running passenger names, for passengers who have risen to the level of a LEO referral. To better measure the effectiveness of the program and evaluate the performance of BDOs, TSA should: Establish a plan that includes objectives, milestones, and time frames to develop outcome-oriented performance measures to help refine the current methods used by Behavior Detection Officers for identifying individuals who may pose a risk to the aviation system. Establish controls to help ensure completeness, accuracy, authorization, and validity of data collected during SPOT screening. To help ensure that TSA provides BDOs with the knowledge and skills needed to perform their duties, TSA should: Establish time frames and milestones for its plan to systematically conduct evaluations of the SPOT training program on a periodic basis. We provided a draft of our report to DHS and TSA on March 19, 2010, for review and comment. On May 3, 2010, DHS provided written comments, which are reprinted in appendix II. In commenting on our report, DHS stated that it concurred with 10 of our recommendations and identified actions taken, planned, or under way to implement them. However, the actions DHS reported it plans to take and has underway do not fully address the intent of our first recommendation. DHS also concurred in principle with an eleventh recommendation stating that it had convened a working group to determine the feasibility of implementing it. DHS commented on the scientific basis underlying SPOT and on two statements in our report that it believed were inaccurate—specifically, DHS disagreed with our reliance on a 2008 National Research Council report published under the auspices of the National Academy of Sciences on issues related to behavior detection, and second, on issues related to unpublished research they had cited as a partial validation of some aspects of the SPOT program. Finally, DHS commented on our conclusion regarding the use of the SPOT referral data. Regarding our first recommendation that DHS convene an independent panel of experts to review the methodology of DHS’s Science and Technology Directorate (S&T) study on SPOT, and to include appropriate input from other federal agencies with relevant expertise, DHS concurred and stated the current process includes an independent review of the program that will include input from other federal agencies and relevant experts. Although DHS has contracted with the American Institutes for Research to conduct its study, it remains unclear who will oversee this review and whether they are sufficiently independent from the current research process. DHS’s response also does not describe how the review currently planned is designed to determine whether the study’s methodology is sufficiently comprehensive to validate the SPOT program. As we noted in our report, research on other issues, such as determining the number of individuals needed to observe a given number of passengers moving at a given rate per day in an airport environment or the duration that such observation can be conducted by BDOs before observation fatigue affects effectiveness, could provide additional information on the extent to which SPOT can be effectively implemented in airports. Dr. Paul Ekman, a leading research scientist in the field of behavior detection, told us that additional research could help determine the need for periodic refresher training since no research has yet determined whether behavior detection is easily forgotten or can be potentially degraded with time or lack of use. Thus, questions exist as to whether behavior detection principles can be reliably and effectively used for counterterrorism purposes in airport settings to identify individuals who may pose a risk to the aviation system. To help ensure an objective assessment of the study’s methodology and findings, DHS could benefit from convening an independent panel of experts from outside DHS to determine whether the study’s methodology is sufficiently comprehensive to validate the SPOT program. DHS also concurred with our second recommendation to conduct a comprehensive risk assessment to determine the effective deployment of SPOT. DHS stated that TSA’s Aviation Modal Risk Assessment is designed to evaluate overall transportation security risk, not deployment strategies. However, DHS noted that TSA is in the process of conducting an initial risk analysis using its risk management analysis tool and plans to update this analysis in the future. However, it is not clear from DHS’s comments how this analysis will incorporate an assessment of TSA’s deployment strategy for SPOT. DHS also concurred with our third recommendation to perform a cost- benefit analysis of SPOT. DHS noted that TSA is developing an initial cost- benefit analysis and that the flexibility of behavior detection officers already suggests that behavior detection is cost-effective. However, it is not clear from DHS’s comments whether its cost-benefit analysis will include a comparison of the SPOT program with other security screening programs, such as random screening, or already existing security measures as we recommended. Completing its cost-benefit analysis and comparing it to other screening programs should help establish whether the SPOT program is cost-effective compared to other layers of security. With regard to our fourth recommendation to revise and implement the SPOT strategic plan using risk assessment information, DHS concurred and noted that analysis facilitated by the risk management analysis tool will allow the program to revise the SPOT strategic plan to incorporate the elements identified in our recommendation. DHS also concurred with our fifth recommendation to study the feasibility of using airport checkpoint-surveillance video recordings to enhance its understanding of terrorist behaviors. DHS noted that TSA agrees this could be a useful tool and is working with DHS’s S&T Directorate to utilize video case studies of terrorists, if possible. These cases studies could help TSA determine what behaviors had been demonstrated by these persons convicted of terrorist-related offenses who went through SPOT airports, and what could be learned from the observed behaviors. DHS concurred with our sixth recommendation that TSA provide guidance in the SPOT SOP or other directives to BDOs, or other TSA personnel, on how to input data into the Transportation Information Sharing System database. DHS stated that the SPOT SOP is undergoing revision, and that the revised version will provide guidance directing the input of BDO data into the Transportation Information Sharing System. DHS anticipates release of the updated SPOT SOP in fiscal year 2010. DHS also agreed that TSA should set milestones and a time frame for deploying Transportation Information Sharing System access to SPOT airports so that TSA and intelligence community entities have information from all SPOT LEO referrals readily available to assist in “connecting the dots” and identifying potential terror plots. DHS stated that TSA is currently drafting a plan to include milestones and a time frame for deploying System access to all SPOT airports. DHS concurred with our seventh recommendation to develop a standardized process to allow BDOs or other designated airport officials to send information to TSA’s Transportation Security Operations Center about passengers whose behavior indicates they may pose a threat to security, and to provide guidance on how designated TSA officials are to receive information back from the Center. DHS stated that TSA has convened a working group to address this recommendation. Moreover, TSA is developing a system and procedure for sending and receiving information from the Center and stated that it anticipates having a system in place later in fiscal year 2010. DHS concurred in principle with regard to our eighth recommendation that the Transportation Security Operations Center utilize all of the databases available to it when conducting checks on passengers who rise to the level of a LEO referral against intelligence and criminal databases. DHS stated that TSA has convened a working group to address this recommendation. According to DHS, this group will conduct a study during fiscal year 2010 to determine the feasibility of fully implementing this recommendation. As such, the study is to review the various authorities, permissions, and limitations of each of the databases or systems cited in our report. DHS stated that access to some of the systems, requires more justification than a BDO referral. Further, according to DHS, because some of the databases or systems contain classified information, TSA will also need to adopt a communication strategy to transmit the passenger information between the BDO and Transportation Security Operations Center. DHS stated that TSA will work on a process to collect the passenger information, verify the passenger’s identity, through checks of databases, and analyze that information to determine if the passenger is the subject of an investigation and may pose a risk to aviation security. With regard to our ninth recommendation to establish a plan with objectives, milestones, and time frames to develop outcome-oriented performance measures for BDOs, DHS concurred and stated that TSA intends to consult with experts to develop outcome-oriented performance measures. DHS also concurred with our tenth recommendation to establish controls for SPOT data. DHS noted that TSA established additional controls as part of the SPOT database migration to TSA’s Performance Management Information System and is exploring an additional technology solution to reduce possible errors. As noted in our report, since these changes to the database were not complete at the time of our audit, we could not assess whether the problems we identified with the database had been corrected. Regarding our eleventh recommendation to establish time frames and milestones to systematically evaluate the SPOT training program on a periodic basis, DHS concurred and stated that TSA intends to develop such a plan following completion of DHS’s S&T Directorate’s BDO Job Task Analysis, and TSA’s training gap analysis, which identifies gaps in the training curriculum. DHS also commented on the scientific basis underlying SPOT. Specifically, DHS stated that decades of scientific research has shown the SPOT behaviors to be “universal in their manifestation.” However, according to DHS, its S&T Directorate is examining the extent to which behavior indicators are appropriate for screening purposes and lead to appropriate and correct security decisions. DHS also commented that the results of this work, which is currently underway, will establish a scientific basis of the extent to which the SPOT program instruments and methods are valid. Thus, DHS’s comments suggest that additional research is needed to determine whether these behaviors can be used in an airport environment for screening passengers to identify threats to the aviation system. Moreover, DHS took issue with our use of a report from the National Research Council of the National Academy of Sciences stating that we improperly relied upon this report. We disagree. DHS questioned the findings of the National Research Council report and stated that it lacked sufficient information for its conclusions because it principally focused on privacy as it relates to data mining and behavioral surveillance and was not intended to represent an exhaustive or definitive review of the research or operational literature on behavioral screening, including recent unpublished DHS, defense, and intelligence community studies. DHS also stated that the National Research Council report did not study the SPOT program and that the researchers did not conduct interviews with SPOT personnel. As we noted in our report, although the National Research Council report addresses broader issues related to privacy and data mining, a senior Council official—and one of the authors of the study—stated that the committee included behavior detection as a focus because any behavior detection program could have privacy implications. This official added that the primary objective of the report was to develop a framework for sound decision making for programs, such as SPOT, and help ensure a sound scientific and legal basis. According to this official, the National Academy of Sciences’ Committee on Technical and Privacy Dimensions of Information for Terrorism Prevention and Other National Goals—which had oversight of the report—was briefed on the SPOT program as part of the study. The Committee also conducted meetings with three experts in behavior detection as part of their research. During the course of our review, we interviewed three Committee members responsible for developing the report’s findings, as well as four other behavior detection experts, including the three who participated in the National Research Council study. Our discussions with these experts corroborated the report’s findings. Thus, we believe that our use of the Council report was an appropriate and a necessary part of our review. However, the National Research Council report was only one of many sources that we analyzed with regard to the science of behavioral and physiological screening, and its applicability to an airport environment. As we noted in the description of our methodology, our study included interviews with officials from DHS as well as several of its components and other U.S. government agencies—each of which use elements of behavior detection in their daily work. We also interviewed El Al airline officials, a former director of security at Israel’s Ben-Gurion airport, and seven nationally recognized experts in behavior detection as part of our review. Moreover, as we explained in the discussion of our scope and methodology, we conducted a survey about the SPOT program of all 118 Federal Security Directors for all SPOT airports, and conducted site visits to 15 SPOT airports. In addition, we analyzed the SPOT referral database, to the extent the data permitted, covering a 4-year period and the results from 2 billion passengers passing through SPOT airports. Moreover, we attended both the basic and advanced training courses in behavior detection provided by TSA to BDOs, in order to better understand how the program is carried out. Therefore, our analysis of the program was not derived from or based on a single study by the National Research Council as DHS suggested, but rather is based on all of the information we gathered and synthesized from multiple, diverse, expert sources, each of which provided different perspectives about the program, as well as about behavior detection in general. DHS also disagreed with the accuracy of a statement included in our report that noted DHS S&T could not provide us with specific contacts related to sources of information for certain research it cited as support for the SPOT program. In its comments, DHS stated that it had provided us with all requested documents that represent DHS’s S&T Directorate- sponsored research. We agree. However, DHS did not provide us with contact information for the sources of unpublished studies by the Department of Defense and other intelligence community studies that DHS S&T had cited as support for the SPOT program. Without such information, we are unable to verify the contents of these unpublished studies. Finally, DHS stated that while we were unable to use the SPOT referral data to assess whether any behavior or combination of SPOT behaviors could be used to reliably predict the final outcome of an incident involving the use of SPOT, it was able to analyze the SPOT referral database successfully after working with TSA to verify scores assigned to different indicators. Our concern with the data did not involve the question of whether some behaviors were entered erroneously, nor whether errors in coding were excessive or non-random. Rather, we were concerned with whether the data on behaviors were complete. Specifically, it cannot be determined from the SPOT referral database whether all behaviors observed were included for each referred passenger by each BDO or whether only the behaviors that were sufficient for a LEO referral were recorded into the database. It is not possible to determine from the database if the number of observed behaviors entered for a given passenger was the total number of observed behaviors, or whether additional behaviors were observed. A rigorous analysis of the relative effects of the different behaviors on the outcomes of the use of SPOT would require each BDO to record, for each of the observable behaviors, whether it was or was not observed. TSA also provided technical comments that we incorporated as appropriate. We will send copies of this report to the Secretary of Homeland Security; the TSA Administrator (Acting); and interested congressional committees as appropriate. The 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 about this report, please contact me 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 report. Key contributors to this report are acknowledged in appendix III. To determine the extent to which the Transportation Security Administration (TSA) determined whether the Screening of Passengers By Observation Techniques (SPOT) program had a scientifically-validated basis for identifying passengers before deploying it, we reviewed literature on behavior analysis by subject matter experts, interviewed seven experts in behavior analysis, interviewed other federal agencies and entities about how they use behavior detection techniques, and analyzed relevant reports and books on the topic. These included a 2008 study by the National Research Council of the National Academy of Sciences that has a discussion regarding deception and behavioral surveillance, as well as other issues related to behavioral analysis. We interviewed Dr. Herbert S. Lin, who was a primary author of the report, as well as Dr. Robert W. Levenson, and Dr. Stephen E. Fienberg, both members of the Academy committee that oversaw the report, about the report’s findings with regard to behavior detection, and the extent to which behavior detection in a complex environment, such as an airport terminal, has been validated with regard to its effectiveness in identifying persons who may be a risk to aviation security. Other behavior detection experts we consulted were Dr. Paul Ekman; Dr. Mark Frank; Dr. David Givens; Dr. David Matsumoto; and Mr. Rafi Ron, former director of security at Israel’s Ben-Gurion Airport. Dr. Ekman, Dr. Frank, and Mr. Ron provided expert advice for the National Research Council study. Dr. Givens was identified by TSA as having been their principal source for the nonverbal behavior indicators used by the SPOT program. We also interviewed Dr. Lawrence M. Wein, an expert in emergency responses to terror attacks and mathematical models in operations management. In addition, we interviewed officials from the Department of Homeland Security’s (DHS) Science and Technology (S&T) Directorate regarding their ongoing research into behavior detection. Although the views of these experts cannot be generalized across all experts in behavior analysis because we selected individuals based on their publications on behavioral analysis or related topics, their recognized accomplishments and expertise, and, in some cases, TSA’s use of their work or expertise to design and review the SPOT program’s behaviors, they provided us with an overall understanding of the fundamentals of behavior analysis, and how it could be applied. To determine the basis for TSA’s strategy to develop and deploy SPOT and evaluate to what extent SPOT was informed by a cost-benefit analysis and a strategic plan, we reviewed program documentation, including briefings prepared by the SPOT program office during the course of developing and fielding SPOT, two versions of a strategic plan for SPOT, and the 2009 SPOT standard operating procedures guidance. We compared the plans and analyses used by TSA to develop and implement SPOT to criteria on how to develop and implement programs in DHS’s 2006 Cost Benefit Analysis Guidebook, as well as to Office of Management and Budget guidance on the utility of cost-benefit analyses in program implementation. We also analyzed the development of SPOT in light of the standards and criteria cited in DHS’s 2006 National Infrastructure Protection Plan. We met with relevant TSA officials to discuss these issues. To assess whether DHS developed an effective strategic plan for SPOT prior to implementing the program, we interviewed TSA officials involved in development of the SPOT strategic plan. We analyzed whether the SPOT plan incorporated the desirable characteristics of an effective strategic plan as identified by previous GAO work on what strategic plans should include to be considered effective, such as a risk assessment, cost and resources analysis, and a means for collaboration with other key entities. We also examined it in light of the requirements of the Government Performance and Results Act of 1993, which specifies the elements of strategic plans for government programs. We assessed whether the SPOT strategic plan was followed by TSA. As part of our analysis of the planning for SPOT before it was implemented on a nationwide basis, we reviewed TSA documentation related to the development and pilot testing of SPOT, such as a TSA white paper on SPOT, and interviewed key program officials from both headquarters and field offices. We also interviewed cognizant officials from other U.S. government agencies and agency entities that utilize behavior detection in their work, including U.S. Customs and Border Protection (CBP), the U.S. Secret Service, the TSA’s Federal Air Marshal Service (FAMS) component, and the Federal Bureau of Investigation (FBI). We sought their views on the utility of various behavior detection methods, their experience with practicing behavior detection, and asked them about the extent to which TSA had consulted with them in developing and implementing the SPOT program. To better understand how SPOT incorporated expertise about the use of behavior detection in an airport setting, we interviewed officials from Israel’s El Al Airlines, which is cited by TSA as having provided part of the basis of the SPOT program. We asked about El Al’s methods to ensure the security of its passenger aircraft, and also interviewed a former head of security at Israel’s Ben-Gurion airport, who has advised TSA on security issues. We asked TSA and SPOT program officials about their consultations with El Al, and about the ways in which they had utilized El Al’s expertise, as well as about any other entities whose expertise they may have adopted into SPOT. To determine the challenges, if any, that emerged during implementation of the SPOT program, we interviewed headquarters and field personnel about how the program has utilized the resources available to it to ensure that it is effective. These resources included the support of law enforcement officers (LEOs), to whom passengers are referred by Behavior Detection Officers (BDOs) for additional questioning. In addition, we interviewed SPOT program and TSA officials about the databases available to them at TSA’s Transportation Security Operations Center to determine if a suspect passenger is being sought by other U.S. law enforcement or intelligence entities, and whether there is guidance for BDOs on when and how to contact the Transportation Security Operations Center. We also asked about whether there is guidance and training for BDOs on how to access TSA’s Transportation Information Sharing System database, which is owned by FAMS, and is available through the Transportation Security Operations Center. To determine if any management challenges had emerged related to management controls in developing and implementing SPOT, we compared TSA’s approach for implementing and managing the SPOT program with GAO’s Standards for Internal Control in the Federal Government and with risk management principles we had previously identified. Our legal counsel office reviewed court decisions relevant to the SPOT program. In addition, we interviewed attorneys from the American Civil Liberties Union, and obtained and reviewed TSA’s Privacy Impact Assessments for SPOT, the Transportation Security Operations Center, and the Transportation Information Sharing System. We also met with and discussed relevant privacy and legal issues with TSA’s Offices of Privacy and Civil Rights/Civil Liberties. To obtain data about certain aspects of the SPOT program that the SPOT program office did not have, we conducted a survey of Federal Security Directorswhose responsibilities included security at all 161 SPOT airports at the time of our survey. (Some Federal Security Directors have responsibility for more than one airport.) We obtained a 100 percent response rate. This survey asked, among other things, about whether there were cameras at security checkpoints that record the interactions of Transportation Security Officers (TSO), BDOs, and passengers; if the airport authority had an agreement with TSA that specifies certain law enforcement actions during a SPOT referral; and if there was an agreement, or any other comparable guidance that specified a time limit for LEOs to come to checkpoints after being called for help by BDOs. To determine the extent to which TSA has measured SPOT’s effect on aviation security, we obtained and analyzed the TSA SPOT referral database, which records all incidents in which BDOs refer passengers to secondary, more intensive questioning, and which also records all incidents in which BDOs chose to refer passengers to LEOs. We found that the SPOT database was sufficiently reliable to count the number of arrests resulting from referrals from BDOs to LEOs, for examining the reasons for each arrest, and for counting the percentage of times that LEOs responded to BDO calls for service, and the length of time required. Use of these data required us to resolve apparent contradictions and anomalies in the database to make the data useable. Because of data problems, we were unable to conduct analyses to assess whether any behavior or combination of behaviors could be used to predict the final outcome of an incident involving the use of SPOT. In addition, we reviewed relevant standardization team reports and observed a standardization team visit in operation. In addition, we spoke with BDO managers, Federal Security Directors, and Assistant Federal Security Directors to determine how BDOs are evaluated. To do so, we conducted site visits to 15 commercial airports at which BDOs and SPOT have been deployed, or almost 10 percent of the 161 airports with SPOT. We chose these airports taking into account the following criteria, among others: (1) each airport had BDOs deployed, and at each, the SPOT program had been in effect for no less than 3 months; (2) airports were chosen to provide a variety of sizes, as measured in annual passenger volume; physical location within the country (northeast, southwest, central, Pacific Coast, rural, urban); and estimated risk of terrorist incident, using DHS’s Current Airports Threat Assessment list (visiting 6 that were in the top 10, and others much lower); (3) BDOs who are employed by contractors, rather than employed directly by TSA; and (4) airports with LEOs who were identified to us by TSA as having received some form of behavior detection training and airports where they were not known to have received such training. In addition, we took into account the location of the airports with regard their proximity to subject matter experts on behavior detection whom we wished to interview, as well as the time and cost required to reach certain airports. At each of the airports we visited, we interviewed cognizant officials, including the Federal Security Director or Assistant assigned to the airport, the BDO program manager, one or two BDOs, and one or two LEOs who have interacted with BDOs. Since each of these airports differs in terms of passenger volume, physical size and layout, geographic location, and potential value as a target for terrorism, among other things, the results from these visits are not generalizable to other airports. However, these visits provided helpful insight into the operation of SPOT at airports. In addition, to determine if individuals had transited SPOT airports who were later charged with or pleaded guilty to terrorism-related offenses, we reviewed information contained in (1) the Treasury Enforcement Communication System II database maintained by CBP; (2) Department of Justice information and court documents, including indictments and related documents; and (3) media accounts of individuals accused of terrorism-related activities. We compared information pertaining to these individuals’ dates of transit to the dates when SPOT was deployed to the various airports identified in the Treasury Enforcement Communication System and Justice Department data to determine if SPOT had been deployed at a given airport when the transits occurred. Further, we used our survey of Federal Security Directors at SPOT airports to determine the extent to which video surveillance cameras are present at checkpoints. To assess the extent that SPOT training incorporates the attributes of an effective training program, we had training experts at TSA headquarters complete a training assessment tool that we developed using our prior work for assessing training courses and curricula. To address training- related issues, including to understand better how other entities train their employees in behavior detection, and what their curricula include, we conducted site visits to the Secret Service, FAMS, CBP, and the FBI, and also interviewed nongovernmental experts on behavior detection (our selection of these experts is discussed above). As part of our assessment of SPOT training, we attended the basic SPOT training course given to BDOs, as well as the advanced SPOT course on behavior detection. We interviewed BDOs and BDO managers about the SPOT training, as well as officials of El Al airlines, with regard to how El Al trains and tests its personnel who utilize behavior recognition and analysis as part of their assessment of El Al passengers. We conducted this performance audit from May 2008 through 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. In addition to the contact named above, David M. Bruno, Assistant Director, and Jonathan R. Tumin, managed this assignment. Ryan Consaul, Jeff C. Jensen, Kevin Remondini, and Julie E. Silvers made significant contributions to the work. Arthur James, Jr., Amanda Miller, and Douglas Sloane assisted with design, methodology, and data analysis. Chris Dionis assisted with issues related to training. Katherine Davis and Debra Sebastian provided assistance in report preparation; Tracey King and Tom Lombardi provided legal support; and Pille Anvelt and Barbara Hills developed the report graphics.

To enhance aviation security, the Transportation Security Administration (TSA) began initial testing in October 2003 of its Screening of Passengers by Observation Techniques (SPOT) program. Behavior Detection Officers (BDO) carry out SPOT's mission to identify persons who pose a risk to aviation security by focusing on behavioral and appearance indicators. GAO was asked to review the SPOT program. GAO analyzed (1) the extent to which TSA validated the SPOT program before deployment, (2) implementation challenges, and (3) the extent to which TSA measures SPOT's effect on aviation security. GAO analyzed TSA documents, such as strategic plans and operating procedures; interviewed agency personnel and subject matter experts; and visited 15 SPOT airports, among other things. Although the results from these visits are not generalizable, they provided insights into SPOT operations. Although the Department of Homeland Security (DHS) is in the process of validating some aspects of the SPOT program, TSA deployed SPOT nationwide without first validating the scientific basis for identifying suspicious passengers in an airport environment. A scientific consensus does not exist on whether behavior detection principles can be reliably used for counterterrorism purposes, according to the National Research Council of the National Academy of Sciences. According to TSA, no other large-scale security screening program based on behavioral indicators has ever been rigorously scientifically validated. DHS plans to review aspects of SPOT, such as whether the program is more effective at identifying threats than random screening. Nonetheless, DHS's current plan to assess SPOT is not designed to fully validate whether behavior detection can be used to reliably identify individuals in an airport environment who pose a security risk. For example, factors such as the length of time BDOs can observe passengers without becoming fatigued are not part of the plan and could provide additional information on the extent to which SPOT can be effectively implemented. Prior GAO work has found that independent expert review panels can provide comprehensive, objective reviews of complex issues. Use of such a panel to review DHS's methodology could help ensure a rigorous, scientific validation of SPOT, helping provide more assurance that SPOT is fulfilling its mission to strengthen aviation security. TSA is experiencing implementation challenges, including not fully utilizing the resources it has available to systematically collect and analyze the information obtained by BDOs on passengers who may pose a threat to the aviation system. TSA's Transportation System Operations Center has the resources to investigate aviation threats but generally does not check all law enforcement and intelligence databases available to it to identify persons referred by BDOs. Utilizing existing resources would enhance TSA's ability to quickly verify passenger identity and could help TSA to more reliably "connect the dots." Further, most BDOs lack a mechanism to input data on suspicious passengers into a database used by TSA analysts and also lack a means to obtain information from the Transportation System Operations Center on a timely basis. TSA states that it is in the process of providing input capabilities, but does not have a time frame for when this will occur at all SPOT airports. Providing BDOs, or other TSA personnel, with these capabilities could help TSA "connect the dots" to identify potential threats. Although TSA has some performance measures related to SPOT, it lacks outcome-oriented measures to evaluate the program's progress toward reaching its goals. Establishing a plan to develop these measures could better position TSA to determine if SPOT is contributing to TSA's strategic goals for aviation security. TSA is planning to enhance its evaluation capabilities in 2010 to more readily assess the program's effectiveness by conducting statistical analysis of data related to SPOT referrals to law enforcement and associated arrests.

You are an expert at summarizing long articles. Proceed to summarize the following text: In late 2003, recognizing that the current approach to managing air transportation is becoming increasingly inefficient and operationally obsolete, Congress created JPDO to plan NGATS, a system intended to accommodate the threefold increase in air traffic demand expected by 2025. JPDO’s scope is broader than that of traditional ATC modernization in that it is “airport curb to airport curb,” encompassing such issues as security screening and environmental concerns. Additionally, JPDO’s approach will require unprecedented collaboration and consensus among many stakeholders—federal and nonfederal—about necessary system capabilities, equipment, procedures, and regulations. Each of JPDO’s partner agencies will play a role in the transformation to NGATS. For example, the Department of Defense has deployed “network centric” systems, originally developed for the battlefield, that are being considered as a conceptual framework to provide all users of the national airspace system—FAA and the Departments of Defense and Homeland Security— with a common view of that system. Vision 100 required the Secretary of Transportation to establish JPDO within FAA to manage work related to NGATS. The Director of JPDO reports to the FAA Administrator and to the Chief Operating Officer within ATO. JPDO began operating in early 2004. JPDO has developed a framework for planning and coordination with its partner agencies and nonfederal stakeholders that is consistent with the requirements of Vision 100 and with several practices that our work has shown can facilitate federal interagency collaboration and enterprise architecture development. This framework includes an integrated plan, an organizational structure, and an enterprise architecture. Vision 100 calls for the development of an integrated plan for NGATS and annual updates on the progress of that plan. JPDO’s partner agencies developed an integrated plan and submitted it to Congress on December 12, 2004. The plan includes a vision statement for meeting the predicted threefold increase in demand for air transportation by 2025 and eight strategies that broadly address the goals and objectives for NGATS. In March 2006, JPDO published its first report to Congress on the progress made in carrying out the integrated plan. The integrated plan is consistent with effective collaboration practices we have identified. According to our research on federal interagency collaborations, agencies must have a clear and compelling rationale for working together to overcome significant differences in their missions, cultures, and established ways of doing business. In working together to develop JPDO’s integrated plan, the partner agencies agreed on a vision statement to transform the air transportation system and on broad statements of future system goals, performance characteristics, and operational concepts. Vision 100 includes requirements for JPDO to coordinate and consult with its partner agencies, private sector experts, and the public. Accordingly, JPDO established an organizational structure to involve federal and nonfederal stakeholders throughout the organization. This structure includes a federal interagency policy committee, an institute for nonfederal stakeholders, and integrated product teams (IPT) that bring together federal and nonfederal experts to plan for and coordinate the development of technologies that will address JPDO’s eight broad strategies. JPDO’s senior policy committee was formed and is headed by the Secretary of Transportation, as required in Vision 100. The committee includes senior-level officials from JPDO’s partner agencies and has met three times since its inception. The NGATS Institute (the Institute) was created by an agreement between the National Center for Advanced Technologies and FAA to incorporate the expertise and views of stakeholders in private industry, state and local governments, and academia. The NGATS Institute Management Council, composed of top officials and representatives from the aviation community, oversees the policy and recommendations of the Institute and provides a means for advancing consensus positions on critical NGATS issues. In March 2006, the Institute held its first public meeting to solicit information from the public and other interested stakeholders who are not involved in the council or the IPTs. These types of meetings are designed to address the Vision 100 requirement that JPDO coordinate and consult with the public. The IPTs are headed by representatives of JPDO’s partner agencies and include more than 190 stakeholders from over 70 organizations, whose participation was arranged through the Institute. Figure 1 shows JPDO’s position within FAA and the JPDO structures that bring together federal and nonfederal stakeholders, including the Institute and the IPTs. JPDO’s organizational structure incorporates some of the practices we have found effective for federal interagency collaborations. For example, our work has shown that mutually reinforcing or joint strategies can help align partner agencies’ activities, core processes, and resources to accomplish a common outcome. Each of the eight IPTs is aligned with one of the eight strategies outlined in JPDO’s integrated plan, and each is headed by a partner agency that has taken the lead on a specific strategy. Our research has also found that collaborating agencies should identify the resources needed to initiate or sustain their collaborative effort. To leverage human resources, JPDO has staffed the various levels of its organization—including JPDO’s board, the IPTs, and technical divisions— with partner agency employees, many of whom work part time for JPDO. Finally, our work has shown that involving stakeholders can, among other things, increase their support for a collaborative effort. The Institute provides for involving nonfederal stakeholders, including the public, in planning NGATS. Vision 100 requires JPDO to coordinate NGATS-related programs across the partner agencies. To address this requirement, JPDO conducted an initial interagency review of its partner agencies’ research and development programs during July 2005 to identify work that could support NGATS. Through this process, JPDO identified early opportunities that could be pursued during fiscal year 2007 to coordinate and minimize the duplication of research programs across the partner agencies and produce tangible results for NGATS. For example, one identified opportunity is to align aviation weather research across FAA, NASA, and the Departments of Commerce and Defense; develop a common weather capability; and harmonize and incorporate into NGATS those agency programs designed to seamlessly integrate weather information and aircraft weather mitigation systems. In addition, the Automatic Dependent Surveillance-Broadcast (ADS-B) and System Wide Information System (SWIM) programs at FAA were identified as opportunities for accelerated funding to produce tangible results for NGATS. JPDO is currently working with the Office of Management and Budget to develop a systematic means of reviewing the partner agencies’ budget requests so that the NGATS- related funding in each request can easily be identified. Such a process would help the Office of Management and Budget consider NGATS as a unified federal investment, rather than as disparate line items distributed across several agencies’ budget requests. JPDO’s effort to leverage its partner agencies’ resources for NGATS demonstrates another practice important to sustaining collaborations. Our work on collaborations has found that collaborating agencies, by assessing their relative strengths and limitations, can identify opportunities for leveraging each others’ resources and thus obtain benefits that would not be available if they were working separately. JPDO’s first interagency review of its partner agencies’ research and development programs has facilitated the leveraging of technological resources for NGATS. The budget process under development with OMB provides a further opportunity to leverage resources for NGATS. Vision 100 requires JPDO to create a multiagency research and development roadmap for the transition to NGATS. To comply with Vision 100, JPDO has been working on an enterprise architecture and expects to complete an early version of the architecture by September 2006. Many of JPDO’s future activities will depend on the robustness and timeliness of this architecture development. The enterprise architecture will describe FAA’s operation of the current national airspace system, JPDO’s plans for NGATS, and the sequence of steps needed for the transformation to NGATS. The enterprise architecture will provide the means for coordinating among the partner agencies and private sector manufacturers, aligning relevant research and development activities, and integrating equipment. JPDO has taken several important steps to develop the enterprise architecture—one of the most critical planning documents in the NGATS effort. For example, JPDO has drafted a concept of operations—a document that describes the operational transformations needed to achieve the overall goals of NGATS. JPDO has used this document to identify key research and policy issues for NGATS. For example, the concept of operations identifies several issues associated with automating the ATC system, including the need for a backup plan in case automation fails, the responsibilities and liabilities of different stakeholders during an automation failure, and the level of monitoring needed by pilots when automation is ensuring safe separation between aircraft. As the concept of operations matures, it will be important for air traffic controllers and other affected stakeholders to provide their perspectives on this effort so that needed adjustments can be made in a timely manner. JPDO officials recognize the importance of obtaining stakeholders’ comments on the concept of operations and are currently incorporating stakeholders’ comments into the concept of operations. JPDO expects to release its initial concept of operations by the end of July. Another step that JPDO has taken to develop the enterprise architecture is to form an Evaluation and Analysis Division (EAD), composed of FAA and NASA employees and contractors. This division is assembling a suite of models to help JPDO refine its plans for NGATS and iteratively narrow the range of potential solutions. For example, EAD has used modeling to begin studying how possible changes in the duties of key personnel, such as air traffic controllers, could affect the workload and performance of others, such as airport ground personnel. According to JPDO officials, the change in the roles of pilots and controllers is the most important human factors issue involved in creating NGATS. JPDO officials noted that the Agile Airspace and Safety IPTs include human factors specialists and that JPDO’s chief architect has a background in human factors. However, EAD has not yet begun to model the effect of the shift in roles on pilots’ performance because, according to an EAD official, a suitable model has not yet been incorporated into the modeling tool suite. According to EAD, addressing this issue is necessary, but will be difficult because data on pilot behavior are not readily available for use in creating such models. Furthermore, EAD has not yet studied the training implications of various NGATS-proposed solutions because further definition of the concept of operations for these solutions is needed. As the concept of operations and enterprise architecture mature, EAD will be able to study the extent to which new air traffic controllers will have to be trained to operate both the old and the new equipment. To develop and refine the enterprise architecture for NGATS, JPDO is following an effective technology development practice that we identified and applied to enterprise architecture development. This phased, “build a little, test a little” approach is similar to a process we have advocated for FAA’s major system acquisition programs. This phased approach will also allow JPDO to incorporate evolving market forces and technologies in its architecture and thus better manage change. Consequently, additional refinements are expected to be made to the enterprise architecture. Vision 100 requires JPDO to identify the anticipated expenditures for developing and deploying NGATS. To begin estimating these expenditures realistically, JPDO is holding a series of investment analysis workshops with stakeholders to obtain their input on potential NGATS costs. The first workshop, held in April 2006, was for commercial and business aviation, equipment manufacturers, and ATC systems developers. The second workshop is planned for August for operators of lower-performance aircraft used in both commercial and noncommercial operations. The third workshop, planned for early September, will focus on airports and other local, state, and regional planning bodies. Although these workshops will help JPDO develop a range of potential costs for NGATS, a mature enterprise architecture is needed to provide the foundation for developing NGATS costs. Several unknown factors will drive these costs. According to JPDO, one of these drivers is the technologies expected to be included in NGATS. Some of these technologies are more complex and thus more expensive to implement than others. A second driver is the sequence for replacing current technologies with NGATS technologies. A third driver is the length of time required for the transformation to NGATS, since a longer period would impose higher costs. JPDO’s first draft of its enterprise architecture, expected in September 2006, could reduce some of these variables, thereby allowing improved, albeit still preliminary, estimates of NGATS’ costs. Although the enterprise architecture for NGATS is not yet complete, both FAA and its Research, Engineering and Development Advisory Committee (REDAC) have developed preliminary cost estimates, which officials of both organizations have emphasized are not yet endorsed by any agency. FAA estimates that the facilities and equipment cost to maintain the ATC system and implement the transformation to NGATS will be about $66 billion, or about $50 billion in constant 2005 dollars. The annual cost would average $2.7 billion per year in constant 2005 dollars from fiscal year 2007 through fiscal year 2025, or about $200 million more each year than FAA’s fiscal year 2006 facilities and equipment appropriation. REDAC’s Financing NGATS Working Group has developed a $15 billion average annual cost estimate for NGATS that includes costs not only for facilities and equipment but also for operations; airport improvement; and research, engineering, and development—the remaining three components of FAA’s appropriation. As table 1 indicates, the working group began with FAA’s facilities and equipment estimate and went on to calculate the remaining costs for FAA to maintain the current ATC system and implement the transformation to NGATS. REDAC’s estimate for NGATS’s total cost averages about $1 billion more annually than FAA’s total appropriations for fiscal year 2006. Besides being preliminary, these estimates are incomplete—FAA’s more than REDAC’s because FAA’s does not include any costs other than those for facilities and equipment. An FAA official acknowledged that the agency would likely incur additional costs, such as for safety certifications or operational changes responding to new NGATS technologies. Additionally, FAA’s facilities and equipment cost estimate assumes that the intermediate technology development work, performed to date by NASA, has been completed. As I will discuss shortly, it is currently unclear who will now perform this work, but if FAA assumes responsibility for the work, REDAC has estimated additional FAA funding needs of at least $100 million a year. Furthermore, neither FAA’s nor REDAC’s estimate includes the other partner agencies’ costs to implement NGATS, such as those that the Department of Homeland Security might incur to develop and implement new security technologies. Finally, these estimates treat NGATS’s development and implementation period as an isolated event. Consequently, the costs drop dramatically toward 2025. In reality, officials who developed these estimates acknowledge that planning for the subsequent “next generation” system will likely be underway as 2025 approaches and the actual modernization costs could therefore be higher in this time frame than these estimates indicate. JPDO faces several challenges in planning for NGATS, including addressing leadership vacancies, leveraging resources and expertise from its partner agencies, and convincing nonfederal stakeholders that the government is fully committed to NGATS. JPDO has not had a permanent director since January 2006 and, with the recent resignation of the Secretary of Transportation, the senior policy committee is without a permanent chairperson. Our work has shown that, to overcome barriers to interagency coordination, committed leadership by individuals at the top of all involved organizations is critical. Leadership will also be important to provide a “champion” for JPDO and to sustain the partner agencies’ focus on and contributions to the transformation to NGATS. Moreover, without a chairperson of the senior policy committee, no one within JPDO is responsible for sustaining JPDO’s collaboration and overseeing its work. These vacancies raise concerns about the continued progress of JPDO and NGATS. After ATO was authorized, we reported that without a chief operating officer, FAA was unable to move forward with the new air traffic organization—that is, to bring together the ATC system’s acquisition and operating functions, as intended, into a viable performance-based organization (PBO). This PBO was designed to be part of the solution to the chronic schedule delays, cost overruns, and performance shortfalls in FAA’s ATC modernization program. We believe that filling the two vacant positions is critical to ensure continued progress for JPDO and NGATS. JPDO officials view leveraging the partner agencies’ resources and expertise as one of their most significant challenges. According to JPDO officials, leveraging efforts have worked well so far, but JPDO’s need for resources and expertise will increase with the development of NGATS, and for at least two reasons, JPDO may have difficulty meeting this need. First, JPDO’s partner agencies have a variety of missions and priorities in addition to NGATS, and their priorities may change. Recently, for example, NASA reduced its aeronautics budget and decided to focus on fundamental research, in part because the agency believes such research is more in keeping with its mission and unique capabilities. These changes occurred even though NASA’s current reauthorization act requires the agency to align its aviation research projects to directly support NGATS goals. In light of the changes, it is unclear what fundamental research NASA will perform to support NGATS and who will perform the development steps for that research—that is, the validation and demonstration that must take place before a new technology can be transferred to industry and incorporated into a product. JPDO and FAA officials said that not enough is understood about NASA’s plans to assess the impact of NASA’s action on NGATS, but many experts told us that NASA’s new focus on fundamental research creates a gap in the technology development continuum. Some believe that FAA has neither the research and development infrastructure nor the funding to do this work. As I previously mentioned, REDAC, in a draft report, estimated that FAA would need at least $100 million annually in increased funding to perform this research and development work. REDAC further estimated that establishing the necessary infrastructure within FAA could delay the implementation of NGATS by 5 years. Second, JPDO may have difficulty leveraging its partner agencies’ resources and expertise because it does not yet have formal, long-term agreements with the agencies on their roles and responsibilities in creating NGATS. According to JPDO officials, they are working to establish memorandums of understanding (MOU) signed by the heads of the partner agencies that will broadly define the partner agencies’ roles and responsibilities at a high level. JPDO is also developing more specific MOUs with individual partner agencies that lay out expectations for support on NGATS components, such as information sharing through network-centric operations. Obtaining the specialized expertise of some stakeholders poses an additional challenge for JPDO. Air traffic controllers, for example, will play a key role in NGATS, but their union is not participating in JPDO. Currently, the ATC system relies primarily on air traffic controllers to direct pilots to maintain safe separation between aircraft. Under NGATS, this premise could change and, accordingly, JPDO has recognized the need for human factors research on issues such as how tasks should be allocated between humans and automated systems and how the existing allocation of responsibilities between pilots and air traffic controllers might change. The input of current air traffic controllers who have recent experience controlling aircraft is important in considering human factors and safety issues because of the controllers’ familiarity with existing operating conditions. The air traffic controllers’ labor union, the National Air Traffic Controllers Association (NATCA), has not participated in NGATS since June 2005, when FAA terminated a labor liaison program that assigned air traffic controllers to major system acquisition program offices and to JPDO. FAA had determined that the benefits of the program were not great enough to justify its cost. The NGATS Institute Management Council includes a seat for the union, but a NATCA official told us that the union’s head had been unable to attend the council’s meetings. According to JPDO officials, the council has left a seat open in hopes that the controllers will participate in NGATS as the new labor-management agreement between NATCA and FAA is implemented. Convincing nonfederal stakeholders that the government is fully committed to NGATS poses a challenge because, in the past, the government has stopped some modernization efforts, including one in which an airline had already invested in supporting technologies. Specifically, FAA developed a datalink communications system that transmitted scripted e-mail-like messages between controllers and pilots. One airline equipped some of its aircraft with this new technology, but because of funding cuts, among other things, FAA canceled the program. Moreover, as we have reported, some aviation stakeholders have expressed concern that FAA may not follow through with its airspace redesign efforts and are hesitant to invest in equipment unless they are sure that FAA will remain committed to its efforts. One expert suggested that the government might mitigate this issue by making an initial investment in a specific technology before requesting that airlines or other industry stakeholders purchase equipment. Stakeholders’ belief that the government is fully committed to NGATS will be important as efforts to implement NGATS technologies move forward. Achieving many of the benefits of NGATS will require users of the system—airlines and general aviation—to purchase NGATS-compatible technologies, such as ADS-B. This new air traffic surveillance system, which JPDO has identified as one of the early core technologies for NGATS, requires aircraft to be equipped with components that will be implemented in two phases. FAA anticipates significant cost savings from the implementation of the first phase, but the airlines do not expect to benefit until the second phase is complete. The technology should then allow pilots to fly more precise routes at night and in poor visual conditions. Another early core technology for NGATS, SWIM, is also intended to produce benefits for users, but again, it is not expected to do so for many years. Nonfederal stakeholders’ support for these and other NGATS technologies will be important, and their support will depend, in part, on their assurance of the government’s full commitment. FAA faces challenges in implementing NGATS, including institutionalizing recent improvements in its management and acquisition processes, acquiring expertise to implement highly complex systems, and achieving cost savings to help fund NGATS technologies. With the establishment of ATO and the appointment of a Chief Operating Officer (COO) for it, FAA put a new management structure in place and established more businesslike management and acquisition processes to address the cost, schedule, and performance shortfalls that have plagued ATC modernization over the years. Under the new structure, FAA is a flatter organization, with fewer management layers, and managers are in closer contact with the services they deliver. FAA has also taken some steps to break down the vertical lines of authority, or organizational stovepipes, that we found hindered communication and coordination across FAA. For example, the COO holds daily meetings with the managers of ATO’s departments and holds the managers collectively responsible for the success of ATO through the performance management system. FAA has revised its management processes to increase accountability. For example, it has established a cost accounting system and made the units that deliver services within each department responsible for managing their own costs. Thus, each unit manager develops an operating budget and is held accountable for holding costs within specific targets. Managers track the costs of their unit’s operations, facilities and equipment, and overhead and use this information to determine the costs of the services their unit provides. Managers are evaluated and rewarded according to how well they hold their costs within established targets. Our work has shown that it is important, when implementing organizational transformations, to use a performance management system to assure accountability for change. Finally, FAA is revising its acquisition processes, as we recommended, and taking steps to improve oversight, operational efficiency, and cost control. To ensure executive-level oversight of all key decisions, FAA has revised its Acquisition Management System to incorporate key decision points in a knowledge-based product development process. Moreover, as we have reported, an executive council now reviews major acquisitions before they are sent to FAA’s Joint Resources Council. To better manage cost growth, this executive council also reviews breaches of 5 percent or more in a project’s cost, schedule, or performance. FAA has issued guidance on how to develop and use pricing, including guidelines for disclosing the levels of uncertainty and imprecision that are inherent in cost estimates for major ATC systems. Additionally, FAA has begun to base funding decisions for system acquisitions on a system’s expected contribution to controlling operating costs. Finally, FAA is creating a training framework for its acquisition workforce that mirrors effective human capital practices that we have identified, and the agency is taking steps to measure the effectiveness of its training. Since 2004, FAA has met its acquisitions performance goal—to have 80 percent of its system acquisitions on schedule and within 10 percent of budget. To sustain this record, FAA will need to institutionalize its reforms—that is, provide for their duration beyond the current administration at FAA and ATO by ensuring that the reforms are fully integrated into the agency’s structure and processes at all levels and have become part of its organizational culture. Our work has shown that successfully institutionalizing change in large public and private organizations can take 5 to 7 years or more. In the past, a lack of expertise contributed to shortfalls in FAA’s management of ATC modernization projects. Although the personnel flexibilities that Congress authorized in 1995 allowed FAA to establish criteria for outstanding performance and match industry pay scales for needed expertise, industry experts have questioned whether FAA will have the technical expertise needed to implement NGATS—a task of unprecedented complexity, according to JPDO, FAA, and other aviation experts. In 2004, we found that FAA could not ensure that its own best practices were consistently used in managing acquisitions and, as a result, its major acquisitions were still at risk of cost overruns, schedule slippages, or performance shortfalls. These findings are consistent with concerns about the expertise of acquisition managers governmentwide. According to a 2005 study by the Merit Systems Protection Board, at least 50 percent of the government personnel who currently manage technical contracts reported needing training in areas such as contract law, developing requirements, requesting bids, developing bid selection criteria and price determinations, and monitoring contractor performance. Recognizing the complexity of the NGATS implementation effort and the possibility that FAA may not have the in-house expertise to manage it without assistance, we have identified potential approaches for supplementing FAA’s capabilities. One of these approaches is for FAA to contract with a lead systems integrator (LSI). Generally, an LSI is a prime contractor that would help to ensure that the discrete systems used in NGATS will operate together and whose responsibilities may include designing system solutions, developing requirements, and selecting major system and subsystem contractors. The government has used LSIs before for programs that require the integration of multiple complex systems. Our research indicates that although LSIs have certain advantages, such as the knowledge, understanding, skills, and ability to integrate functions across various systems, their use also entails certain risks. For example, because an LSI may have significantly more responsibility than a prime contractor usually does, careful oversight is necessary to ensure that the government’s interests are protected and that conflicts of interest are avoided. Consequently, selecting, assigning responsibilities to, and managing an LSI could pose significant challenges for JPDO and FAA. Another approach that we have identified involves obtaining technical advice from federally funded research and development corporations to help the agency oversee and manage prime contractors. These nonprofit corporations are chartered to provide long-term technical advice to government agencies in accordance with various statutory and regulatory rules to ensure independence and prevent conflicts of interest. FAA officials indicated that they are considering at least these two approaches to help address any possible gaps the agency may have in its technical expertise. Given the complexity of implementing NGATS, we believe that FAA’s consideration of these approaches to filling any gaps in its technical expertise is appropriate. We believe that either of these approaches could reduce the risks associated with implementing NGATS. The cost of operating and maintaining the current ATC system while implementing NGATS will be another important challenge in transitioning to NGATS—a system that, as noted, is broader in scope than the current ATC system and will require funding for security technologies and environmental activities as well as ATC technologies. Although additional funding for the current ATC system and for NGATS may come from increased congressional appropriations, some industry analysts expect that most of the funds for implementing NGATS will have to come from savings in operating and maintaining the current ATC system. FAA is currently seeking to reduce costs by introducing infrastructure and operational efficiencies and expects to use the savings from these efforts to help fund the implementation of NGATS. For example, FAA has begun to decommission ground-based navigational aids, such as compass locators, outer markers, and nondirectional radio beacons, as it begins to move toward a satellite-based navigation system. In fiscal year 2005, FAA decommissioned 177 navigational aids, claiming savings of $2.9 million. According to one expert, FAA could additionally generate revenue from these sites by leasing them for warehouses or cell phone towers. FAA also expects to reduce costs by streamlining its operations. For example, it is consolidating its administrative activities, currently decentralized across its nine regions, into three regions, and anticipates an annual savings of up to $460 million over the next 10 years. Our work analyzing international air navigation service providers has shown that additional cost savings may be possible by further consolidating ATC facilities such as terminal radar approach control (TRACON) facilities and ATC centers. According to one estimate of potential FAA savings, consolidating the existing 21 air route traffic control centers into 6 centers could save approximately $600 million per year. Finally, FAA expects to save costs through outsourcing. For example, it outsourced its automated flight service stations to a private contractor and expects to achieve savings of $1.7 billion over 10 years. In addition, it expects savings of $0.5 billion from 400 staffing reductions that occurred between the time the outsourcing began and the time the new contract was actually implemented. The agency expects to receive $66 million—the first installment of these cost savings—in fiscal year 2007. Until FAA has completed its estimates of both NGATS costs and the cost savings it will be able to achieve between now and 2025, it will not be able to determine how far these cost savings will go toward financing NGATS. Nonetheless, one analyst has preliminarily estimated that FAA’s expected savings through infrastructure and operational efficiencies will fall far short of the amount needed to finance NGATS. While more information is needed to estimate the amount of any shortfall with greater confidence, these preliminary and incomplete estimates signal the extent of the resource challenge. Mr. Chairman, this concludes my statement. We would be pleased to answer any questions that you and Members of the Subcommittee may have. For further information on this testimony, please contact Gerald Dillingham at (202) 512-2834 or [email protected]. Individuals making key contributions to this statement include Kevin Egan, Elizabeth Eisenstadt, David Hooper, Heather Krause, Elizabeth Marchak, Edmond Menoche, Faye Morrison, Taylor Reeves, and Richard Scott. 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.

The health of our nation's air transportation system is critical to our citizens and economy. However, the current approach to managing air transportation is becoming increasingly inefficient and operationally obsolete. In 2003, Congress created the Joint Planning and Development Office (JPDO) to plan for and coordinate, with federal and nonfederal stakeholders, a transformation from the current air traffic control (ATC) system to the "next generation air transportation system" (NGATS). Housed within the Federal Aviation Administration (FAA), JPDO has seven partner agencies that make up JPDO's senior policy committee: the Departments of Transportation, Commerce, Defense, and Homeland Security; FAA; the National Aeronautics and Space Administration (NASA); and the White House Office of Science and Technology Policy. This testimony, which provides preliminary results from GAO's ongoing work on JPDO, provides information on (1) the status of JPDO's efforts to plan for NGATS, (2) the key challenges facing JPDO as it moves forward with its planning efforts, and (3) the key challenges facing FAA as it implements the transformation while continuing its current operations. The statement is based on GAO's analysis of JPDO documents, interviews, and the views of a panel of experts, as well as on past GAO work. JPDO has developed a framework for planning and coordination with its federal partner agencies and nonfederal stakeholders that is consistent with the requirements of its authorizing legislation--Vision 100--and with several practices that our previous work has shown can facilitate federal interagency collaboration and the development of an enterprise architecture (i.e., system blueprint). JPDO's framework includes an integrated plan that provides a vision for NGATS, an organizational structure and processes for leveraging the resources and expertise of federal and nonfederal stakeholders, and an enterprise architecture that defines the specific requirements for NGATS. As JPDO moves forward, it will face leadership, leveraging, and commitment challenges. Currently, JPDO lacks a permanent director and a permanent chairperson of its senior policy committee to provide the leadership needed to overcome barriers to interagency coordination. In addition, despite early successes, JPDO may have difficulty continuing to leverage its partner agencies' resources and expertise for NGATS because these agencies have missions and priorities in addition to NGATS and JPDO does not yet have signed, long-term agreements with the partner agencies on their respective roles and responsibilities. Finally, JPDO faces the challenge of convincing nonfederal stakeholders that the government is fully committed to implementing NGATS, given that, in some instances, it has discontinued work on new technologies for the national airspace system. FAA faces challenges in institutionalizing recent improvements in its management and acquisition processes, as well as in obtaining the expertise and resources necessary to implement NGATS. First, institutionalizing FAA's process improvements is critical to successfully implementing NGATS. Second, FAA may lack the expertise needed to manage the NGATS effort. GAO has identified two potential approaches for FAA to supplement its capabilities that FAA is considering. Third, achieving cost savings is critical to funding the implementation of NGATS.

You are an expert at summarizing long articles. Proceed to summarize the following text: In 1995, the Congress passed the ICC Termination Act, which abolished the Interstate Commerce Commission (ICC) and created the Board. The act transferred many of ICC’s core rail functions to the Board, including the responsibility to review and approve railroad mergers. The Board has exclusive jurisdiction to review proposed rail mergers, and if approved by the Board, such mergers are exempt from other laws (including federal antitrust laws that would otherwise apply to the transaction) as necessary to carry out the transaction. The Board also conducts oversight of mergers that have been approved. However, there is no statutory requirement for merger oversight. ICC had approximately 400 employees in 1995, its last year of operation. For fiscal year 2001, the Board received an appropriation to support 143 employees. In October 2000, the Board proposed modifications to its regulations governing major rail consolidations. According to the notice of proposed rulemaking, the Board recognized that current merger regulations are outdated and inappropriate for addressing future major rail mergers that, if approved, would likely result in the creation of two North American transcontinental railroads. In June 2001, the Board adopted final regulations governing proposed major rail consolidations. The final regulations recognize the Board’s concerns about what the appropriate rail merger policy should be in light of a declining number of Class I railroads, the elimination of excess capacity in the industry, and the serious service problems that have accompanied recent rail mergers. The final rules substantially increase the burden on applicants to demonstrate that a merger is in the public interest, in part by providing for enhanced competition and protecting service. The rules also establish a formal annual oversight period of not less than 5 years following a merger’s approval. The Board is responsible for approving railroad mergers that it finds consistent with the public interest. When necessary and feasible, conditions are imposed by the Board to mitigate any potential harm to competition. Oversight is designed to ensure that merger conditions have been implemented and that they are meeting their intended purpose. In determining, under the ICC Termination Act of 1995, whether proposed mergers are consistent with the public interest, the Board is required to consider a number of factors that relate to competition. These include the effect of a proposed transaction on the adequacy of transportation to the public; the effect on the public interest of including, or failing to include, other rail carriers in the area involved in the proposed transaction; and the impact of the proposed transaction on competition among rail carriers in the affected region or in the national rail system. The act also establishes a 15-month time limit for the Board to complete its review of accepted applications for mergers between Class I railroads and reach a final decision. Since the Board was created, two applications for merger between Class I railroads have been submitted—Conrail’s acquisition by CSX and Norfolk Southern and Canadian National/Illinois Central—both of which were approved. The Board also approved the Union Pacific’s acquisition of Southern Pacific, an application that had originally been submitted to ICC. During the merger review process, the Board considers comments and evidence submitted by all interested parties, which, together with the application, form the record upon which the Board bases its decision. The applicants as well as interested parties may submit information on the potential public benefits and potential harm of a proposed merger. Public benefits can include such things as gains in a railroad’s efficiency, cost savings, and enhanced opportunities for single-line service. Potential harm can result from, among other things, reductions in competition and harm to a competing carrier’s ability to provide essential services—that is, services for which there is a public need but for which adequate alternative transportation is not available. Whenever necessary and feasible, the Board imposes conditions on mergers that it approves so as to mitigate potential harm associated with a merger, including harm to competition. In determining whether to approve a merger and to impose conditions on its approval, the Board’s concern has focused on the preservation of competition and essential services— not on the survival of particular carriers or enhancing competition. Board officials told us that, while the Board’s efforts to preserve competition have primarily focused on maintaining competitive options for those shippers that could face a reduction in service from two railroads to service by only one railroad, competition that is the result of having two “nearby” railroads has also been preserved. Conditions can include such things as trackage rights, switching arrangements, access to another railroad’s facilities or terminal areas, or divestiture of lines. For example, in the UP/SP merger, the Board granted about 4,000 miles of trackage rights to the Burlington Northern and Santa Fe Railway (BNSF) to address competition-related issues for those rail corridors and shippers that could have potentially faced a reduction in service from two railroads (UP and SP) to service by only one railroad (UP). (See fig. 1.) The Board may also impose privately negotiated settlement agreements as conditions to mergers. The Board will normally impose conditions only when a merger would produce effects harmful to the public interest (such as a significant reduction in competition) and the condition will ameliorate or eliminate these harmful effects. In addition, a condition must be operationally feasible, produce net public benefits, and be tailored to address the adverse effects of a transaction. If a merger is approved, the Board has broad discretion to impose oversight conditions, as well as flexibility in how it conducts oversight. Such oversight conditions establish the Board’s intent to monitor a merger’s implementation and to conduct annual oversight proceedings (called formal oversight in this report). An oversight condition may also establish a time period during which the Board will monitor the effects of a merger. Although oversight conditions are not necessary for the Board to retain jurisdiction over a merger—particularly with regard to carrying out conditions the Board has imposed—oversight conditions ensure that the Board’s retained jurisdiction will be meaningfully exercised and gives parties an added opportunity to demonstrate any specific anticompetitive effects of a merger. According to the Board, oversight also (1) permits the Board to target potential problem areas for the subsequent imposition of additional conditions if this proves warranted in light of experience, (2) puts applicants on notice that they consummate the transaction subject to reasonable future conditions to mitigate harm in limited areas, and (3) helps to ensure cooperation by the merging carriers in addressing problems and disputes that may arise following merger approval. As such, oversight provides an additional check that Board-approved mergers are in the public interest. When an oversight period ends, the Board has stated that it continues to retain jurisdiction and can reopen a merger proceeding, if necessary, to address concerns pertaining to competition and other problems that might develop. Board officials described postmerger oversight as a process consisting mainly of an annual oversight proceeding. This proceeding is an examination of the implementation of merger conditions and whether conditions have effectively met their intended purpose. Oversight is generally conducted each year for 5 years after a merger has been approved. As part of the oversight proceeding, public comments and supporting information are formally submitted into the record by shippers, carriers, and other interested parties. Periodic progress reports, which provide, among other things, details on the implementation of conditions, are also submitted by merging railroads as required. Board officials told us that reporting requirements are frequently used as part of oversight and that such reporting has served to replace the industry and merger monitoring once conducted by ICC’s field staff. As an adjudicatory body, the Board relies on parties affected by a merger to identify whether a proposed transaction has harmed competition and, if so, to what extent; the Board does not independently collect this type of information. Board officials noted that it has been standard practice in merger oversight to require relevant railroads, such as UP and BNSF in UP/SP oversight, to make available under seal to interested parties the railroads’ confidential 100 percent traffic tapes—tapes that include information such as shipments moved and freight revenue generated—so that parties other than the merging carriers would also have the opportunity to submit postmerger rate analyses to the Board. As part of the oversight process, the Board may consider information obtained from monitoring industry operations, such as service levels, as well as any studies conducted, whether specific to that merger or industrywide. In conducting formal oversight, the Board may modify existing conditions if they are not achieving their intended purpose or may impose additional reporting requirements if necessary. The Board also has the authority to initiate a new proceeding to determine if additional conditions should be imposed to address unforeseen merger-related issues. Board officials noted that the agency engages in other activities associated with oversight. Included are such things as informal monitoring of merging railroads’ operations and service performance and responding to certain filings, such as petitions to clarify or modify a merger condition based on competition-related issues or other claims of merger harm. Although the Board retains some form of oversight jurisdiction for all rail mergers, the use of formal merger oversight has become standard only since the mid-1990s. Board officials told us that before 1995, formal postapproval oversight of mergers was rare and was instituted only in unusual situations when strong concerns about competition were present. These officials pointed to only two cases when a period of formal oversight was imposed prior to 1995: once in 1984 in a rail/barge merger between CSX Corporation and American Commercial Lines, Inc., and in 1992 as part of the merger of Wisconsin Central Transportation Corporation and Fox Valley & Western, Ltd. Neither case involved the merger of two or more Class I railroads. In both cases, however, oversight conditions were imposed in response to concerns raised about potential harm to competition. In recent years, in light of the complexity of transactions and the service and competitive issues that have arisen, the Board has expanded its use of formal oversight of railroad mergers. ICC did not impose specific oversight conditions on its approval of the 1995 Burlington Northern and Santa Fe Railway merger because, according to Board officials, there were few concerns raised in that merger about service issues or potential harm to competition. Since August 1995, when the BNSF merger was approved, the Board has imposed oversight on all three Class I railroad mergers that it has approved: the 1996 UP/SP merger, the 1998 Conrail acquisition by CSX and Norfolk Southern, and the 1999 Canadian National/Illinois Central merger. For two of the three transactions (UP/SP and Conrail), the oversight period was set for 5 years. In the third merger—Canadian National and Illinois Central—a 5-year oversight period was established with continuation to be reviewed annually. All three oversight periods are ongoing. The Board has significant discretion and flexibility to adapt its oversight as circumstances warrant. For example, in conducting oversight in recent years, the Board has, when necessary, incorporated additional monitoring elements to supplement its oversight activities. For example, it has added more reporting requirements. The UP/SP merger provides a good illustration of service monitoring. As the result of a service crisis that developed during the implementation of this merger, the Board required both UP/SP and BNSF to provide weekly and monthly reports to its Office of Compliance and Enforcement—information which, according to Board officials, had never been available before. These reports included statistics on such things as average train speed, cars on line, and terminal dwell time—the time loaded railcars spend in a terminal awaiting continued movement. This information allowed the Board to monitor the operations and service levels of both railroads. Similar reporting requirements were imposed on both CSX and Norfolk Southern in the Conrail merger. In this instance, the Board, anticipating possible transitional service problems during the integration process, required the weekly and monthly reports both to monitor the merger’s implementation and to identify potential service problems. Board officials told us that as a result of the lessons learned in the UP/SP merger, oversight has expanded to incorporate monitoring of operational and service issues—in part to serve as an early warning of problems that might occur during the merger integration process. Future mergers will also be subject to operational monitoring. The merger rules adopted by the Board in June 2001 state that the Board will continue to conduct significant postapproval operational monitoring of mergers to insure that service levels after a merger are reasonable and adequate. In general, the Board has found few competition-related problems when conducting oversight of recent mergers but has acted to modify some conditions designed to address such problems when it felt such action was necessary. Even though many of the shipper and railroad trade associations told us that the oversight process is valuable, some shippers and small railroads are dissatisfied with aspects of the Board’s oversight. In addition, some larger carriers are concerned that shippers are using the oversight process to address issues not related to mergers. The Board’s recently adopted merger rules could affect oversight by changing the focus of merger approval toward enhancing rather than preserving competition. A review of oversight decisions in recent merger cases shows that the Board has found few problems related to competition. Board officials also told us they believe that, to date, the conditions originally imposed on mergers have met their intended purpose and have mitigated any potential harm to competition. In determining whether to modify a condition, the Board reviews the evidence presented, considers the nature and extent of the alleged harm, and assesses what action may be warranted. In general, the Board has not found it necessary to modify or add conditions during oversight of recent mergers. However, the Board has found such action to be appropriate in some cases. For example, in December 1998, the Board added a condition and modified a condition in the UP/SP merger. The added condition addressed traffic congestion in the Houston/Gulf Coast area; the modified condition changed the location where BNSF railcars are transferred to another railroad. Similarly, in 1998 and 1999, the Board modified four conditions in the Conrail transaction. These modifications were designed to preserve competition by, among other things, introducing a second carrier and requiring carriers to negotiate an acceptable transfer point to interchange railcars bound for an Indiana power plant. Providing specific evidence of harm to competition is critical in obtaining additional Board relief. According to the Board’s decisions, shippers and others have sometimes alleged harm to competition during oversight without presenting specific evidence of such harm. For example, as part of the UP/SP merger, the Board granted over 2,100 miles of trackage rights to BNSF on the Central Corridor to preserve competition for those shippers that could have been reduced from service by two carriers (UP and SP) to service by only one (the merged UP/SP) and for those exclusively served shippers who benefited from having another railroad nearby. Some organizations have asserted that, despite the trackage rights, postmerger competition has not been adequate on this corridor. However, in its UP/SP oversight decisions, the Board has concluded that postmerger competition on this corridor has been adequate, in part because no shippers came forward with specific evidence of harm. In another instance, in the Conrail merger, the Board granted trackage rights to Norfolk Southern to access a power plant in Indiana. In order to use the trackage rights, Norfolk Southern negotiated a fee with CSX. The power plant owner believed that the negotiated fee was too high to allow adequate competition between the railroads and requested a lower fee so that Norfolk Southern could compete for its business. In denying this request, the Board stated that the evidence of harm presented was not sufficient, in part because both CSX and Norfolk Southern demonstrated that the negotiated fee would amount to only a minimal cost increase ($0.004 per ton) over the amount the Board had previously found to be reasonable. A review of merger oversight documents shows the Board has acted to address competition-related postmerger issues when it believed such action was necessary. For example, during oversight of the Conrail acquisition, the Board reduced fees for trackage rights and switching charged to Canadian Pacific to permit competition between CSX and Canadian Pacific Railway in the Albany, New York, to New York City corridor. Although the Board had initially set these fees in a postmerger decision, the Board later determined that the fees were too high to allow Canadian Pacific to use CSX tracks to provide meaningful competition between the carriers. Consequently, the Board acted to reduce the fees to promote competition. The Board also acted during the Conrail oversight period to void provisions in two contracts between CSX Intermodal, Inc., a rail shipper, and Norfolk Southern that required Norfolk Southern to be the primary carrier of CSX Intermodal goods between northern New Jersey and Chicago during the contract period. Voiding these provisions allowed CSX immediately to compete with Norfolk Southern for these shipments. Shipper and railroad trade associations and railroad companies with whom we spoke believe postmerger oversight is a valuable process. Officials from the National Grain and Feed Association and the National Industrial Transportation League told us that the Board has always been willing to listen to their concerns. Officials from Norfolk Southern and BNSF said the merger oversight process provides shippers and railroads with an opportunity to submit merger-related questions, problems, and concerns. Railroad and railroad association officials stated that the Board acts to protect the interests of the public and the shipping community by allowing railroads and shippers to work together during oversight to resolve actual and potential merger-related problems. Officials from one trade association said that without an oversight process, their members might be faced with a less desirable alternative. For example, officials from the American Chemistry Council told us that the only other option for shippers would be to use the Board’s time-consuming and expensive complaint process. Officials from the American Chemistry Council, as well as officials from UP and BNSF, said a 5-year oversight period has been a benefit to both railroads and shippers. However, an American Chemistry Council official said some mergers may need oversight for a longer or shorter period than 5 years and that it is unclear what type of oversight will occur after the 5-year oversight period for the UP/SP merger expires in 2002. Despite seeing oversight as a valuable process, some shipper and small railroad associations are dissatisfied with aspects of the Board’s oversight procedures. A number of reasons were cited. The Board has been viewed as unresponsive to concerns of shippers and small railroads. For example, an official representing the Edison Electric Institute told us that it had expressed concern to the Board in 2000 about the degree of competition for the transport of Utah and Colorado coal in the Central Corridor, but that the Board declined to answer questions about this issue. An official from the American Chemistry Council expressed similar frustration that the Board did not adopt any part of a plan developed by shippers and others to address the Houston/Gulf Coast service crisis that occurred during the implementation of the UP/SP merger. This plan had broad support from both private sector and state government officials.Dissatisfaction was also expressed about the time and resources required for preparing and submitting comments during the postmerger oversight period, especially for small shippers. For example, officials from the Edison Electric Institute and the American Chemistry Council told us that small shippers might not have the time or the money to invest in the formal oversight process. Finally, officials from several shipper associations and the American Short Line and Regional Railroad Association (an association representing smaller railroads) said their members are discouraged from participating in the oversight process, in part because of the reasons cited above. Although generally satisfied with the Board’s oversight process, officials at some Class I railroads have cited certain drawbacks to it. For example, officials at Norfolk Southern, CSX Transportation, and UP said some shippers use the formal oversight process as a mechanism to raise non- merger-related issues, which they claim have protracted the oversight process. Railroad officials told us that inviting comments by interested parties allows them to reintroduce issues that were initially denied during the merger approval process. They noted that, as a result, they must invest their time to address non-merger-related issues. Officials with Norfolk Southern said that if the Board allows parties to reintroduce issues already decided, this could delay implementation of a merger. Board officials told us that oversight is an open process and anyone can submit comments. The basis for making decisions is the merger and postmerger oversight record and Board officials said they encourage parties such as shippers, railroads, and others to submit information into the record so that the Board can act with as much information as possible. However, Board officials acknowledged that parties sometimes reargue issues during oversight that were not decided in their favor in the merger decision. For example, in its November 2000 oversight decision in the Canadian National/Illinois Central merger, the Board refused to require that Canadian National sell its share of the Detroit River Tunnel as requested by various parties. The parties were concerned that Canadian National would competitively disadvantage the Detroit River Tunnel by not allowing needed capital investments to be made and favoring another nearby tunnel it owned. The Board found that this issue was not directly related to the merger and was a matter being privately negotiated between the parties. Finally, Board officials have said the oversight process has evolved over time and the Board has incorporated additional reporting and other requirements to provide more information on actual and potential problems experienced during merger implementation. Moreover, the Board has focused on preserving, not enhancing, competition and does not seek to restructure the competitive balance of the railroad industry during postmerger oversight. Both shipper association and railroad officials with whom we spoke recognized that the Board has a limited number of staff to conduct formal oversight. According to officials from the American Short Line and Regional Railroad Association, the Board’s perceived slowness in handling oversight issues may be attributable to the significant amount of information that needs to be processed during the annual oversight proceeding—information that is generally handled by a core team of 15 employees (who, Board officials noted, also work on agency matters other than mergers). Board officials acknowledged that their resources are limited. However, they said oversight offers an open, no-fee process in which any interested party may participate. They also said the Board has issued in a timely manner its decisions in the annual oversight proceeedings, as well as in matters involving specific material issues during oversight. The rail consolidation rules issued in June 2001 could change how the Board conducts oversight by providing for merger applications to include plans to enhance competition and to ensure reasonable service and by holding applicants accountable if they do not act reasonably to achieve promised merger benefits. Shifting the focus of merger review towards enhancing competition and ensuring reasonable service, as well as including some degree of accountability for postmerger benefits, could require the Board to expend additional time and resources reviewing these issues. For example, the final rules would call upon merger applicants to enhance competition so as to offset any negative effects resulting from a merger, such as potential harm to competition and disruptions of service. This could affect the way the Board uses and oversees conditions during the merger approval and oversight processes. Similarly, to require railroads to calculate the net public benefits to be gained through a proposed merger and to hold them accountable for acting reasonably to achieve these benefits, such as improved service, the Board will monitor as part of the general oversight proceeding the realization of merger benefits claimed. These activities would enlarge the current focus of assessing whether conditions are working as intended. In the event that public benefits fail to materialize after a merger is approved, the Board said it would consider the applicant’s proposals for additional measures. It is not likely that the final merger rules will resolve all concerns expressed by shipper and railroad organizations about oversight. The final rules will not change the basic process established for oversight. While the final rules may address concerns of shippers and railroads about service levels by requiring merger applicants to develop service assurance plans, they will not address more general concerns that the Board is not responsive to their issues. Furthermore, the final rules will not likely address concerns about the time and resources necessary to participate in postmerger oversight. Rather, the amount of time and resources required could increase, given that during oversight the Board will assess enhancement of competition, service issues, and accountability for proposed merger benefits as well as whether conditions are working as intended. In addition, issues may continue to be introduced that are not directly related to the merger under review. Board officials said they do not consider participation in oversight to be an expensive or burdensome process. However, they acknowledged that the new merger rules would require applicants to provide more detailed information on competition, service, and benefits as part of the merger application and that the amount of time and resources required during oversight could increase. Finally, the final rules may also not address all of the shippers’ concerns about the extent of competition in the rail industry resulting from mergers. While provisions regarding the enhancement of competition may address some competition-related issues, it is not clear how these provisions will be implemented. Both shipper and railroad officials told us that enhanced competition had not been defined in the proposed rules and, therefore, they were not clear how the provisions might affect specific situations involving competition. The final rules acknowledge that the Board cannot predict in advance the type and quantity of competitive enhancements that would be appropriate in a particular merger proposal. Lastly, the new merger rules make clear that the Board will not use its authority to impose conditions during merger approval to provide a broad program of open access. We analyzed the effects of the 1996 UP/SP merger on rail rates in two selected geographic markets that have high concentrations of shippers that faced a reduction in service by two railroads to service by only one railroad (called 2-to-1 shippers). We found that the merger reduced rail rates for four of the six commodities we reviewed. However, in one instance, the merger placed upward pressure on rates, even though other factors caused overall rate decreases. For the remaining commodity, rates were relatively unchanged. Our analysis illustrates that the Board could make more informed decisions during oversight about whether merger conditions are protecting against harm to competition, as measured by the merger’s effect on rates, if it had information that separated rate changes specifically resulting from a merger from rate changes caused by other factors. A merger reduces the number of rail carriers and can potentially enhance the market power of remaining carriers. This enhanced market power could be used to profitably increase rail rates if no action were taken to preserve competition. Board officials told us that rate trends are a good indicator of postmerger competition. In 1996, UP acquired SP in a transaction that raised significant competition-related issues. This merger encompassed a number of geographic areas where the loss of competition from SP could have reduced the number of carriers from 2 to 1. Most of these areas were in Texas and Louisiana, but some were in the Central Corridor between California and Colorado. (See fig. 1.) In granting trackage rights to BNSF in this merger, the Board sought to replace the competition for potential 2-to-1 shippers in these geographic areas. To understand how the UP/SP merger affected rail rates, we looked at rail rates in two geographic areas—Reno, Nevada, and Salt Lake City, Utah— both in the Central Corridor. We selected these areas because they had high concentrations of potential 2-to-1 shippers and, according to BNSF and UP/SP officials, were less affected by the service crisis that developed during implementation of the UP/SP merger. They also provided relatively clear examples of where BNSF service substituted for SP service. The primary commodities shipped to and from Reno and Salt Lake City were nonmetallic minerals (such as barites) and chemicals (such as sulfuric acid or sodium). (See table 1.) Farm products (such as corn and wheat) accounted for about 13 percent of the traffic shipped to Salt Lake City. We also included coal in our analysis of Salt Lake City rail rates, since it accounted for the highest percentage of carloads shipped to and from that area. However, BNSF officials told us that, in general, they have not yet used the trackage rights they were granted to transport coal to or from the Salt Lake City area. In its decision approving the UP/SP merger, the Board noted that BNSF was granted access to only a small portion of coal traffic on the Central Corridor, mostly in the northwestern section of Utah. As the table shows, the potential 2-to-1 shippers served by BNSF, as a percentage of total shippers in these geographic areas, ranged from 10 to 22 percent. This is consistent with comments made by Board officials that BNSF received trackage rights to serve about 20 percent of the postmerger UP/SP traffic on the Central Corridor. Our analysis found that by itself the merger would have served to reduce rates for four of the six commodities shipped to or from the geographic areas we chose. (See table 2.) Specifically, the merger would have reduced rates for coal shipments to and from the Salt Lake City area (by 8 percent and 10 percent, respectively), chemical shipments from the Salt Lake City area (by 6 percent), and farm products to the Salt Lake City area (by 5 percent). However, the rates for shipments of chemicals to the Reno area would have increased by 21 percent because of the merger, while rates for shipments of nonmetallic minerals originating in the Reno area would have been relatively unchanged by the merger (i.e., the merger-related change was not statistically significant). The effect of a merger on rail rates depends on the cost savings the merger might generate relative to the exercise of any enhanced market power by the railroad carriers. Since the Board acted to preserve the level of competition by granting trackage rights to BNSF to serve potential 2-to-1 shippers in these geographic areas, the rate decreases from the merger likely reflect cost savings from the consolidation. Another way in which the merger could result in lower rates is if BNSF provided more effective competition to UP in the postmerger period than SP did in the premerger period. While the effects of a merger can put downward (or upward) pressure on rates, an analysis focused on overall rate changes alone could lead to an inaccurate conclusion about whether conditions imposed on a merger to mitigate potential harm to competition have been effective. The results of our analysis indicate that, in addition to merger effects, other factors, such as the volume of shipments, had an equal or greater influence on overall rate changes for the specific movements we examined. In some cases, the effects of these other factors were strong enough to offset or even reverse the downward pressure of the merger on rates. (See table 2.) For example, for shipments of chemicals from the Salt Lake City area and for shipments of coal to and from the Salt Lake City area, while the merger alone would have decreased rates, the rates nevertheless increased overall. On the other hand, while rates decreased overall for chemicals shipments to the Reno area, the merger by itself put an upward pressure on rates. Finally, we found that postmerger rates for potential 2-to-1 shippers (served by BNSF) in the Reno and Salt Lake City areas decreased for one of the commodities we looked at but were essentially unchanged in three other instances. (See table 3.) The rate changes for potential 2-to-1 shippers (served by BNSF) shipping chemicals from the Salt Lake City area were about 16 percentage points less than similar rates for shippers shipping similar products but served solely by UP. However, rail rate changes for potential 2-to-1 shippers (served by BNSF) who shipped farm products to the Salt Lake City area, nonmetallic minerals from the Reno area, and chemicals to the Reno area were all higher than for shippers served exclusively by UP, but this difference was not statistically significant, meaning that the rates were essentially unchanged. These results are not wholly unexpected, since the levels of rail competition for the two kinds of shippers—potential 2-to-1 and non-2-to-1—differ and rail rates are set using differential pricing. Under differential pricing, shippers with less effective transportation alternatives generally pay a proportionately greater share of a railroad’s fixed costs than shippers with more effective transportation alternatives. There are limitations in the analysis and data we used. The results presented are only for the two geographic markets we reviewed and cannot be generalized to other geographic locations or for rate changes from the UP/SP merger as a whole. In addition, although econometric models of the factors that determine rail rates have been used to analyze a variety of policy-related issues in rail transportation and have been useful, such a model can be sensitive to how it is specified. We tested the model’s key results to ensure that our findings were reliable and are confident that the results are reasonable for the commodities in the geographic areas we examined. Finally, the Carload Waybill Sample data used in our model also have limitations. For example, these data do not necessarily reflect discounts or other rate adjustments that might be made retroactively by carriers to shippers exceeding certain volume requirements. Our analysis provides an example of how rates subject to merger conditions could be analyzed. Although the results in this study are not directly comparable to those in other studies of rates that are based on broader geographic areas, our analysis suggests that overall rate changes do not identify the specific impact of mergers on rates. In general, the Board has been presented with rate studies that have focused on overall rate changes, not on the portion of changes caused by a merger. For example, rate studies prepared by UP during merger oversight indicate that, overall, rates decreased immediately after the merger and have continued to decrease at 2-to-1 points and for traffic moving in the Houston-Memphis and Houston-New Orleans corridors. Similarly, both CSX and Norfolk Southern have conducted studies of rail rates in the Buffalo, New York, area since their acquisition of Conrail in 1999. Again, these studies have focused on the overall direction of rate changes and have shown that rail rates in the Buffalo area have generally decreased. Neither the UP nor the CSX/Norfolk Southern rate studies identified the specific effects of mergers on rates—effects that could have potentially been different from the overall rate trends. According to Board officials, in general, the parties in merger oversight proceedings have focused on determining the overall magnitude and direction of rate changes without trying to relate such changes to specific causes, and the Board’s own December 2000 staff study of nationwide changes in rail rates took this approach. Board officials said they have attempted to take into account, in the context of postmerger oversight, such non-merger-related factors as the recent significant rise in diesel fuel prices but have not been presented with an econometric approach to analyze rail rates in the context of merger oversight. They said that they had questions and concerns about the precision and reliability of the analysis we conducted. However, the Board is amenable to seeing this general approach developed in the context of a public merger oversight record where it would be subject to scrutiny and refinement by relevant parties. Board officials noted that presenting and rebutting econometric studies, because of their sophisticated nature, could increase the burden of participating in the merger oversight process. It is important to note that the Board, in approving the UP/SP merger, was provided with various empirical rate studies by the applicants and interested parties that included econometric analyses. In addition, econometric evidence has played an important role in merger-related cases that have been reviewed by courts and other government agencies. As an adjudicatory agency, the Board relies on affected parties to identify alleged harm when it exercises oversight to ensure that conditions imposed in railroad mergers are working and that competition has not been harmed. Therefore, it is necessary for shippers, railroads, or others not only to identify instances when they have been, or might be, harmed, but also to present evidence to the Board demonstrating this harm. For the Board to make sound decisions about the extent to which mergers affect rate changes, the Board should have information that separately identifies the factors that affect rates and the specific impact of these factors. Without such information, the Board’s ability to evaluate whether merger conditions have been effective in protecting against potential harm to competition may be limited. To better assist the Board in the oversight of railroad mergers and in ensuring that conditions imposed in such mergers protect against potential harm to competition, we recommend that the Board, when appropriate, require railroads and others to provide information to the Board that separately identifies the factors affecting postmerger changes in rail rates and the specific impact of these factors on rate changes. In particular, the Board, when appropriate, should require railroads and others to provide information that identifies the effects of mergers on changes to rail rates, particularly in those geographic areas subject to potential reductions in competition. This information should be considered in deliberations on the need to modify conditions, add reporting requirements, or initiate proceedings to determine if additional conditions are required to address competition-related issues. We provided a draft of this report to the Surface Transportation Board and the Department of Transportation for their review and comment. The Board did not express an overall opinion on the draft report, but rather supplied suggested revisions to it. Most importantly, while the Board is amenable to seeing an econometric approach developed in the context of a public oversight record, it commented that such an approach could increase the burden of the parties participating in the merger oversight process. This increased burden might occur because of the effort entailed to develop, present, and rebut econometric studies. We agree that an increased burden might occur and incorporated this view into our report. Allowing parties to critique the usefulness of our recommendation and the effort involved in implementing it should provide the Board with the information it needs on implementation. The Board offered extensive clarifying, presentational, and technical comments which, with few exceptions, we incorporated into our report. The Department of Transportation did not express an overall opinion on the draft report. Its comments were limited to noting that several Class I railroads were under common control. We incorporated this change into our report. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 15 days after the date of this letter. At that time, we will send copies of the report to congressional committees with responsibilities for transportation issues; the Secretary of Transportation; the Acting Administrator of the Federal Railroad Administration; the Chairman of the Surface Transportation Board; and the Director, Office of Management and Budget. We will also make copies available to others upon request. This report will also be available on our home page at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834. Key contributors to this report were Stephen Brown, Helen Desaulniers, Leonard Ellis, John Karikari, Tina Kinney, Richard Jorgenson, Mehrzad Nadji, Melissa Pickworth, James Ratzenberger, and Phyllis Scheinberg. August 16, 1995 35,400 Western United States and Canada $1.3 billion, plus assumed liabilities Largely end-to-end. However, in approving this merger, ICC found that of the approximately 29 locations that were served by both railroads, only a few would have potentially sustained harm from reduced competition given the presence of other railroads and of extensive truck competition at many of the locations. Conditions were attached to preserve competition where necessary. August 6, 1996 38,654 Western United States $3.3 billion in cash and stock, plus assumed liabilities Significant parallel components. In approving this merger, the Board granted about 4,000 miles of trackage rights to BNSF and other railroads to protect potential 2-to-1 shippers and others from loss of competition. No Class I merger transactions. About 21,800 Eastern United States and Canada $9.9 billion, plus assumed liabilities and fees Largely end-to-end. Although CSX Corporation and Norfolk Southern Corporation jointly acquired Conrail and then divided most of the assets between them, Conrail continues to operate certain shared assets areas for the joint benefit of CSX and Norfolk Southern. These shared assets areas are located in North Jersey (generally from northern New Jersey to Trenton, New Jersey), South Jersey/Philadelphia (generally from Trenton, New Jersey, to Philadelphia and southern New Jersey), and Detroit. Both CSX and Norfolk Southern have the right to operate their own trains, with their own crews and equipment and at their own expense, over any track included in the shared assets areas. Various other areas formerly operated by Conrail are subject to special arrangements that provide for a sharing of routes or facilities to a certain extent. For example, the Monongahela Area in Pennsylvania and West Virginia, although conveyed to Norfolk Southern, is available to CSX on an equal-access basis for 25 years, subject to renewal. May 21, 1999 18,670 Midwestern United States and Canada $1.8 billion, plus the value of 10.1 million common shares of Canadian National stock End-to-end. No Class I merger transactions. No Class I merger transactions proposed through June 2001. Our review focused primarily on the Board’s oversight of Class I railroad mergers that occurred since its creation in January 1996. These mergers included (1) the Union Pacific Railroad Company (UP) with the Southern Pacific Transportation Company (SP), (2) the Canadian National Railway Company with the Illinois Central Railroad and (3) the acquisition of the Consolidated Rail Corporation (Conrail) by CSX Transportation, Inc., and the Norfolk Southern Corporation. However, to aid in showing how merger oversight has changed over time, we also included information on the Burlington Northern Railroad Company merger with the Atchison Topeka and Santa Fe Railway Company, which was approved by ICC in August 1995. To address the role of the Board in approving and overseeing railroad mergers and to determine how merger oversight is conducted, we reviewed relevant laws and regulations and analyzed documents prepared by the Board addressing its merger authority and functions. We also discussed with the Board’s staff how merger oversight is conducted and how such oversight has changed over time. In addition, we discussed with the Board’s staff the activities conducted as part of formal oversight—that is, activities included in an annual general oversight proceeding—as well as informal oversight activities (such as monitoring of railroad performance data) associated with mergers. To address how the Board acts to mitigate potential merger-related harm to competition, we reviewed documents contained in its merger dockets, including merger approval and oversight decisions and progress reports filed by merged railroads. We discussed with Board officials how oversight of conditions is conducted and the factors considered by the Board in determining if conditions imposed have been effective in mitigating potential harm to competition. We also discussed oversight issues with various trade associations representing shipper and railroad interests as well as with officials from Class I railroads. (The organizations we contacted are listed at the end of this app.) The shipper trade associations represented major commodities shipped by rail. Finally, to identify how merger oversight might change in the future, we reviewed the Board’s notice of proposed rulemaking on major rail consolidations published in October 2000 and the final regulations issued in June 2001. We discussed with the Board how the final merger rules differed from the proposed rules. To address how the UP/SP merger affected rail rates in selected geographic areas, we obtained data from the Board’s Carload Waybill Sample for the years 1994 through 1999. The Carload Waybill Sample is a sample of railroad waybills (in general, documents prepared from bills of lading authorizing railroads to move shipments and collect freight charges) submitted by railroads annually. We used these data to obtain information on rail rates charged by different railroads for specific commodities in specific markets subject to potential reduction in competition in the UP/SP merger. We focused on this merger because it was identified by the Board as having significant competition-related issues, especially in the number of shippers potentially going from service by two railroads to service by only one railroad (called 2-to-1 shippers). Using documents submitted by the Union Pacific Railroad, as well as discussions with officials from both the Union Pacific Railroad and the Burlington Northern and Santa Fe Railway, we identified those locations and corridors containing the majority of potential 2-to-1 shippers. Using economic areas defined by the Department of Commerce’s Bureau of Economic Analysis, our analysis focused on those economic areas containing the majority of these potential 2-to-1 shippers. We used the Carload Waybill Sample instead of more specific data on rates for individual shippers because of the lack of sufficient premerger rate data from SP’s operations. Although it is possible to get rates for 2-to-1 shippers from the Carload Waybill Sample, the sample is not designed for use in analyzing rates for specific shippers. However, the sample can be used to analyze rail rates within and between geographic areas. For these reasons, we used economic areas containing a majority of potential 2-to-1 points in conjunction with the Carload Waybill Sample to conduct our analysis. The rate data obtained from the Carload Waybill Sample were then used in an econometric model that analyzed the effects of the UP/SP merger on changes to rail rates for various commodity shipments to and from the economic areas with the majority of potential 2-to-1 shippers. A detailed description and discussion of this model can be found in appendix III. Some railroad movements contained in the Carload Waybill Sample are governed by contracts between shippers and railroads. To avoid disclosure of confidential business information, the Board provides for railroads to mask the revenues associated with these movements prior to making this information available to the public. We obtained a version of the Carload Waybill Sample that did not mask revenues associated with railroad movements made under contract. Therefore, the rate analysis presented in this report presents a truer picture of rail rates than analyses that are based solely on publicly available information. There are also limitations associated with data from the Carload Waybill Sample. For example, according to Board officials, revenues derived from this sample are not adjusted for such things as year-end discounts and refunds that may be provided by railroads to shippers that exceed certain volume requirements. However, both Board and railroad officials agreed that, given the lack of sufficient premerger SP data, the Carload Waybill Sample was the best data source available for conducting our analysis. We performed our work from July 2000 through June 2001 in accordance with generally accepted government auditing standards. Burlington Northern and Santa Fe Railway Co. CSX Transportation, Inc. Norfolk Southern Corporation Union Pacific Railroad Co. This appendix describes and discusses our analysis of the effects of the 1996 UP/SP merger on rail rates in selected geographic areas where the merger had the potential for harm to competition because 2-to-1 shippers could have lost one of the two railroad carriers upon which they had relied. In particular, we discuss (1) the econometric model we developed to analyze separately the effects of the merger and of other factors on rail rates, (2) the construction of the data used for the analysis, and (3) our analysis, including a comparison of overall changes in rates, based on mean-difference analysis, with the results of the econometric model. We developed an econometric model to examine both the specific impact of the 1996 UP/SP merger and the impact of other factors on rates in selected geographic areas where competition could have been potentially reduced. In developing the model, we focused on the trackage rights granted to BNSF by the Board, and applied existing empirical literature on how rail rates are determined. The UP/SP merger covered areas where the services provided by UP overlapped those provided by SP. As a result, some rail shippers could have been reduced from being directly served by both SP and UP to being directly served by UP only. In order to preserve competition in those potential 2-to-1 situations and for those shippers exclusively served by UP or SP who benefited from having another independent railroad nearby, the Board granted trackage rights to BNSF in order to replace the competition that would be lost when SP was absorbed by UP. As done in previous studies, we use an econometric model to identify the factors affecting rail rates following the UP/SP merger—rail rates being the dependent variable used in the model. Rail Rates: We measured rail rates—the freight rate charged by a railroad to haul a commodity from an origin to a destination—by revenue per ton- mile, adjusted for inflation. We used data from 1994 and 1995 for the premerger period, and data from 1997 through 1999 for the postmerger period. We excluded 1996 data, since the UP/SP merger was approved in August 1996. We also excluded shipments with rail transportation charges less than $20,000 (in 1996 dollars) in order to focus on the major movements. The level of each observation was shipments at the 7-digit Standard Transportation Commodity Code—a classification system used to group similar types of commodities such as grains—between an origin and a destination. The factors that explained the rail rates were generally those related to market structure and regulatory conditions, as well as cost and demand factors. Market Structure and Regulatory Conditions: We included the variable MERGER to capture the effect of the merger on rates. The extent of rail competition is expected to affect rail rates. We used a variable that would reflect the difference in rates charged to shippers with competitive options—SP and UP before the merger, and BNSF and UP afterwards— and shippers served solely by one railroad both before and after the merger to capture the influence of this fact on rates. The variable is RAILROAD-BNSF. Cost and Demand Factors: These factors are generally captured by the shipment and shipper characteristics of the traffic. As in previous studies, we use the following variables to measure the influence of cost and demand factors: variable cost per ton-mile (COST), the weight of shipments (TON), the length of haul (DISTANCE), the annual tonnage shipped between an origin-destination pair (DENSITY), and OWNERSHIP of railcars. In addition to the explanatory factors mentioned above, we included the following factors: First, we introduced a variable for contract rates (CONTRACT) to account for possible differences between contract rates and noncontract rates. Second, we included a variable to account for the possible effects of the service crisis that arose after the merger and lasted through 1998 (CRISIS). Third, following previous studies, we included the squared terms for the variables TON (TON_SQ) and DISTANCE (DISTANCE_SQ), to account for possible nonlinear relationships between these variables and rates. We also included dummy variables for the major commodity groups (COMMODITY) where appropriate. We selected geographic markets that had high concentrations of potential 2-to-1 shippers because of the possibility for harm to competition in those areas. Using the Carload Waybill Sample, we performed several data- processing tasks that included matching similar sets of traffic before and after the merger, and selecting the primary commodities that were shipped, based on carloads, for analysis. All the data used for the study were constructed from the Carload Waybill Sample, which is a sample of railroad waybills (in general, documents prepared from bills of lading that authorize railroads to move shipments and collect freight charges) that are submitted annually by the railroads.However, there are limitations in using the Carload Waybill Sample for rate analysis. Among these limitations is that no specific information is provided about the identity of the shippers. This makes it difficult to identify potential 2-to-1 traffic by shipper name. Also, data for rates for shipments moved under contract between railroads and shippers (called contract rates), which are masked or disguised in the Carload Waybill Sample, may be incomplete. We selected the Reno, Nevada, and Salt Lake City, Utah, business economic areas, which are in the Central Corridor and which had high concentrations of potential 2-to-1 shippers. Both SP and UP served these two areas prior to the merger; BNSF service was not available in the area at that time. Also, according to BNSF officials, the Central Corridor was relatively less affected by the service crisis that emerged after the UP/SP merger. In addition, UP fully integrated its computer and information systems with SP in the Central Corridor much earlier than in the other regions, making rate and other data there more reliable. However, there are limitations in using the Central Corridor to illustrate the possible effects of the UP/SP merger on rates. According to the Board, BNSF generally had problems ramping-up its trackage-rights service in the Central Corridor. Also, the Reno and Salt Lake City areas are not typical rail hubs, because the traffic to and from these areas is not high volume, compared with other areas, such as the Houston-Gulf Coast area. Despite these limitations, the two selected areas provide an opportunity to illustrate the impact of the UP/SP merger on rates in predominantly potential 2-to-1 situations. We performed several tasks to organize the Carload Waybill Sample for our analysis. We identified traffic by origin and destination, and at the 7- digit Standard Transportation Commodity Code level separately for periods before the merger and periods after the merger. We then matched similar sets of railroad traffic existing before and after the merger. The matching involved shipments that we could determine, on a commodity and origin-and-destination basis, that were made in both periods. To help identify traffic associated with BNSF’s trackage rights, we also identified the railroad carrier(s) associated with the shipments that we matched for both periods. There were two Class I railroads serving the two geographic areas before the merger (SP and UP). After the UP/SP merger, all the traffic belonging to SP and UP came under the merged UP’s sole control, except for potential 2-to-1 shippers and shippers that could take advantage of such provisions as build-in/build-out and new facilities conditions. As a result of the trackage rights imposed by the Board as part of the merger conditions, BNSF obtained access to the potential 2-to-1 traffic, regardless of whether the traffic had been carried by SP or UP prior to the merger. Our matching process was intended to identify this potential 2-to-1 traffic. The following matching was done in the following sequence: 1. SP premerger traffic was matched to BNSF postmerger traffic—this is BNSF trackage rights over SP (BNSF-SP). 2. UP premerger traffic was matched to BNSF postmerger traffic that is still unmatched—this is BNSF trackage rights over UP (BNSF-UP). 3. SP premerger traffic that was still unmatched was matched to UP postmerger traffic—this is UP traffic over SP (UP-SP). 4. UP premerger traffic that was still unmatched was matched to UP postmerger traffic that is still unmatched—this is UP traffic over UP (UP-UP). The BNSF-SP and BNSF-UP traffic (henceforth BNSF) consists of only potential 2-to-1 traffic that was served by SP or UP before the merger but served by BNSF in the postmerger period. The UP-SP and UP-UP traffic (henceforth UP) includes potential 2-to-1 traffic as well as non-2-to-1 traffic. However, according to UP officials, the latter traffic substantially comprises shippers that are served solely by one railroad because they could be served in the premerger period only by UP or SP, but not both, and in the postmerger period, only by UP. The two broad types of shippers identified reflect different levels of rail competition. The potential 2-to-1 traffic (served by BNSF) is considered more competitive than the traffic served solely by UP because direct rail competition was preserved or maintained for the potential 2-to-1 shippers, while the traffic solely-served by UP had only indirect competition, which was preserved through build- in/build-out and new facilities conditions. Finally, because our study focuses on potential 2-to-1 shippers, we included only the commodity groups for which BNSF had presence. Although BNSF officials told us they had not aggressively exercised their trackage rights for coal shipments in the Salt Lake City area, we included these shipments because coal is a major commodity shipped to and from the Salt Lake City area. Summary statistics of the commodities shipped to and from the Salt Lake City and Reno economic areas are provided in tables 4 and 5. The commodities include coal, chemicals, primary metals, farm products (such as corn and wheat), petroleum/coal, food, nonmetallic minerals, lumber/wood, and stone/clay/glass/concrete. Each of these commodities accounted for at least 10 percent of the traffic to or from an area. The share of BNSF’s potential 2-to-1 shippers to all shippers was mostly between 10 and 25 percent. (See table 4.) Also, the rail rates and the direct costs for the total traffic were very similar to the rates for the matched traffic. (See table 5.) The econometric model that we developed was estimated using an appropriate estimation technique. We also discuss the results of our study in terms of the effects on rail rates attributable to the merger and the effects of other factors. We used a reduced-form rate model of shipping a commodity between an origin and a destination because such a model is useful for analyzing the impact of a regulatory policy, such as a merger, on rates. The service crisis of 1997 and 1998 could potentially make the estimation results less reliable because the rates may not be at the market-clearing level. However, we included a CRISIS variable to account for this possible structural shift. The reduced-form model we used was as follows: The term “ln” is a natural logarithm, and “i” is representative of a commodity group. The β‘s are parameters to be estimated, and ε is the random-error term. A complete list of the variables used to estimate the regression model is presented in table 6. We could not directly incorporate certain factors into the model primarily because of data limitations. We estimated the regression model using the SAS SURVEYREG procedure, since the data are from stratified samples. This procedure is appropriate for dealing with a stratified sample because it adjusts both the coefficients and the standard errors of the estimates to account for the sampling design. The econometric model was run for different samples— shipments of the primary commodities to or from an economic area, and for subsamples of individual commodities and shippers. We tried different specifications of our basic model to check the robustness of our key model results. We found that the results were not highly sensitive to model specification. While we used a reduced-form specification, it is still possible that some of the explanatory variables on the right-hand side of the equation may be endogenous. Since there are no available instruments in a reduced-form model, we could not perform the usual test. Rather, we checked the robustness of our results by excluding possible endogenous variables. In particular, when DENSITY was excluded from the model, our findings regarding the effects of mergers on rates and the effects of the other factors on rates were essentially unchanged. It is also likely that COST is related to the variables TON, DISTANCE, and OWNERSHIP, which could produce unreliable results. In other specifications of the model, we eliminated the COST variable, but our key findings were robust to such specifications. Summaries of the effects of the merger on rates, based on the econometric results, are presented in table 7. The rates for shipments to and from the Reno and Salt Lake City areas generally would have declined for all the shippers as a result of the merger, especially in the Salt Lake City area. Although the effects of the merger on rates depend on both the potential cost savings from the merger and the exercise of any enhanced market power by the railroads, the UP/SP merger is generally expected to lower rates in those areas where the Board imposed trackage rights. We also compared the effects of the merger on rates charged to potential 2-to-1 shippers served by BNSF to rates charged to shippers served solely by UP in the same general locations. In particular, the results show that the rates charged to the potential 2-to-1 shippers served by BNSF were lower than the rates charged to the shippers served solely by UP for shipments of chemicals from the Salt Lake City area. The rate differentials for the Reno area were positive, but none was statistically significant. The result that rates for the potential 2-to-1 shippers served by BNSF were generally lower than rates charged to shippers served solely by UP is consistent with demand-based differential pricing, which reflects the differing transportation alternatives available to shippers. We found that the effects of other factors on rail rates during the period are generally consistent with what has been found in previous studies. (See results in tables 8 through 11 for all commodities.) We used the econometric results for all the commodities because most of these effects are not commodity-specific and can be better captured across commodities. The impact of COST on rates was positive and significant for traffic in each of the selected areas, meaning that rates were lower (or higher) as costs decreased (or increased). TON had mixed results, meaning that larger shipment volumes sometimes resulted in higher or lower rates. DISTANCE generally decreased rates. DENSITY, which captures the volume of traffic on the route used for a particular shipment, unambiguously decreased rates. This effect is consistent with decreasing costs in railroad operations, since increased shipment levels over a rail route spread fixed costs over larger volumes and reduce rates.OWNERSHIP had mixed results. CONTRACT rates were generally lower. Finally, the impact of CRISIS on rates was generally inconclusive. This is not unexpected, since most shipments are under contract and the crisis affected primarily the services that were provided rather than the rates. To compare the changes in rates due to the merger that we obtained from the econometric analysis to the overall changes in rates, we separated the overall changes in rates into changes due to the merger and changes due to other factors, such as costs and volume of shipments. The overall changes in rates were estimated using a difference in means analysis that compares the rates in the postmerger period with rates in the premerger period. We found that the overall changes in rates could be in the opposite direction from the rate changes due to the merger. For instance, for coal shipments from the Salt Lake City area, the overall changes in rates were about 10 percent higher, while the rate changes due to the merger alone would have been about 10 percent lower. On the other hand, for shipments of chemicals to the Reno area, the overall changes in rates were about 6 percent lower, while the rate changes due to the merger alone would have been about 21 percent higher. These illustrations indicate that a complete analysis of merger-related rate changes could benefit from the application of an analytical approach that identifies and determines the separate effects of the various factors, including those associated with a merger, affecting rail rates.

Railroads have been a primary mode of freight transportation for many years, especially for bulk commodities such as coal and grain. Over the last 25 years, the freight railroad industry has undergone substantial consolidation largely to reduce costs and increase efficiency and competitiveness. Some companies that rely on rail shipments are concerned that the mergers have reduced railroad competition and led to higher rail rates and poorer service. This report reviews (1) the role the Surface Transportation Board plays in reviewing proposed railroad mergers and overseeing mergers that have been approved and how post-merger oversight is conducted, (2) how the Board mitigates potential harm to competition, and (3) how the Union Pacific/Southern Pacific merger affected rail rates in selected geographic areas. GAO found that the Board reviews railroad merger proposals and approves those that are consistent with the public interest, ensures that any potential merger-related harm to competition is mitigated to preserve competition, and oversees mergers that have been approved. The Board imposes conditions on mergers to mitigate potential harm to competition. The Board also focuses on the overall direction and magnitude of rate changes when analyzing rail rates as part of merger oversight. It does not isolate the effects of mergers on rates from other effects. When GAO used this approach to analyze how the Union Pacific/Southern Pacific merger affected rail rates, it found that the merger reduced rates in four of six commodities studied. However, for two of the commodities, the merger put upward pressure on rates, even though other factors caused overall rates to decrease. By focusing on overall rate decreases, the Board will be unable to determine whether the decrease is due to the merger or other factors.

You are an expert at summarizing long articles. Proceed to summarize the following text: Beginning in 1930, the Congress established the first transportation discretionary program under which the executive branch could select specific transportation projects for federal funding, thus providing the executive branch with some latitude in allocating federal funds to the states. In that year, the Public Lands Program was established to pay for road work on the nation’s public lands. In 1978, the Congress set up the Discretionary Bridge and Discretionary Interstate programs. The Discretionary Bridge Program was established to replace or rehabilitate high-cost bridges while the Discretionary Interstate Program aimed to accelerate the construction of the Interstate Highway System. When the Interstate 4R Discretionary Program was begun in 1982, its goal was to resurface, restore, rehabilitate, and reconstruct the Interstate Highway System. Finally, the Ferry Boats and Facilities Program, begun in 1991, was intended to construct ferry boats and ferry terminal facilities. (See apps. I-V for additional information on ISTEA’s provisions and eligibility requirements for each of the discretionary programs discussed in this report.) The Secretary of Transportation is responsible for selecting projects under the discretionary programs. The Secretary has delegated this responsibility to the FHWA Administrator. FHWA’s Office of Engineering administers the programs, solicits applications from states, and compiles the applications and information for selection. States submit applications to FHWA’s division offices, which either send the applications to FHWA’s regional offices for compilation with other states’ applications or to FHWA’s headquarters, as they do for Interstate Discretionary and 4R programs. Regional offices then send the applications to FHWA’s Washington, D.C., headquarters. As table 1 shows, since fiscal year 1992, the five discretionary programs we reviewed received over $2.7 billion in federal funds—ranging from about $99 million provided for the Ferry Boats and Facilities Program to almost $1.6 billion provided for the Interstate Discretionary Program. The states’ requests for discretionary funds have generally exceeded the amounts available for funding. For example, in fiscal year 1997, the states submitted almost $682 million in requests for about $61 million in discretionary bridge funds. Similarly, the states submitted nearly $1.3 billion in requests for about $66 million available in fiscal year 1997 from Interstate 4R funds. Although the states have been able to build specific transportation projects and facilities through discretionary funding, the amounts available through these five programs represent only a small portion of the highway funds that the states receive annually. For example, in fiscal year 1997, FHWA’s Office of the Administrator provided the states with $213.7 million in discretionary funding for the five programs we reviewed—about 1 percent of the estimated $20 billion that FHWA provided the states with for that year. FHWA uses a two-phase selection process involving both program staff and the Office of the Administrator. As displayed in figure 1, the first phase begins when program staff in the Office of Engineering send a solicitation notice out to FHWA’s regions calling for project candidates from the states. Project candidates are compiled by the regions and divisions and forwarded to the headquarters staff offices. The headquarters staff with specific expertise in the various discretionary program areas compile the regional submissions and review and analyze each candidate. By applying program-specific statutory and administrative criteria, program staff screen and prioritize project applications for each discretionary program. FHWA program staff use both statutory and administrative criteria and other factors to identify and prioritize projects for each discretionary program. As displayed in table 2, the criteria are program specific and differ among the five discretionary programs. For example, by using data to determine the physical condition of a bridge, Discretionary Bridge Program staff calculate a numerical score or rating factor for each candidate project. The rating factor allows FHWA to prioritize the projects eligible for funding. In contrast, Public Lands Program staff use factors, such as whether a project is located in a state with 3 percent or more of the nation’s public lands, to screen and prioritize projects. Interstate Discretionary and 4R Program staff consider whether other sources of funding, such as unobligated Interstate Construction and National Highway System funds, are available for projects, while Ferry Boats and Facilities Program staff evaluate factors, such as a project’s benefits and the ability of federal funds to leverage private funds, when they prioritize the candidate projects. After applying the criteria, program staff identify ineligible projects and group the eligible projects into four priority categories—most promising, promising, qualified, and not qualified. The second phase of the selection process begins after FHWA’s Office of Engineering provides the Office of the Administrator with a report for each discretionary program that lists the eligible projects and includes other information, such as what funding the states received in prior years through the discretionary programs and any congressional interest or support for specific projects. The Office of the Administrator receives the reports for all of the programs simultaneously—generally in the fall—and begins the final selection process at that time. Using the discretion granted to the Administrator under each of the programs, the Office of the Administrator can apply additional considerations to the information received from the program staff before making final selections. For example, according to FHWA’s acting Deputy Administrator, the Office of the Administrator may try to spread the discretionary funds among as many states as possible to ensure geographic equity. As a result, the final selections could differ from the staffs’ groupings if these groupings provided the bulk of funding for only a few states in a given program. The official also said that the Office of the Administrator, in consultation with the Secretary, also pays close attention to requests from Members of Congress in making the final project selections. In addition, congressional legislation, in the form of earmarks, may require the Secretary to fund a particular project through a discretionary program. Other considerations may include whether the requesters would be willing to accept partial funding, whether conditions pertaining to the project have changed since the state originally requested funding, and other factors, such as whether states have received an equitable share of funding over time. The process is concluded when the Office of the Administrator sends out the list of its selections. The two phases differ in the extent of documentation available to explain how decisions are made—that is, how program staff apply the criteria to group the projects and how the Office of the Administrator makes the final selections. Specifically, program staff provide written documentation of the statutory and administrative criteria used to screen candidate projects, as well as the project’s descriptions, the amounts of funding requested, prior allocations to states, and congressional interest. In contrast, officials in the Office of the Administrator could verbally describe the additional factors they have considered in making the final project selections but could not provide any written documentation that either explained the additional selection factors they used or how they applied these factors to each candidate project. In addition, the final selection list that the Office of the Administrator issues at the conclusion of the selection process does not explain or justify why each project was selected. The current process to select projects under the discretionary programs has been in place since fiscal year 1995. In general, under the current process, the Office of the Administrator relies more on its discretion in making the selections than it did under an earlier process that relied almost entirely on program staffs’ analyses and recommendations. We found that under the current process, there were differences in the projects selected by the Office of the Administrator and those given higher priority by the FHWA staff responsible for evaluating and prioritizing the projects. Our analysis of the discretionary program’s selection process revealed that two distinct processes existed during our review time frames. During fiscal years 1992-94, program staff for each of the discretionary programs we reviewed recommended specific projects and funding amounts after ranking projects in order of priority. As displayed in figure 2, the Office of the Administrator selected over 98 percent of all the projects that the program staff recommended in fiscal years 1992-94 (180 projects selected from 183 staff recommendations). For example, the Office of the Administrator selected 15 of the 17 public lands projects recommended by FHWA program staff in fiscal year 1992. Similarly, the Office of the Administrator selected all of the six Interstate 4R projects recommended by FHWA program staff for funding in fiscal year 1992. The high level of consistency between the staffs’ recommendations and the Office of the Administrator’s selections changed after fiscal year 1994. For the fiscal year 1995 funding cycle, the Office of the Administrator directed the program staff to group the projects into four categories—most promising, promising, qualified, and not qualified—rather than provide specific project and funding recommendations. According to FHWA’s Acting Deputy Administrator, the Office of the Administrator found it difficult to make equitable decisions using the rank order lists and thus made the change to the groupings. The official also said that the process did not give the Office of the Administrator enough flexibility to take into account other equally important considerations, such as the geographic distribution of funding. As figure 2 shows, beginning in fiscal year 1995, the Office of the Administrator selected a declining proportion of projects from the higher-priority categories. In fiscal year 1995, 92 percent of the projects that the Office of the Administrator selected were projects that staff had categorized as “promising” or “most promising”; 69 percent in fiscal 1996; and 59 percent in fiscal 1997—about 73 percent overall for the 3-year period. This tendency was particularly evident in comparing the staffs’ groupings and the final project selections in three of the five programs we reviewed—Public Lands, Interstate 4R, and Discretionary Bridge. For example, in fiscal year 1997, while the Office of the Administrator selected 9 of the 36 public lands projects categorized as “most promising,” it also selected 16 of 59 projects categorized as “qualified”—the lowest-priority category for the public lands program that year. Half of all public lands projects that the Office of the Administrator selected that year came from the qualified category. In the Ferry Boats and Facilities Program there was an initial decline from 100 to 80 percent for fiscal year 1995, but the selection of most promising and promising projects remained around 80 percent for fiscal 1996-97. For the other discretionary program we reviewed—Interstate Discretionary—the projects that the program staff categorized as “higher priority” were the ones selected by the Office of the Administrator. The results occurred under the selection procedures in place during fiscal years 1992-97. The Office of the Administrator selected 100 percent of the projects recommended by the program staff during fiscal years 1992-94 and 100 percent of those that the staff placed in the most promising category during fiscal 1995-97. The change in the selection process did not affect the Interstate Discretionary Program because the funds available for the program during fiscal years 1993-97 exceeded the requests; all eligible candidate projects were selected for full funding. (Details on the Office of the Administrator’s selections for fiscal years 1992-97 are provided in apps. I-V for the five programs we reviewed.) FHWA officials stated that the selection of projects in lower-priority categories did not mean that the Office of the Administrator was making poor transportation investments. FHWA officials stated that most of the states’ project submissions could be considered good projects, given the tremendous Interstate infrastructure needs and tight federal-aid funding. Therefore, they believed it would be unlikely that the Office of the Administrator could select a poor project for funding. In addition, our analyses revealed no instance where the Office of the Administrator selected a project that staff had classified as statutorily ineligible project during fiscal years 1995-97. We provided DOT with draft copies of this report for review and comment. We met with DOT officials—including the FHWA Acting Administrator, Acting Deputy Administrator, and Associate Administrator for Program Development—to discuss their comments. DOT did not have any comments on the report’s overall findings but requested that the report be modified to address two general areas of concern. First, the Department indicated that it wanted us to broaden our discussion of the additional factors that the Office of the Administrator uses to make final project selections. Second, the Department suggested that we modify our analysis of the project selection statistics to account for the financial limitations of the programs. DOT said that because several of the discretionary requests greatly exceeded the available funding, the promising and most promising categories contained more projects than could be selected. DOT noted that because our analyses did not take this funding limitation into account, our analyses implied that the Office of the Administrator chose many projects from the lower-priority categories. In response to DOT’s comments, we included additional information on the factors that the Office of the Administrator considers in making project selections in the body of the report. We revised our analysis of the projects the Office of the Administrator selected for funding in fiscal years 1995-97 to address DOT’s second concern. We also included additional information in the appendixes on the funds allocated to projects in each category for fiscal years 1995-97. Other editorial comments provided by the Department have been incorporated where appropriate. To identify the criteria and selection process that DOT used to select projects for discretionary funding, we obtained from FHWA officials information that documented the process followed for each program during fiscal years 1992-97. The information from FHWA described the number and dollar amount of projects submitted for funding, the statutory and administrative criteria for eligibility and selection, and the Office of the Administrator’s final project selections. Some of the documents also included information about congressional interest and whether the Congress had earmarked any of the program dollars. We discussed the programs with officials in FHWA’s Office of Engineering who had knowledge of each program, as well as with FHWA’s Acting Deputy Administrator, who summarized the factors used by the Office of the Administrator to determine which projects would receive funding. We also met with officials in one FHWA regional office to discuss their role in the discretionary programs. To determine how changes in the process have affected which projects DOT selects for discretionary funding, we examined the staffs’ analysis of the projects submitted for funding in each program, as well as the Office of the Administrator’s subsequent project selections. We then compared the project selections resulting from the process that the Department currently uses with the project selections resulting from the process used during fiscal years 1992-94. We performed our review from July through September 1997 in accordance with generally accepted government auditing standards. 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 of this report to the Secretary of Transportation, the Acting Administrator, FHWA; cognizant congressional committees; and other interested parties. We will make copies available to others upon request. Please call me at (202) 512-2834 if you or your staff have any questions. Major contributors to this report are listed in appendix VI. Public Lands Highways. The Public Lands Program was initially established in 1930. The Federal-Aid Highway Act of 1970 changed the funding source for the program from the general fund to the Highway Trust fund, effective in fiscal year 1972. The funding level for public lands highways was $16 million per year during fiscal years 1972-82. The Surface Transportation Assistance Act of 1982 (1982 STAA, P.L. 97-424) increased the annual authorization level to $50 million for fiscal years 1983-86, but the Surface Transportation and Uniform Relocation Assistance Act of 1987 (1987 STURAA, P.L. 100-17) reduced this amount to $40 million for fiscal 1987-91. The program funds projects that are within, adjacent to, or provide access to the areas served by public lands highways—such as roads in national parks, forests, or Indian reservations. Public Lands Highways funds may be used on eligible public lands highways, defined by the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) (P.L. 102-240) as (1) a forest road or (2) any highway through unappropriated or unreserved public lands; nontaxable Indian lands; or other federal reservations that are under the jurisdiction of and maintained by a public authority and open to public travel. A variety of activities are eligible, including planning, research, engineering, and construction. Projects ranging from reconstructing a road to adding parking facilities are eligible. One hundred percent. ISTEA authorized the following funding levels for the Public Land Highways Program: fiscal year 1992—$48.62 million; fiscal 1993—$58.14 million; fiscal 1994—$58.14 million; fiscal 1995—$58.14 million; fiscal 1996—$58.48 million; and fiscal 1997—$58.48 million. Funds remain available for the fiscal year allocated plus 3 years. See table I.1. During fiscal years 1992-97, the top five recipient states received about 37 percent of all Public Lands Highway allocations. (See table I.2.) During fiscal years 1992-94, FHWA’s Office of the Administrator selected 97 percent of the projects that the FHWA staff recommended for funding. (See table I.3.) During fiscal years 1995-97, FHWA’s Office of the Administrator selected a declining percentage of projects grouped in the most promising and promising categories. (See table I.4.) During fiscal years 1995-97, the Office of the Administrator allocated a declining proportion of dollars to projects the staff categorized as “most promising” or “promising.” (See table I.5.) Discretionary Bridge. The Discretionary Bridge Program was established by the Surface Transportation Assistance Act of 1978 (1978 STAA, P.L. 95-599). The 1978 legislation required that $200 million be withheld from the Highway Bridge Replacement and Rehabilitation Program apportionment for each of fiscal years 1979-82 to be used by the Secretary of Transportation as a discretionary fund to replace or rehabilitate bridges that cost more than $10 million each or twice the state’s apportionment. The Surface Transportation Assistance Act of 1982 continued the program at the same funding level through fiscal year 1986. The act also provided that the Federal Highway Administration (FHWA) establish a formal process to rank and select discretionary bridge projects for funding. The act also decreed that discretionary bridge projects be on a federal-aid highway system. The Surface Transportation and Uniform Relocation Assistance Act of 1987 increased the discretionary set-aside to $225 million for each fiscal year during 1987-91. Eligible projects are bridge rehabilitation or replacement projects that cost more than $10 million or at least twice the amount of Highway Bridge Replacement and Rehabilitation Program funds apportioned to the state in which the bridge is located. The discretionary bridge projects must be on a federal-aid system. Candidate bridges must have a rating factor of 100 or less to be eligible, unless they were selected prior to November 1983. Eighty percent. Bridge projects that are on the Interstate Highway System and have been selected for discretionary bridge funding will receive funding at 50 percent of the requested amount primarily because other Interstate discretionary funds are available. ISTEA continued the program and authorized that $349.5 million be set aside over the 6-year period fiscal 1992-97—$49 million for fiscal 1992, $59.5 million each for fiscal 1993-94, and $60.5 million each for fiscal 1995-97. See table II.1. During fiscal years 1992-97, the top five recipient states received about 69 percent of all Discretionary Bridge allocations. (See table II.2.) During fiscal years 1992-94, the Office of the Administrator selected 100 percent of the projects that the FHWA program staff recommended for funding. (See table II.3.) During fiscal years 1995-97, FHWA’s Office of the Administrator selected a declining percentage of the projects the program staff had categorized as “most promising” and “promising.” (See table II.4.) During fiscal years 1995-97, the Office of the Administrator allocated about $126 million to projects the staff had categorized as either “most promising” or “promising.” (See table II.5.) Interstate Discretionary Program. Originally created by section 115(a) of the Surface Transportation Assistance Act of 1978 in order to accelerate construction of the Interstate Highway System. The Surface Transportation Assistance Act of 1982 and the Surface Transportation and Uniform Relocation and Assistance Act of 1987 both continued and modified the Interstate Discretionary Program. Interstate Discretionary funds may be used for the same purpose as Interstate Construction funds—initial construction of remaining portions of the Interstate System. However, only work eligible under the provisions of the Federal-Aid Highway Act of 1981 and included in the 1981 Interstate Cost Estimate is eligible for Interstate Discretionary funding. Ninety percent; 80 percent for projects that provide additional capacity, unless added capacity is High Occupancy Vehicle or auxiliary lane (also 90-percent federal share). Section 1020 of ISTEA revised 23 U.S.C. 118(b), (c) & (d) and authorized a $100 million per year set-aside from the Interstate Construction Program for the Interstate Discretionary Program annually for fiscal years 1992-96.FHWA also provided Interstate Discretionary funds from lapsed Interstate Construction funds that had reached the end of their availability period. The funds are available until expended. Currently, there is a balance of approximately $61 million available for future Interstate Discretionary allocations. See table III.1. During fiscal years 1992-97, the top five recipient states received about 72 percent of all Interstate Discretionary allocations. (See table III.2.) During fiscal years 1992-94, FHWA’s Office of the Administrator selected 100 percent of the projects that FHWA staff recommended for funding. (See table III.3.) During fiscal years 1995-97, FHWA’s Office of the Administrator also selected all of the eligible projects for full funding, since the amount available for allocation exceeded the amount requested. (See table III.4.) During fiscal years 1995-97, the staff categorized all eligible projects as “most promising,” and all eligible projects were funded. (See table III.5.) Interstate 4R Discretionary Program. Originally created by section 115 (a) of the Surface Transportation Assistance Act of 1982. Funds were provided for the program from lapsed Interstate 4R apportionments, with additional criteria. The Surface Transportation and Uniform Relocation and Assistance Act of 1987 provided for a $200 million set-aside for each of the fiscal years 1988-92 from the Interstate 4R authorization for the continuation of the Interstate 4R discretionary fund and provided criteria/factors to be used in the distribution of funds. Interstate 4R discretionary funds may be used for resurfacing, restoring, rehabilitating, and reconstructing the Interstate System, including providing additional capacity. Ninety percent. The federal share may be increased up to 95 percent in states with large areas of public lands and up to 100 percent for safety, traffic control, and car/vanpool projects. Section 1020 of ISTEA amended 23 U.S.C. 118 (c)(2) and set aside $54 million for fiscal year 1992, $64 million each year for fiscal 1993-96, and $65 million for fiscal 1997. Of the amounts set aside, ISTEA required that $16 million for fiscal year 1992 and $17 million for each of fiscal 1993 and 1994 be used for improvements on the Kennedy Expressway in Chicago, Illinois. ISTEA terminated the apportioned Interstate 4R Fund Program and provided that the Interstate 4R set-aside come from the National Highway System program. See table IV.1. During fiscal years 1992-97, the top five recipient states received about 70 percent of all Interstate 4R Discretionary allocations. (See table IV.2.) During fiscal years 1992-94, FHWA’s Office of the Administrator selected 94 percent of the projects that FHWA staff recommended for funding. (See table IV.3.) During fiscal years 1995-97, about 76 percent of the projects that FHWA’s Office of the Administrator selected for funding were those the staff grouped in the most promising and promising categories. (See table IV.4.) During fiscal years 1995-97, the Office of the Administrator allocated $173 million to projects that the staff had categorized as “most promising” or “promising.” (See table IV.5.) Ferry Boats and Ferry Terminal Facilities. In 1991, ISTEA created a discretionary funding program for the construction of ferry boats and ferry terminal facilities and authorized funding from the Highway Trust Fund. Ferry boats and facilities must be publicly owned. The operation of the ferry facilities must be on a route classified as a public road, except an Interstate route. Eighty percent. ISTEA authorized $100 million—$14 million in fiscal year 1992, $17 million each year for fiscal 1993-96, and $18 million for fiscal 1997. Funds are available until expended. See table V.1. During fiscal years 1992-97, the top five recipient states received about 50 percent of all Ferry Boats and Facilities allocations. (See table V.2.) During fiscal years 1992-94, FHWA’s Office of the Administrator selected 100 percent of the projects that FHWA staff recommended for funding. (See table V.3.) During fiscal years 1995-97, about 81 percent of the projects that FHWA’s Office of the Administrator selected were those that the staff had grouped in the most promising and promising categories. (See table V.4.) During fiscal years 1995-97, the FHWA Office of the Administrator allocated about $40 million to projects the staff had categorized as “most promising” or “promising.” (See table V.5.) Joseph A. Christoff Bonnie Pignatiello Leer David I. Lichtenfeld Gail F. Marnik Jonathan Pingle Phyllis F. Scheinberg 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 the Department of Transportation's (DOT) project selection process for five federal discretionary programs, focusing on: (1) the selection process and criteria DOT uses to fund projects under its discretionary highway programs; and (2) how DOT's process has changed and how the changes may have affected which projects DOT selects for discretionary funding. GAO noted that: (1) DOT uses a two-phase process for selecting and funding transportation projects for the five discretionary programs GAO reviewed; (2) in the first phase, Federal Highway Administration (FHwA) program staff in the field and headquarters compile and evaluate the applications that states submit for discretionary funding; (3) program staff screen the applications by applying eligibility criteria established by statute or administratively; (4) on the basis of written criteria, program staff group the projects into four categories that range in priority from most promising to not qualified and submit the groupings to the Office of the Administrator; (5) the submission to the Office of the Administrator provides information on each candidate project, data on discretionary funds that each state received during prior years, and the current level of congressional interest; (6) in the second phase, the Office of the Administrator uses the information submitted by the program staff, as well as other factors, to evaluate the projects and make the final selections; (7) according to FHwA's Acting Deputy Administrator, the Office of the Administrator has tried to ensure that the dollars are spread fairly among all the states and that the interests of members of Congress are addressed; (8) in contrast to the analyses that the program staff complete in the first phase, the Office of the Administrator does not document the factors it uses to select the final projects or its rationale for making the final selections; (9) DOT is authorized to establish procedures for reviewing and selecting transportation projects under its discretionary programs; (10) GAO's review of the selection process revealed that under the current process, in place during fiscal years 1995-1997, the Office of the Administrator relied more on its discretion and less on the program staff's input and analyses than it did under an earlier process used during fiscal years 1992-1994; (11) under this new process, which was designed to provide the Office of the Administrator with more flexibility in taking into account items such as the geographic distribution of funding, 73 percent of the projects that the Office of the Administrator selected were categorized as "most promising" or "promising"; (12) the Office of the Administrator selected a declining portion of projects from these categories over the 3-year period; and (13) during fiscal years 1992-94, when staff ranked projects in order of priority and recommended specific projects and funding amounts, the Office of the Administrator selected over 98 percent of all projects that the program staff recommended.

You are an expert at summarizing long articles. Proceed to summarize the following text: Through the budget system, the President and Congress determine the allocation of resources among the agencies of the federal government. OMB, as part of the Executive Office of the President, guides the annual budget process, makes decisions on executive agencies’ budgets, aggregates submissions for departmental components, and submits the consolidated document for the executive branch as the President’s Budget Request to Congress. OMB issues guidance to federal agencies through OMB Circular A-11, which provides instructions for submitting budget data and materials, as well as criteria for developing budget justifications. Within DOJ, the Justice Management Division issues additional annual budget development guidance to DOJ’s components, including BOP, usually about 1.5 years before the fiscal year begins for the budget cycle. JMD budget staff (1) collect and analyze all of the components’ budget requests, taking into consideration department-wide policy priorities and OMB guidance; (2) coordinate with DOJ policy offices; and (3) secure approval and submit the Attorney General’s budget submission to OMB. Key steps in this process are shown in figure 1. When developing its budget justification, BOP estimates costs for budget accounts using three steps, as described below. First, BOP estimates cost increases for maintaining the current level of services for operations as provided in the prior year’s enacted budget. These include costs to address mandatory staff pay raises and benefit increases, inmate medical care, and utilities. BOP analyzes historical obligations from the past 5 years to identify average annual operating cost increases. BOP records its obligations in FMIS—one of DOJ’s financial accounting and reporting systems. According to BOP officials, FMIS is BOP’s primary tool for cost reporting and budget execution. BOP also considers economic indicator information to estimate general inflationary cost increases using data from the Bureau of Labor Statistics’ Consumer Price Index, among other sources. Second, BOP projects inmate population changes for the budget year For example, for the fiscal year 2014 and for 9 years into the future. budget justification, BOP projected a net growth in its inmate population of 5,400 (2.4 percent) for fiscal years 2013 and 2014. Third, BOP estimates costs to house the projected number of new inmates, including building and facility requirements. According to BOP, the increasing inmate population is the primary driver of new service costs. BOP also identifies and estimates costs for new initiatives, such as the opening of a new BOP facility, by reviewing the proposals submitted by its divisions and regional offices, as well as historical data on costs for implementing such initiatives. In November 2009, we found that BOP’s methods for cost estimation largely reflected best practices outlined in the GAO Cost Estimating and Assessment Guide. We concluded that for fiscal year 2008, BOP followed a well-defined process for developing a mostly comprehensive, well-documented, accurate, and credible cost estimate, and we made recommendations to further improve BOP’s process. Specifically, we recommended that BOP (1) analyze the extent to which operations costs could vary because of changes in key cost assumptions and (2) improve documentation of calculations used to estimate its costs. BOP concurred with the recommendations and took appropriate actions to address them as noted above. In November 2009, we also reported on various challenges that BOP faced, including prison crowding levels. For example, we found that from fiscal years 2000 through 2009, BOP’s total inmate population level increased by 44 percent—from 145,125 to 209,027. In November 2009, we also reported that BOP estimated its total inmate population would continue to increase by about 4,500 inmates per year over the next decade. In September 2012, we reviewed the growth in BOP’s population and found that the 9.5 percent population growth from fiscal years 2006 through 2011 exceeded the 7 percent increase in its inmate capacity, and reported that BOP projects continued population growth. In our work related to budget reviews across the federal government, we have reported that an agency’s budget justification may be the single most important policy document because it depicts and reconciles policy objectives, and we have identified the potential to enhance the transparency of agencies’ budget justifications by providing additional details and information. the U.S. Department of Veterans Affairs’ (VA) health care budget, we concluded that federal agencies’ congressional budget justifications should be transparent—that is, they should be clear and easy to understand—in part because Congress relies on this information to make resource allocation decisions and conduct oversight. GAO-10-687R. concluded that in order to facilitate decision making, information needs to be clear and organized in a way that is meaningful to decision makers. We recommended, among other things, that VA further consult with congressional decision makers to determine what detailed information related to its appropriations accounts should be included—and how—in its congressional budget justification. VA concurred with the recommendations and has begun taking actions to address them. BOP’s largest account—its S&E account— is composed mainly of costs associated with Inmate Care and Programs and Institution Security and Administration, both of which have grown steadily since 2008, predominantly because of increases in prison populations, which are the primary cost driver of BOP’s budget. The other two PPAs in the S&E account are associated with the care and custody of federal offenders in contract facilities and maintenance and administration. BOP’s budget justification for fiscal year 2014 reflected the President’s budget request of a total of $6.9 billion, including $6.8 billion for its S&E account. Figure 2 shows that the President’s budget request for BOP’s S&E account has increased from fiscal years 2008 through 2014. BOP’s budget justification includes its proposed use of funds for each account by PPA. BOP’s budget for S&E costs consists of four PPAs, and as shown in figure 3, the Inmate Care and Programs PPA, and Institution Security and Administration PPA, and Contract Confinement PPA accounted for about 97 percent of the President’s 2014 budget request for BOP’s S&E account, according to BOP’s budget justification. Below is a description of the four PPAs that compose BOP’s S&E account. The Inmate Care and Programs PPA covers the operational costs of functions directly related to providing inmate care, including inmate food, medical care, drug treatment, and psychological services; education and vocational training; institutional and release clothing; welfare service; and transportation. For example, the budget justification for fiscal year 2014 proposes the use of funds to help address increases in chronic medical care for inmates. Additionally, the budget justification for fiscal year 2014 proposes the use of funds to expand evidence-based treatment practices to treat drug offenders and reduce recidivism. The Institution Security and Administration PPA covers costs associated with institution security, administration, maintenance, and staff training. These costs include salaries for correctional officers assigned to every BOP institution and expenses for facility maintenance and utilities. The Contract Confinement PPA covers costs associated with BOP inmates in contract care and costs associated with management and oversight of contract facilities and residential reentry centers as well as the National Institute of Corrections. The Management and Administration PPA covers costs associated with general administration and provides funding for the executive staff as well as headquarters and regional office program managers in the areas of budget development and execution, financial management, procurement and property management, human resource management, inmate systems management, safety, legal counsel, research and evaluation, and systems support. As shown in figure 4, while the amounts reflected for BOP’s Management and Administration PPA have remained relatively constant, the Inmate Care and Programs and Institution Security and Administration PPAs, and to a lesser extent the Contract Confinement PPA, have grown steadily since 2008, predominantly because of increases in prison populations which are the primary cost driver of BOP’s budget. In addition to the budget justification broken down by PPA dollar amounts, the budget justification provides a summary of increases (i.e., improvements) and decreases (i.e., offsets) to the current year’s appropriation.2014, BOP described the $35.1 million net increase (1.2 percent) in the Institution Security and Administration PPA from fiscal year 2013 in terms of three increases and two decreases, as shown in table 1. Further, BOP described the dollar amounts associated with the $1.7 million (0.07 percent) net increase in the Inmate Care and Programs PPA from fiscal year 2013 in terms of five increases and two decreases. We found that BOP is collecting more detailed quantitative cost data on the components that constitute each PPA, which could be useful to congressional decision makers when reviewing BOP’s budget justification. In accordance with departmental and OMB guidance, BOP’s budget justifications summarize amounts by PPA, so BOP is not required to provide additional funding data below the PPA level in its budget justification. Providing more comprehensive information could help clarify BOP’s proposed spending on specific categories and subcategories reflected in its budget justification. For example, BOP’s budget justification for fiscal year 2014 included $2.5 billion for the Inmate Care and Programs PPA element and included narrative information for categories such as Medical Services, Food Service, Education and Occupational Training, Psychology Services, and Religious Services, as well as narrative summaries for various subcategories, but did not include proposed funding amounts for these categories. Our analysis shows that this additional information can be useful in identifying trends and cost drivers that may affect future costs, which could be particularly helpful given the 33 percent growth in BOP’s budget request from fiscal years 2008 through 2014. Our prior work has identified factors driving BOP’s cost increases in specific categories that constitute each PPA. For example, in July 2013, we found that per capita mental health services costs have increased in BOP-operated institutions since fiscal year 2008 and are expected to continue to increase. Further, we found that these increases were generally due to three factors—inmate population increases, general inflationary increases, and increased inmate participation rates in psychology treatment programs. As we reported in July 2013, BOP’s expanded inmate participation in its Residential Drug Abuse Program, which helped reduce waiting lists for the program, had increased overall program costs. In addition, the Congressional Research Service (CRS) reported in January 2013 that BOP’s expenditures on utilities, food, and medical care have generally increased each fiscal year since 2000, although the per capita increase in the cost of food and utilities has not been as pronounced as the increase in the per capita cost of inmate medical care.diabetes, hypertension, and infectious diseases have a slightly higher rate of incidence in the incarcerated population. Thus, understanding the differences in costs for medical care, food services, and drug programs— three of the cost components within the Inmate Care PPA—could help congressional decision makers evaluate how these trends may affect future costs. Pub. L. No. 111-117, 123 Stat. 3034 (2009). FMIS to inform their budget development process, the FMIS cost component data fields are not always directly linked to specific narrative categories in the budget justification for BOP because they use their judgment to identify categories that they consider to be of specific interest to congressional decision makers (e.g., dollar amounts, trends, or policy concerns) rather than standardized cost components. For example, BOP includes narrative in the budget justification to describe costs related to categories such as Medical Services and Food Service, among others. As figure 6 shows, there are similarities in the FMIS data fields for which BOP captures detailed cost information and those categories BOP uses to describe its budget justifications. This additional information could provide congressional decision makers with additional insights into factors driving BOP’s budget. While BOP does not provide in its budget justifications information on the cost components composing each PPA, BOP officials already capture this information, using data from FMIS, as part of their annual budget development process. We requested specific, quantitative information below the PPA level and BOP provided us with dollar amounts associated with the data fields in FMIS that constitute Inmate Care and Programs, Institution Security and Administration, and Contract Confinement PPAs for fiscal years 2008 through 2014. Using the additional detailed information from DOJ’s FMIS provided by BOP budget officials, we were able to identify changes over time in the cost components composing each PPA, which is information congressional decision makers could use when reviewing BOP’s budget justification. For example, we analyzed changes in the dollar amounts associated with FMIS cost component data fields that make up the Inmate Care and Programs PPA element over time. The results of our analysis show that BOP’s proposed spending for the Inmate Care and Programs PPA has continually increased from fiscal years 2008 through 2013; however, BOP’s FMIS data showed variations in the dollar amounts associated with the cost components that constitute the PPA. For example, changes in dollar amounts for medical services have increased by about 50 percent from fiscal years 2008 to 2014, and decreased slightly for the 2 most recent fiscal years—2013 and 2014. According to officials, the changes in dollar amounts reflect changes in the prison population and implementation of policy initiatives intended to lower costs. The results of our analysis are presented in figure 7. The specific dollar amounts by fiscal year for the cost components composing the Inmate Care and Program PPA element are provided in appendix I. In addition, using the additional cost component information, our analysis of BOP’s FMIS data fields showed that changes in dollars associated with the budget justification for drug abuse treatment have increased by over 70 percent from fiscal years 2008 to 2014, and from fiscal years 2010 through 2012 increased by more than 15 percent each year—which reflects BOP’s efforts to expand its drug treatment services. While trends in the dollar amounts associated with medical care and drug treatment reflect a relatively significant increase from fiscal years 2008 to 2014, changes in the dollar amounts associated with food and religious services remained relatively constant for this same time frame. Our analysis of BOP’s FMIS data also showed the proportion of dollars associated with the FMIS data fields that compose each PPA element. For example, we found that for fiscal year 2014, institution security constituted over 50 percent of the funding based on cost components that compose the Institution Security and Administration PPA element. (See fig. 8.) In addition, we found that for this same time frame, medical program composed 40 percent of the funding for the Inmate Care and Programs PPA element, and private prison contracts made up over 60 percent of funding for the Contract Confinement PPA element. (See figs. 9 and 10) For additional details on each of the narrative categories, see appendix II. In an era of scarce federal resources and given BOP’s projected growth in inmate population and substantial increased costs in recent years, this additional detail could be helpful to congressional decision makers when reviewing BOP’s budget justification and making determinations about where to increase or decrease BOP funding. According to DOJ’s Fiscal Years 2012-2016 Strategic Plan, one of the department’s guiding principles is to promote transparency, performance, and accountability, including budget transparency. According to the plan, the department and its components will continue to promote budget transparency, performance, and accessibility by coordinating with leadership and regularly reporting accomplishments, among other actions. Further, according to federal financial accounting standards, cost information can be used by Congress in making policy decisions about allocating federal resources among programs, authorizing and modifying programs, evaluating program performance, and making program authorization decisions by assessing costs and benefits. BOP officials stated that they use historical cost information that BOP maintains in DOJ’s FMIS for budget execution and monitoring as an input to inform the annual budget development process. Specifically, budget development staff use data from the previous 3-year period for cost components in FMIS and adjust the funding levels based on projected changes in prison population and other factors to help them estimate the total funding needs for the future fiscal year by PPA. BOP officials further stated that they regularly provide additional information upon request on the budget justification to staff from congressional appropriations and congressional authorizing committees. For example, they said that JMD officials provide appropriators with funding information in response to requests for various congressional reports and hearings, as well as written responses to congressional inquiries related to the budget justification. To further clarify their budget justification to Congress and OMB, they said they have taken other steps, such as conducting tours of prison facilities with congressional and OMB stakeholders to demonstrate conditions and the basis for the President’s budget request. BOP’s efforts to provide information upon request may meet some congressional committee needs; however, the additional information on projected costs would provide more detail on the cost drivers affecting the President’s request for BOP and therefore facilitate congressional decision making. BOP officials reported spending a total of 40 staff hours to compile and analyze the quantitative information below the PPA level in order to recreate the historical quantitative information for the prior fiscal years. Thus, given that BOP already captures and has readily available this quantitative information below the PPA level as part of its annual budget development process, providing this more detailed information to congressional decision makers could facilitate congressional decision making by providing a more comprehensive understanding of the factors affecting BOP’s budget and driving budget increases below the PPA elements. Consulting with congressional decision makers to determine if it would be helpful to include this information in its annual budget justification would help provide reasonable assurance that BOP is fully meeting congressional stakeholders’ needs. According to BOP officials, BOP’s biggest challenges are managing the continually increasing federal inmate population while providing for inmates’ care and safety, as well as the safety of BOP staff and surrounding communities, within budgeted levels. BOP officials project continuing inmate population growth and estimate increases in funding needs for the foreseeable future. Consultation with congressional decision makers could help BOP identify what additional information, if any, is needed, such as providing more comprehensive detailed information on projected costs using data already gathered by BOP. This could enhance the transparency of BOP’s budget justification and the President’s budget request and better inform congressional decision making. To enhance the transparency of BOP’s cost information as presented in DOJ’s annual congressional budget justifications, we recommend that the Attorney General consult with congressional decision makers on providing additional BOP funding detail below the PPA level in future budget justifications, and in conjunction with BOP, provide the data as appropriate. We provided a draft of the report to DOJ for comment. The department did not provide official written comments to include in our report. However, in an e-mail on November 21, the DOJ liaison stated that DOJ concurred with our recommendation. DOJ and BOP also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the selected congressional committees, the Attorney General, and the Director of BOP, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any further questions about this report, please contact me at (202) 512-9627 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. BOP officials stated that they maintain funding data for laundry services using the Inmate Services FMIS data field. Narrative summaries Each inmate is tracked through BOP’s Sentry Information System. Offenders are assigned a security and custody status, which relates to the degree of supervision needed and ensures that offenders are placed in the least restrictive and least costly correctional environment appropriate to their custody and security-level needs. The result is a grouping of offenders with similar custodial needs in an institution, and a relative reduction in the mixing of aggressive and nonaggressive offenders. Within each institution, correctional officers are assigned to security posts that are primarily established on the basis of structural/visual considerations. The two basic categories of security are external security and internal security. External security consists of a walled or fenced perimeter supplemented by staffed security towers and armed mobile perimeter patrols. There is also razor wire strung between a double fence with high mast lighting to illuminate the perimeter and highly technical equipment such as alarm systems and video surveillance. Entrances through the perimeter are controlled by a series of gates, both electrical and manual, supplemented by metal detection systems and search procedures for weapon and contraband control. BOP has fully incorporated closed circuit television technology in its higher-security facilities, which has enhanced supervision and provides valuable intelligence in the management of federal inmates. For practical purposes, all other security measures, processes, and activities can be called internal security, commencing when an inmate is admitted and terminating upon his or her release. Staff supervise inmates in living units, work areas, visiting areas, dining halls, and any other area where inmates may be located or have access. Regularly scheduled counts are conducted several times a day (five on weekdays, six on weekends) in all institutions to monitor the whereabouts of inmates. Work supervisors and program personnel are held strictly accountable for all inmates under their supervision. Violations of institution regulations are dealt with through the Inmate Disciplinary Process. Correctional staff members conduct investigations of the alleged misconduct and forward the findings to the Unit Discipline Committee. Depending on the seriousness of the charge, the Unit Discipline Committee will make a finding, or refer the report to the Discipline Hearing Officer for disposition. When practical, inmates are afforded the opportunity to participate in, and present evidence at a due process hearing before findings are made. Inmates may appeal these decisions utilizing the administrative remedy process. The Administrative Segregation program provides for the separation of inmates who require closer supervision and monitoring from those in the general population. Such cases include, but are not limited to, protective custody, serious escape risks, threats to the security and orderly running of the institution. The Disciplinary Segregation program provides for segregation of offenders who have been found guilty of violations of rules through the Inmate Disciplinary Process. The Facility Maintenance program is designed to adequately maintain and continue to safely operate the physical plants of BOP institutions. Facilities vary in age from those recently constructed to those 100 or more years old. Thirty-four of the BOP facilities are over 50 years old. As of January 2013, BOP facilities are situated on 46,030 acres of land and contain approximately 63.4 million square feet of floor area, all of which must be maintained and furnished with utility services. Each institution maintains communication systems including complete private automatic branch exchange telephone systems, radio systems including base station and mobile units, and several electronic detection and control systems. Complex heating and air conditioning systems, high-pressure steam power plants, sophisticated hospital equipment, emergency electrical power systems and fire protection, and life safety systems all require regular maintenance. Despite energy-saving initiatives, discussed earlier in the budget, the growing inmate population and inflationary factors have significantly increased utility costs. Narrative summaries Physical plant requirements are identified through regular inspections conducted in the ongoing preventive maintenance program, formal semiannual inspections, and requests for specific needs identified by institution staff members. This program finances maintenance and minor improvement projects that normally cost $10,000 or less. However, there are policy guidelines that allow funding of maintenance projects (work requests) costing more than $10,000 in certain circumstances. Some exceptions would include emergencies or security threats such as hurricanes or disturbances. Maintenance and repair requirements in excess of $10,000 are normally included in the Modernization and Repair program of the Buildings and Facilities budget. The work within the maintenance program is accomplished almost entirely by inmate crews under staff supervision. Each work crew consists of a staff foreman and 10 to 20 inmates. Each institution must have highly skilled staff with experience and training in every phase of construction and maintenance work including steam fitting, air conditioning, mechanics, or electronics repair. A few specific jobs are contracted out because special skills or equipment items are required, or because the work may be extremely dangerous. Examples of these jobs include elevator inspection and repair, radio frequency alignment, and water tower painting. The Staff Training Academy (STA) at the Federal Law Enforcement Training Center (FLETC) in Glynco, Georgia, provides introductory and advanced correctional training for BOP law enforcement staff. The Introduction to Correctional Techniques (ICT) program is a 5-week program for a total of 159 hours of instruction that is taught in two phases. Phase I consists of 2-weeks of training at the institution, and Phase II consists of a 3-week training program at the STA. The STA oversees the curriculum development and administration of the 2-week (56-hour) ICT Phase I course provided at all institutions for new employees prior to attending the ICT Phase II course at the STA. The ICT Phase II is a 3-week (103-hour) program of instruction that covers hostage situations, ethics, interpersonal communication skills, special offenders, diversity, inmate discipline, legal procedures, and so forth. Successful completion of this program (academics, firearms, and the Physical Ability Test) is required for continued employment of newly hired staff entering into law enforcement positions. In fiscal year 2012, 2,279 new employees participated in 60 classes of the ICT program. The STA provided advanced correctional skills training for trainers in disturbance control, firearms, bus operations, self-defense, and side-handle baton in fiscal year 2012. The STA also provides advanced correctional training for Marksman/Observer and Witness Security Escort. The majority of the advanced training programs are conducted at BOP institutions, resulting in substantial cost avoidance in training costs. All BOP institutions operate outpatient ambulatory care clinics. These clinics provide a range of outpatient services to inmates similar to those provided by ambulatory clinics found in most communities, that is, primary health care. The clinics serve as the first level of diagnostic and treatment services to sentenced and presentenced inmates. New institutions are typically given 2 years after activation to obtain accreditation from the Joint Commission. Care Level I institutions are not required to achieve or maintain this accreditation because they predominantly house healthy inmate populations. All Health Services programs and operations are subject to internal review (Program Review) and must maintain accreditation by the American Correctional Association. Each institution is also required to provide data to the Health Services Division (HSD) in the form of outcome measures for a variety of clinical conditions (HIV, hypertension, diabetes, and so forth). These evaluative and accreditation activities provide HSD with valuable data regarding the quality and appropriateness of health care in BOP. The majority of BOP medical staff are civil service clinical and support professionals, and the remaining staff are U.S. Public Health Service (USPHS) Commissions Corps Officers serving in a wide variety of clinical and specialty professions. USPHS provides these clinicians and administrators via an interagency agreement. Narrative summaries BOP provides daily meals with consideration to the Dietary Reference Intakes (DRI) for groups published by the Food and Nutrition Board of the National Academy of Sciences, for identified macro- and micronutrients. Meal preparation is accomplished primarily by inmate workers (about 12 percent of the population) under the supervision of staff. Food preparation and recipe and menu management are maintained by the use of a standardized national menu and a computerized Food Service management software system. United States Penitentiary Lompoc, California, and Federal Correction Institution El Reno, Oklahoma, utilize available land resources in limited production of beef and milk. Farm products are consumed at the producing institutions and are also shipped to nearby institutions to offset their need to purchase some products on the open market. During fiscal year 2014, BOP estimates serving over 206 million meals, which is nearly 566,000 meals per day and over 3.9 million meals per week. Despite cost containment measures, the annual costs have risen because of the growing inmate population and inflationary factors. Inmate education programs include literacy, English as a Second Language (ESL), occupational education, advanced occupational education (AOE), parenting, release preparation courses, and a wide range of adult continuing, wellness, and structured and unstructured leisure time activities. Education programming provides inmates with an opportunity to learn the functional skills that support their reintegration into the community. At the end of fiscal year 2012, 35 percent of the designated inmate population was enrolled in one of more education/recreation program. BOP’s Office of Research has found that participation in education programs leads to a 16 percent reduction in recidivism by inmates who participate in these programs. Psychology Services staff are an integral part of correctional treatment, as they administer programs of group and individual psychotherapy, crisis intervention, prosocial skill building, and staff consultation and training. BOP policy requires that every inmate admitted to a BOP facility be given an initial psychological screening, which consists of psychological interviews, social history reviews, and behavioral observation. The purposes of the screening are to identify special treatment or referral needs, provide information useful in future crisis counseling situations, identify strengths as well as potential adjustment problems to imprisonment, and discuss possible program needs with the inmates and provide information about these programs. In addition, BOP psychologists have traditionally provided the courts, parole officials, and prison administrators with comprehensive psychological evaluations of offenders. Inmates with mental health needs are offered a range of services, including crisis counseling, individual and group psychotherapy, clinical case management, psychiatric treatment, and specialized residential treatment programs. Acutely mentally ill inmates may receive these services within BOP’s Psychiatric Referral Centers. However, most mental health treatment is provided in regular institutions. In addition to the treatment of mental illnesses, Psychology Services provides specialized drug abuse treatment and sex offender treatment programs. BOP psychologists also offer treatment services designed to develop inmates’ life skills, such as anger management, problem solving, social skills training, and stress management. In response to the rapid growth of federal inmates with a diagnosis of a drug disorder (40 percent of inmates entering BOP), BOP continues to develop evidence-based treatment practices to manage and treat drug-using offenders. BOP’s strategy includes early identification through a psychology screening, drug education, nonresidential drug abuse treatment, intensive residential drug abuse treatment, and community transition treatment. The Violent Crime Control and Law Enforcement Act (VCCLEA) of 1994 requires BOP, subject to the availability of appropriations, to provide appropriate substance abuse treatment for 100 percent of inmates who have a diagnosis of substance abuse or dependence and who volunteer for treatment. In fiscal year 2012, BOP was able to provide appropriate substance abuse treatment for 100 percent of eligible inmates. Narrative summaries BOP employs full-time chaplains in all institutions to accommodate the constitutional right to the free exercise of religion, manage religious programs, and provide pastoral care to inmates. Chaplains routinely evaluate the needs of inmates in the institution and facilitate programs that address those needs. Religious Services departments offer programs directly related to spiritual development, community reentry, family relationships, personal responsibility, and basic religious instruction. Chaplains provide spiritual programs across the spectrum of faiths represented in the inmate population. Chaplains also train and familiarize staff regarding diverse religious beliefs and practices of inmates while providing guidance for institution compliance with the First Amendment and legal standard established by the Religious Freedom Restoration Act and the Second Chance Act of 2007. The passage of the Second Chance Act of 2007 ushered in the opportunity to utilize mentors in the delivery of pastoral care. Policy is being developed to expand the use of mentors; 23 mentor coordinator positions have been approved at Life Connections and Threshold Program sites. Responsible for the general program and policy development for BOP’s network of approximately 250 contract residential reentry centers. Community Corrections and Detention (CCD) also works with community corrections contracting (CCC) to offer technical assistance in the acquisition process for Residential Reentry Centers services. CCD provides technical assistance to BOP’s 22 community corrections offices in the areas of contract oversight, case management, inmate systems management, and financial management. Responsibility for BOP’s network of contract confinement facilities for federal juvenile offenders and short-term detention facilities also rests with CCD. Responsible for coordinating BOP’s efforts in managing a growing population of nearly 29,000 inmates located in contractor-operated secure correctional facilities. Staff from this branch oversee the management and operation of facilities, develop new requirements, establish policy and procedures, develop and manage contract budgets, and serve as liaisons among the contractors and BOP and other members of the federal family. National Institute of Corrections Also included in this decision unit is the National Institute of Corrections (NIC), a federal entity that is authorized by statute 18 U.S.C. §4351 to provide training, technical assistance, and information services to federal, state, and local correctional agencies, including BOP. NIC provides technical assistance by sending a technical resource provider or staff to the requesting agency, or an individual or team of individuals from the requesting system visits another agency to gain expertise and experience in the specific area of concern. In fiscal year 2012, NIC delivered 244 technical assistance training events to federal, state, and local justice agencies. NIC is also responsible for the National Corrections Academy (NCA), which serves as the training division that provides training and related services for federal, state, and local correctional practitioners. By developing and delivering training to prisons, jails and community corrections practitioners, the academy enhances interaction among correctional agencies, other components of the criminal justice system, public policymakers, and public and private stakeholder organizations, thus improving correctional programming throughout the country. David C. Maurer, (202) 512-9627 or [email protected]. In addition to the contact named above, Chris Keisling (Assistant Director), Carol Henn (Assistant Director), Melissa Wolfe (Assistant Director), Kristen Kociolek (Assistant Director), Vanessa D. Dillard, John Vocino, Billy Commons, Pedro Almoguera, Lara Miklozek, Linda Miller, Mary Catherine Hult, and Eric Hauswirth made key contributions to this report.

BOP, a component of DOJ, is responsible for the custody and care of over 219,000 federal inmates--a population that has grown by 27 percent over the past decade. BOP had a fiscal year 2013 operating budget of about $6.5 billion, and BOP projects that its costs will increase as the federal prison population grows. According to officials, BOP's biggest challenge is managing the increasing federal inmate population, and related responsibilities, within budgeted levels. Generally, BOP is appropriated funds through two accounts: S&E and B&F. To prepare its annual congressional budget justification for DOJ, BOP estimates its costs and resource requirements and sends its requested amounts to DOJ. GAO was asked to review BOP's budget justifications. This report (1) identifies the types of costs that compose BOP's budget accounts as presented in its budget justifications, and (2) assesses the extent to which opportunities exist to enhance the transparency of information in BOP's budget justifications for congressional stakeholders and decision makers. GAO analyzed DOJ and BOP budget justification documents for fiscal years 2008 through 2014 and interviewed officials to determine how they develop budget justifications. The largest account in the Department of Justice's (DOJ) Bureau of Prisons (BOP) budget justification--its Salaries and Expenses (S&E) account-- is composed mainly of costs associated with Inmate Care and Programs and Institution Security and Administration, both of which have grown steadily since 2008. This growth is due predominantly to increases in prison populations, which are the primary cost driver of BOP's budget. The other two program, project and activity (PPA) elements in the S&E account are associated with the care and custody of federal offenders in contract facilities and maintenance and administration. BOP's Buildings and Facilities (B&F) account, which makes up on average less than 3 percent of its budget, pays for costs associated with site planning; acquisition; and construction of new facilities and costs of remodeling and renovating existing facilities, and related costs. In fiscal year 2014, the budget justification reflected a total of $6.9 billion; of which over 95 percent ($6.8 billion) was for BOP's S&E account. GAO found that BOP is collecting more detailed quantitative cost data on the components that constitute each PPA, which could be useful to congressional decision makers when reviewing BOP's budget justification. In accordance with departmental and Office of Management and Budget guidance, BOP's budget justifications summarize amounts by PPA, so BOP is not required to provide additional funding data below the PPA level in its budget justification. Providing this information to Congress could help clarify what BOP proposes to spend on specific categories and subcategories reflected in its budget justification. For example, BOP's budget justification for fiscal year 2014 included $2.5 billion for the Inmate Care and Programs PPA element and included narrative information for categories such as Medical Services, Food Service, Education and Vocational Training, Psychology Services, and Religious Services, as well as narrative summaries for various subcategories. However the budget justification did not include proposed funding amounts for each of these categories. GAO's analysis shows that this additional information can be useful in identifying trends and cost drivers that may affect future costs. For example, GAO's analysis identified variations in the dollar amounts associated with the cost components that constitute the PPA, such as drug abuse treatment and education, which could affect decision making for that PPA. However, BOP's current budget justification does not include this detail. Congressional decision makers have previously requested additional information about BOP's budget presentations and data below the PPA level. BOP's budget requests for its S&E account have increased 33 percent since fiscal year 2008, which makes transparency in its budget justifications even more crucial. Consulting with congressional decision makers to determine if it would be helpful to include in its budget justifications the additional cost information that DOJ already collects would help provide reasonable assurance that BOP is fully meeting congressional decision makers' needs and would enhance the transparency of its budget justifications. BOP also provides narrative summaries of its initiatives, services, and organizational units in categories and subcategories under each PPA. BOP officials said that they include these narrative descriptions to provide additional information to congressional decision makers. GAO recommends that the Attorney General consult with congressional decision makers on providing additional BOP funding detail in future budget justifications, and in conjunction with BOP, take action as appropriate. DOJ concurred.

You are an expert at summarizing long articles. Proceed to summarize the following text: The FTS2001 program is the successor to the two programs that provided long distance telecommunications to the federal government: the Federal Telecommunications System (FTS) and the FTS 2000 program. Each program represented an improvement over its predecessor in terms of available services and technology. The programs’ principal differences in acquiring and delivering long distance telecommunications services are summarized in table 1. A significant difference between the FTS 2000 and the FTS2001 programs is that, unlike the FTS 2000 program, the FTS2001 program is not mandatory. That is, agencies are not required to use FTS2001 for their telecommunications needs. Nevertheless, all but one federal agency represented on the IMC agreed in October 1997 to transfer their core telecommunications requirements expeditiously from FTS 2000 to FTS2001 contracts upon award of those contracts. Between 1994 and 1997, IMC and GSA cooperatively developed, revised, and issued a post-FTS 2000 program strategy, during that time considering and incorporating comments from industry as well as from the Congress. IMC and GSA set two goals for the FTS2001 program: to ensure the best service and price for the government and to maximize competition for services. An integral part of the basic strategy to achieve those goals was ultimately to move beyond offering only long distance telecommunications services by adding integrated end-to-end telecommunications services, that is, permitting each contractor to offer both local and long distance services. Consistent with this original program strategy, the overall FTS2001 program allows further competition in the long distance market beyond the two contractors already awarded FTS2001 contracts. For example, service providers who are awarded contracts under GSA’s Metropolitan Area Acquisition (MAA) program—which provides local telecommunications services in selected geographic areas—may be permitted to compete for FTS2001 business (1) if allowed by law and regulation, (2) after the FTS2001 contracts have been awarded for a year, and (3) if GSA determines that it is in the government’s best interests to allow such additional competition. In implementing this program strategy, GSA awarded two contracts for FTS2001 long distance services—one to Sprint in December 1998 and one to MCI WorldCom in January 1999. Services offered to agencies under these contracts include toll-free and other voice services; international voice and data services; Internet- and intranet-based services; and low- speed and high-speed data communications services. Each contract is for 4 base years from the date of award, with four 1-year options, and each vendor is guaranteed minimum revenues of $750 million over the life of the contracts. Although to date it has also made MAA contract awards to 8 service providers in 19 metropolitan areas across the country, GSA has not yet allowed MAA contractors to offer FTS2001 long distance services. Observing that the FTS2001 minimum revenue guarantees may take longer to meet than the 4-year base period of the Sprint and MCI WorldCom contracts, the GSA Administrator considered those guarantees to be a major factor in deciding when to open the FTS2001 long distance market to MAA contractors. Therefore, the sooner the federal government can be assured of satisfying its FTS2001 minimum revenue guarantees, the sooner GSA can add more long distance options and maximize the ability of federal agencies to achieve basic program objectives cost effectively. In an April 2000 report to the Chairman of the Committee on Government Reform, we assessed the FTS2001 minimum revenue guarantees and their constraining effect on GSA’s ability to add competition to the FTS2001 program. To support service continuity during the FTS2001 transition period, GSA awarded sole-source extension contracts, effective in December 1998, to the two FTS 2000 contractors. These contracts had a 12-month base period with two 6-month options. The AT&T and Sprint extension contracts were originally valued at $801.3 million and $285.5 million, respectively. The second 6-month option on the FTS 2000 extension contracts expired on December 6, 2000, thereby establishing this date as the goal for completing the FTS2001 transition. The transition of the federal government’s long distance telecom- munications services from its FTS 2000 contracts with Sprint and AT&T to its FTS2001 contracts with Sprint and MCI WorldCom is a sizable and complex undertaking. For example, the multibillion-dollar FTS 2000 long distance services contracts ultimately reached more than 1.7 million users during the contracts’ 10-year existence. FTS 2000 revenues for fiscal year 1999 alone approached $752 million for a variety of voice, data, and video communications services to users throughout the federal government. The significant differences between the government’s FTS 2000 transition and its transition to FTS2001 are highlighted in table 2. Although the FTS2001 long distance contracts are administered by GSA, several parties share responsibility for moving to and implementing those contracts. In particular, agencies themselves must select which of the two service providers best meets their service requirements and cost objectives. (Agencies can also select both providers if that arrangement best suits their needs.) This selection is the first step in the transition process. Once this selection is made, the next step is for the selected FTS2001 contractor to complete a site survey of agency requirements and develop a site transition plan. The next step is for agencies to order services. The FTS2001 contractors then must complete the order for the service to be transitioned. At this point in the process, local exchange carriers become involved. In coordination with the two FTS2001 long distance service providers, local carriers provide the facilities and network connectivity that link a customer agency’s premises to the FTS2001 contractor’s network. Finally, after the transition order is completed, the agency must issue a disconnect order to the incumbent FTS 2000 service provider, who must then execute it. This shared responsibility shifts some of the control over transition processes, for some agencies, away from GSA. Rather than actively managing and directing the FTS2001 program transition, as it did with FTS 2000, GSA views itself as a facilitator. Principal responsibility for transition rests with the agencies, in partnership with their selected service providers, where an agency chooses to manage its own transition. Nevertheless, GSA does have important program-level responsibility for transition planning. For example, GSA’s Federal Technology Service organization is responsible for FTS2001 program management and contract administration; centralized customer service; ongoing coordination and procurement of services; billing support to agencies; and engineering, planning, and performance support through review of transition plans and contractor performance monitoring. In addition to that provided by GSA, oversight is also provided by IMC’s Transition Task Force, established to aid transition efforts by sharing information and lessons learned, identifying and solving common problems, and advising GSA FTS managers on transition management and contractual issues. This IMC Transition Task Force began meeting with agency, contractor, and GSA staffs in December 1999 to oversee and support transition activities. According to the IMC’s Transition Task Force, about 88 percent of FTS2001 transition service orders were completed as of February 2001, whereas the original schedule called for the transition to be complete by December 6, 2000. Transition progress varies by the type of service ordered. According to transition management reports prepared by IMC’s Transition Task Force, the government had by February 2000 transferred most voice services from FTS 2000 to FTS2001 and substantially completed the transition of its dedicated transmission services. However, the transition of switched data services—primarily large agency data communications networks using frame relay or ATM (asynchronous transfer mode) technologies—was lagging significantly. These transition results are summarized in table 3. Revised schedules developed by Sprint and MCI WorldCom for the IMC Transition Task Force in February 2001 projected that the contractors would complete their FTS2001 service orders in April 2001 and June 2001, respectively. As the transition progresses, trends suggest that the final services to be transitioned are the most time-consuming. As summarized in figures 1 and 2 below, the number of days on average from the time a contractor receives an order for service until it completes the order has significantly increased in recent months, particularly with respect to data communications services. There are several reasons for FTS2001 transition delays, which involve all the key players in the program, including GSA, federal agencies, FTS2001 contractors, and local exchange carriers: The FTS2001 contractors did not provide GSA with the management data it needed to manage and measure this complex transition process. GSA was not able to rapidly add all the services to the FTS2001 contracts required by agencies to complete their transition. Customer agencies were slow to order FTS2001 services. FTS2001 contractors had staffing shortfalls and turnover on account teams, as well as billing and procedural problems, which impaired their support of agency transition activities. Local exchange carriers had problems delivering facilities and services on time to the FTS2001 contractors. Although progress has been made to correct these problems, they prevented the completion of FTS2001 transition actions by the original December 6, 2000, deadline. As transition manager, GSA plays a critical role in coordinating the efforts of the other players, but it is having a difficult time collecting the accurate and comprehensive data it needs to carry out its responsibilities. While GSA developed an automated system to help track transition data and develop reports, the FTS2001 contractors did not furnish GSA with the data it needed to populate this management system. As a result, GSA and agency transition managers are not receiving the timely, up-to-date information they need to effectively manage transition activities. In April 1999, GSA awarded the SETA Corporation a task order, valued at $245,000, to develop a Transition Status and Monitoring System that could be used by both GSA and agency transition managers to actively manage the FTS2001 transition. The system was intended to provide managers with up-to-date status reports, event notices, and jeopardy reports based on overall contractor transition plans and current progress. Managers could then select these reports by contractor, agency, bureau, location, service type, and transition phase. Using detailed, up-to-date transition information to be provided by the two FTS2001 contractors’ respective on-line transition management plans and databases, this management system was to provide GSA and agency transition managers with the information they needed to measure transition progress and identify variances from transition plans. Although SETA developed the system and delivered it to GSA in September 1999, it has not been used to manage the transition as planned. According to GSA managers, the system is not operational because the basic management information it needs to operate was not provided by the FTS2001 contractors. The FTS2001 contracts require the contractors to develop on-line versions of their respective transition management plans and to update the information in these plans daily. In addition, the contractors are required to develop and maintain information on transition schedules, along with a summary of all information contained in transition management plans, in a transition database. This database information was required to be fully up-to-date for a given location at the time access service was ordered for that location, and the contractors were to update it as required to maintain its currency and accuracy until transition was complete. GSA transition managers were not able to obtain usable and complete transition management information from the contractors until recently, however, which prevented the use of this information in populating the automated transition management system as planned. GSA managers cited two reasons for this problem. First, the FTS2001 contractors were slow to develop this on-line information. For example, GSA did not receive a usable version of a transition database from MCI WorldCom until December 2000; in January 2001, GSA was considering how to use that information to populate its management system to support future telecommunications planning and acquisition efforts. GSA is continuing to work with Sprint to obtain its transition database and expects to receive that information in March 2001. Second, because the contractors were slow to develop the required information, SETA, GSA, and the FTS2001 contractors could not agree on a common interface format that would have allowed SETA to populate the transition management system with any available information sooner. In the interim, GSA and others have been gauging the progress of the transition from information on service orders submitted by agency managers, agency activity reports, and contractor activity reports. In doing so, GSA used time-consuming, ad hoc processes to obtain transition event and status information, including manually reconciling changes as they were reported. In addition to GSA’s efforts, the IMC’s Transition Task Force has been verifying transition-reporting data with agencies and contractors in order to improve the accuracy of their transition measurements. In spite of these efforts, GSA cannot be certain that the information it gathers presents a full accounting of transition progress. Although both the IMC Transition Task Force and GSA report transition progress in terms of transition orders completed, their reports provide an incomplete perspective because they do not report on the final step in the transition process—the issuance and completion of disconnect orders required to turn off FTS 2000 services. Reporting of this final step can significantly affect perceptions of progress. For example, as a means of tracking transition completion, monthly reports from the U.S. Department of Agriculture’s FTS2001 transition manager include information on both transition orders completed and FTS 2000 billing statistics. That is, USDA managers are using their FTS 2000 billing information to confirm that service disconnect orders are completed by AT&T. As illustrated in table 4 below, although orders completed indicate that USDA is making substantial transition progress, this progress is substantially reduced when viewed in terms of completed service disconnection. GSA receives disconnect reports from AT&T and is comparing the data in those reports to its inventory of FTS 2000 services and to reports from the FTS2001 contractors of transition orders completed. Where it appears that FTS 2000 services have not yet been disconnected, GSA flags those instances and reports them to the affected agency. However, GSA does not use this information to report formally on transition progress. As a result, transition progress reports that focus only on service order completion will not indicate full transition completion because of the time lag between the completion of an FTS2001 service order and the disconnection of the FTS 2000 service that it replaces. In addition to its responsibility for overseeing the transition, GSA has administrative responsibility for processing and authorizing contract modifications. This function is critical to the ongoing transition because, at the time of their initial award, the FTS2001 contracts did not contain all the services that agencies need to complete their transition. To transfer their services from FTS 2000 contracts, agencies must be able to order suitable replacement services from their FTS2001 contractors. Adding all the services needed to complete transition to the FTS2001 contracts has taken time, however, which has in turn delayed agency transition efforts. Although GSA set a target of completing a contract modification within 60 days of receipt of proposal from the contractor, the time for completion has actually varied widely, ranging from 1 week to more than 15 months. For example, for nine transition-critical modifications completed by October 23, 2000, the processing time averaged 162 days from the time the contractors’ proposal was received to the time the modification was completed. Six of those nine modifications required over 60 days to complete processing. Modifications can take longer than expected to complete because GSA and the contractors must negotiate the terms, and according to GSA managers, customer agency need for customized services also contributes to delay in processing contract modifications. One modification—a 7.5 kHz dedicated transmission service for the FBI that affected over 225 service orders—was under consideration for more than 11 months, delayed by pricing considerations. Other transition-critical modifications are still in evaluation, such as modifications for managed network services required to support transition efforts at the Social Security Administration, Treasury, Interior, and Coast Guard. GSA has taken steps to improve its processing of contract modifications, and workarounds have been used to minimize the effect of these delays. For example, in August 2000, on the advice of the IMC Transition Task Force, GSA began prioritizing its processing of transition-related contract modifications. By February 21, 2001, all but one contract modification required to complete the Sprint FTS2001 transition had been made, and six transition-related contract modifications required for the MCI WorldCom contract were still in process. GSA expected to complete the most critical of these modifications by the end of February 2001 and the remainder by the end of April 2001. Further, agencies are receiving managed network services on a trial basis as a workaround while the managed network services modifications with MCI WorldCom are being developed and processed. Although IMC specifically recognized the time-critical nature of the FTS2001 transition when it chartered the Transition Task Force, this did not result in prompt FTS2001 service ordering. The delay in issuing transition service orders has been significant. Both FTS2001 contracts were awarded by January 12, 1999, with the planned completion date for the transition being December 6, 2000. As of January 2000, halfway through the allotted transition period, less than a third of the total service orders required for transition had been submitted by agencies. After February 2000, the pace of agency order submissions increased significantly. Nevertheless, for transitioning switched data services, where the least progress has been made, agencies had submitted only about half the service orders required for transition by June 2000—18 months after the final FTS2001 contract was awarded and 12 months after the start of transition activity. The slow pace of orders was associated with two factors. First, the initial 12 months of the FTS2001 contracts coincided with agency planning and preparation associated with the Year 2000 computer issue. As a result, many transition activities were suspended during this period. Second, agency efforts were hindered by a reported lack of resources devoted to transition planning and management. For example, 7 of 11 transition managers at federal agencies that planned to move to FTS2001 told us that agency resource limits hampered their transition progress. Recognizing the need for assistance, GSA stepped in and made contractor support resources available to agencies, covering the cost of those resources out of the FTS2001 transition fund. As of February 2001, agencies had submitted almost all orders for switched voice and dedicated transmission services, with orders for less than 4 percent of switched data services still outstanding. Reported shortcomings with FTS2001 contractors’ customer support inhibited agency transition efforts and contributed to transition delay. For example, 10 of 12 agency transition managers we spoke with stated that initial transition efforts were hampered by turnover in contractor account teams and inadequate contractor procedures. These issues were specifically raised by the Treasury Chief Information Officer in a November 1999 letter to GSA’s FTS Commissioner expressing dissatisfaction with Treasury’s service provider, noting the contractor’s continual inability to meet customer due dates, failure to provide adequate transition resources, and unacceptable project planning and scheduling. The Treasury’s Office of Comptroller of the Currency (OCC), which began its transition in June 1999, terminated that effort in August 1999 because of contractor performance concerns and in February 2000 was threatening to leave the FTS2001 program. In response to these shortcomings, both Sprint and MCI WorldCom took steps to increase substantially their resources supporting transition efforts and to improve their procedures. As a result, following discussion with its Sprint contractor on performance concerns, OCC restarted its transition in February 2000. The second major problem area undermining transition progress was a lack of accurate, up-to-date billing information and the improper billing of services. The IMC Transition Task Force Chairman stated at that group’s September 2000 meeting that billing was emerging as the number one transition-related issue. We were not able to obtain data to quantify the severity of billing problems across all agencies. However, we did document instances where the National Park Service, the Bureau of Land Management, the Tennessee Valley Authority, and bureaus within the U.S. Department of Agriculture were improperly billed by MCI WorldCom at higher commercial rates instead of at FTS2001 program rates after moving to FTS2001. In some cases these commercial bills led to collection activities against the agency for nonpayment and in a few instances actually resulted in the disconnection of service. Rather than focusing on transition matters such as ordering services, these agencies had to redirect resources to resolve incorrect billings, respond to and try to resolve collection actions that had been improperly initiated, and restore erroneously disconnected services. The National Park Service and the Bureau of Labor Management either suspended or threatened to suspend their service ordering and transition efforts as a result of these problems and the time and effort required to solve them. These billing problems arose because GSA did not ensure that the FTS2001 contractors met all billing requirements. For example, MCI WorldCom was required to have a contract-compliant service ordering and billing system in place before agencies began ordering services, but only recently has GSA completed acceptance testing for that system. GSA had waived the test and acceptance requirement for an indefinite period pending completion of testing to allow MCI WorldCom to begin accepting and processing FTS2001 service orders. However, GSA suspended acceptance testing in May 2000 because the MCI WorldCom billing system experienced persistent problems with the quality and timeliness of the monthly invoices it was producing for GSA. GSA escalated these billing issues with MCI WorldCom, and since September 2000 has held biweekly, executive-level meetings to resolve them. After receiving more timely and complete invoices from MCI WorldCom, GSA restarted service order and billing system acceptance testing in December 2000 and completed testing in February 2001; formal acceptance is expected in March 2001. FTS2001 billing problems are not limited to MCI WorldCom. GSA has been trying to solve problems regarding approximately 23 contract deliverable items (including nine billing-related requirements) that Sprint has either not yet provided to the government or has not delivered in an acceptable form. GSA is continuing to address these issues with Sprint as well. The completion of FTS2001 service orders has also been delayed because of difficulties obtaining required network access services and facilities from local carriers when and where needed. The IMC Transition Task Force chairman reported in March 2000 that 46 percent of agency locations that required local carrier access had experienced delays completing their service orders ranging from a few days to months. This problem has been worse where agencies wish to obtain higher speed access facilities in rural locations, such as Idaho Falls, Idaho, and in metropolitan areas that are experiencing a competing high demand for services and facilities, such as the Washington, D.C., metropolitan area. Further compounding this issue was the recent strike by employees of the local exchange carrier, Verizon, which adversely affected more than 1,200 FTS2001 transition orders in the Northeast and Mid-Atlantic areas of the country. These particular problems, which affect all users seeking to expeditiously obtain services from their local carriers, are not unique to the FTS2001 contracts. Nevertheless, they contributed to delays in implementing these contracts. FTS2001 transition delays have three important effects on the program goals of ensuring the best service and price for the government and maximizing competition. First, delays in transitioning services increase the costs of those services. Second, because the FTS2001 contracts waive service performance requirements until the transition is complete, the government cannot ensure that service delivery meets expectations. Third, delays in transitioning services slow the accumulation of revenues to meet the FTS2001 contracts’ minimum revenue guarantees, which makes GSA reluctant to add more contractors offering long-distance services. Delays in completing the FTS2001 transition will increase the cost of telecommunications for those agencies that have not completed their transition. There are several reasons why costs will rise for these agencies: Discounts under FTS2000 that were offered by Sprint expired on September 30, 2000, increasing the cost of services contracted after that date by approximately 20 to 25 percent. The modification made to AT&T’s FTS 2000 extension contract in December 2000 discontinues discounts of 20 to 65 percent that had been in effect for a variety of services. The AT&T extension contract modification made in December 2000 also required a one-time payment to AT&T of $8 million. GSA is raising the $8 million payment by assessing a 20 percent surcharge against user agencies’ monthly FTS 2000 bills through June 6, 2001. For FTS 2000 contractors Sprint and AT&T, volume discounts for voice services are in effect. That is, the unit price that agencies will pay for these services will increase as the volume of traffic on the FTS 2000 extension contracts decreases. For example, a telephone call placed with AT&T increases by more than 77 percent, to almost 10 cents per minute, once aggregate calling volume declines to less than 50 million minutes. Also, this increase does not include increases in access costs that are also sensitive to call volume. The FTS2001 contract waives basic contract performance requirements until the FTS2001 transition has been completed, thereby restricting the government’s ability to hold the FTS2001 contractors accountable for shortcomings in performance. These performance requirements include such things as the timeliness of service delivery, the availability of services, the quality or grade of service, and the restoration of failed or degraded service. As a result, transition delays not only increase the price the government pays for telecommunications services, they also hinder the government’s ability to hold the FTS2001 contractors accountable for timely and effective service delivery. In developing the FTS2001 program strategy, IMC and GSA envisioned that FTS2001 contractors would be allowed to compete to offer services in the local MAA telecommunications markets and that MAA contractors would be allowed to compete in the FTS2001 long-distance market. This strategy would benefit agencies by allowing them to competitively acquire telecommunications services on an end-to-end local and long-distance service basis. There are several potential advantages to this approach. First, agencies might be able to obtain services at lower cost than they would otherwise because of opportunities to aggregate multiple service requirements with one provider. Second, using a single contractor would permit agencies to reduce the cost and effort associated with managing multiple contractors. Third, customer agencies might be able to obtain better network performance guarantees by purchasing end-to-end services from a service provider who owns or operates that infrastructure. These advantages—obtaining reliable, high-quality telecommunications services at low cost—increase in importance as the federal government moves to deliver more information and services electronically. GSA’s ability to maximize competition for services and enable agencies to acquire end-to-end services is constrained by its need to meet the substantial FTS2001 revenue guarantees. Under the terms of the respective contracts, each of the FTS2001 contractors is guaranteed minimum revenues of $750 million over the life of the contracts, which may run from 4 to 8 years. Year 3 of the FTS2001 contracts began on October 1, 2000. When it awarded these contracts, GSA believed that they might be worth more than $5 billion over an 8-year period. However, a GSA analysis of FTS2001 savings completed on January 28, 1999, revealed that the contracts’ lowest prices could actually result in total contract revenues of only $2.3 billion over 8 years. Revised program estimates developed in February 2000 affirmed this $2.3 billion revenue estimate. Because of the need to meet the FTS2001 revenue commitments, GSA has not yet allowed other contractors into FTS2001 as originally envisioned. Delays in completing the FTS2001 transition slow the accumulation of revenue to meet the government’s contract commitment. Although FTS 2000 revenues do not correlate directly with FTS2001 revenues because of service and pricing differences, the available revenue data indicate that significant FTS 2000 expenditures are continuing that cannot be applied to meet FTS2001 minimum revenue guarantees. During fiscal year 2000, for example, more than $465 million was paid out for FTS 2000 services. In addition, GSA reported that although 84 percent of all FTS2001 agency locations had completed transition by January 3, 2001, agencies still spent almost $36.5 million on FTS 2000 services in December 2000, the last month for which data are available. Even for Sprint, which is both an incumbent FTS 2000 service provider and an FTS2001 contractor, payments made for services not moved to the FTS2001 contract do not reduce the government’s minimum revenue commitments to Sprint for FTS2001. Sprint’s monthly FTS 2000 billings were about $9.4 million in December 2000. Sprint expects to complete its portion of the FTS2001 transition in April 2001. In managing the contracts’ minimum revenue guarantees, GSA must cope not only with transition delay, but also with transition deferral and the loss of program customers. For example, despite some agency plans to transfer their FTS 2000 services to the FTS2001 contracts, 17 departments or agencies have since decided to use alternative suppliers for all or part of their services, which GSA values collectively at more than $78 million. A few examples illustrate these losses. The Internal Revenue Service, in order to minimize risk, has delayed transitioning its toll-free 800 number services until it completes its systems modernization. NASA decided that it would be more efficient to acquire its data communications services through the agency’s information technology support contract. (The agency is, however, transitioning its switched voice service to FTS2001.) The U.S. Postal Service, believing it could obtain better prices outside FTS2001, has awarded its own contract to meet most of its service needs. The Tennessee Valley Authority decided in October 2000 that it would not transfer its remaining services to FTS2001, partly due to problems encountered with billing and disconnected service. This decline in customer base further exacerbates the difficulty of managing FTS2001 revenue guarantees. If transition can be completed rapidly, and if there is no further loss of customers, FTS2001 will be in a better position to expeditiously meet the minimum revenue guarantees, which will give GSA greater latitude in adding contractors in order to achieve its basic program goals. Despite progress, the government did not meet its deadlines for transition to FTS2001 and has not yet completed this effort. The deadline was missed for numerous reasons: a lack of sufficient information to effectively oversee and manage this complex transition, slowness in completing all the contract modifications needed to add transition-critical services to the FTS2001 contracts, slowness of some customer agencies to order FTS2001 services, staffing shortfalls and billing problems on the part of FTS2001 contractors, and local exchange carriers’ difficulties providing facilities and services on time. Until GSA addresses the outstanding issues impeding transition and expeditiously completes this transition, it will be unable to fully achieve its basic FTS2001 goals of ensuring the best service and maximizing competition. To enable more accurate tracking of FTS2001 transition progress, we recommend that the Administrator of General Services direct the program manager for FTS2001 to obtain usable and complete management information, as required by contract, from the FTS2001 contractors by April 27, 2001; and track the status of FTS 2000 service disconnection orders and include that information in GSA’s transition progress reports from April 6, 2001, onward. To ensure achievement of FTS2001 program goals, we recommend that the Administrator direct the program manager for FTS2001 to promote the completion of the FTS2001 transition by ensuring that all remaining contract modification proposals related to the transition are processed expeditiously. To ensure prompt identification and resolution of any outstanding billing issues, we recommend that the Administrator direct the program manager for FTS2001 to work with IMC to catalog all billing problems raised since January 2000 during the meetings of IMC and the IMC’s Transition Task Force, GSA’s biweekly FTS2001 management meetings, and other agency working groups; document the status of problems raised, and how and when they were resolved, as appropriate; obtain and document agency confirmation of the resolution of closed develop an action plan that identifies all current billing problems, the actions taken to date to resolve those problems, and a plan that will correct those problems by July 2, 2001. Further, we recommend that the Administrator direct the program manager for FTS2001 to continue efforts to obtain consideration from the FTS2001 contractors for failure to meet management information and billing requirements within the time frames established in the contracts. In written comments on a draft of this report, the Acting Administrator for General Services generally agreed with our report and our recommendations, and indicated that GSA was acting to implement all recommendations. The Administrator stated, however, that the report did not reflect the success of the FTS2001 transition. We believe that we have fairly characterized progress made on the transition and GSA’s efforts to address those factors that are impeding completion. At the same time, we have noted that the deadline for completing transition was missed and as a result FTS2001 is experiencing delays in meeting its goals. We did not assess the cost savings that GSA mentions because this was not part of our review. GSA also disagreed with our use of transition progress measurements developed by the IMC Transition Task Force because those measurements are incomplete and misleading. GSA requested that we use statistics generated by its Transition Coordination Center, which measure transition progress by customer sites, because GSA has been using these statistics for 18 months and the methodology was endorsed by IMC. We do not concur with GSA’s position. The Transition Task Force’s measurements are based on the number of service orders completed—a measurement that GSA ultimately tracks as well—as reported to the Transition Task Force by contractor program management staff and verified with agency transition managers. While we report that there are limitations on available transition management information, we believe that the IMC Transition Task Force’s statistics represent a reasonably developed and independently derived assessment. In its comments, GSA lists four additional factors that it believes have contributed to transition delays: a lack of an accurate service inventory, time and effort required to arrange for procedural agreements and network gateways between FTS2001 and FTS 2000 contractors, customer agencies’ need to upgrade their facilities before or during transition, and customer agencies’ need for customized services. Because of the complexity of the transition process, we recognize that we did not discuss all the factors contributing to its delay. Rather, we focused on presenting the most significant factors. GSA mentioned some other contributing factors that may be involved. With regard to GSA’s statements on service inventories and the need to upgrade customer facilities, we agree that an agency should have an accurate service inventory and a clear understanding of its transition needs—including upgrade requirements— before ordering services. These factors may have contributed to the agency delays in ordering FTS2001 services described in our report. Further, we recognize that there were delays in establishing procedural agreements and network gateways between the contractors. We agree with GSA, therefore, that the delay from the time that this transition risk was identified to the time the agreements were reached likely impaired transition activity for some services. Finally, we recognize that some agencies’ need for customized services was a reason for delays in the development and processing of contract modifications, and we have incorporated those comments where appropriate. GSA offered two technical comments with respect to our recom- mendations concerning completion of contract modifications and the pursuit of consideration for requirements not met that we have incorporated as appropriate. GSA provided a number of other technical comments that we have incorporated as appropriate. GSA’s written comments are presented in appendix II. As agreed with your offices, unless you publicly announce the contents of this report earlier, we will not distribute it until 30 days from its issue date. At that time, we will send copies of this report to Representative Janice Schakowsky, Ranking Minority Member, Subcommittee on Government Efficiency, Financial Management, and Intergovernmental Relations; Representative Jim Turner, Ranking Minority Member, Subcommittee on Technology and Procurement Policy; and interested congressional committees. We are also sending copies to the Honorable Mitchell E. Daniels, Jr., Director of the Office of Management and Budget, and the Honorable Thurman M. Davis, Sr., Acting Administrator of the General Services Administration. Copies will be made available to others upon request. The report will also be available on GAO’s home page at http://www.gao.gov. If you have any questions regarding this report, please contact me or Kevin Conway at (202) 512-6240 or by e-mail at [email protected] or [email protected], respectively. Other major contributors to this report were George L. Jones and Mary Marshall. Our objectives were (1) to determine the status of the FTS2001 transition, (2) to identify the reasons for delays in transitioning to FTS2001, and (3) to evaluate the potential effects of transition delays on meeting program goals of maximizing competition for services and ensuring best service and price. To determine the status of FTS2001 transition efforts, we obtained and analyzed the transition plans and related documentation prepared by GSA, the FTS2001 contractors, and select federal agencies. We obtained and reviewed transition management reports independently prepared by GSA FTS2001 program managers and by the Interagency Management Council’s Transition Task Force. To identify the reasons for the pace of the FTS2001 transition and to determine why the transition was taking so long to complete, we interviewed GSA’s FTS2001 program managers as well as FTS2001 contractors in order to better understand their respective transition processes and reasons for progress to date. We also reviewed transition documentation, including minutes and presentations from monthly IMC and IMC Transition Task Force meetings and GSA bi-weekly management sessions with the FTS2001 contractors. In addition, we interviewed transition managers in 12 agencies to understand the processes they had in place for the transition, progress made, and problems encountered. The agencies selected were the Departments of Defense, Energy, Housing and Urban Development, Treasury, Agriculture, Education, Health and Human Services, and Interior, as well as the Administrative Office of the U.S. Courts, the Tennessee Valley Authority, the National Aeronautics and Space Administration, and the U.S. Postal Service. We selected 10 of the 12 agencies because they represented the five leading agencies and five lagging agencies identified in a June 2000 GSA transition progress report. We subsequently identified through program management documents two additional agencies that could provide us with greater insight into the billing issues that were impeding transition progress. We also interviewed officials from an FTS 2000 service provider, AT&T, and a local exchange carrier, Verizon, to determine their roles in the transition process and to identify impediments they may have encountered while working with agencies and FTS2001 contractors to transfer telecommunications services to FTS2001. To evaluate the potential effect of transition delay on program goals, we reviewed program strategy documentation, FTS2001 contracts, and reports and documentation including weekly GSA transition status reports, minutes of monthly IMC and IMC Transition Task Force meetings, presentations from monthly IMC Transition Task Force meetings, and minutes of GSA bi-weekly management sessions with the FTS2001 contractors. Further, we reviewed government FTS 2000 and FTS2001 billing reports current through the month of December 2000 (the last month for which billing information was available) and revised FTS2001 contractor transition completion estimates. We also reviewed a September 2000 revenue analysis prepared for GSA by Mitretek Systems that considered the potential effect of transition delays and changes in revenue projections—positive and negative—on minimum revenue guarantees based on transition progress up to that date. We obtained documentation and reviewed the terms and conditions of FTS 2000 extension contract modifications that were made in December 2000 and interviewed GSA FTS2001 contracting staff to understand the implications of those modifications on FTS2001 minimum revenue guarantees. We performed our audit work from July 2000 through February 2001 in accordance with generally accepted government auditing standards. 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. 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Telecommunications services are increasingly critical to transforming the way the federal government does business; communicates internally and externally; and interacts with citizens, industry, and state, local, and foreign governments. Electronic government services based on reliable, secure, and cost-effective telecommunications can enable agencies to streamline the way they do business, reduce paperwork and delays, and increase operational efficiencies. It is important that a far-reaching program, such as the FTS2001 program, take full advantage of new services offered by industry; that agencies effectively and efficiently implement these telecommunications services to improve operations; and that the program be successfully implemented to maximize benefits to the taxpayers. Despite progress, the government did not meet its deadlines for transition to FTS2001 and has not yet completed this effort. The government missed its deadline for several reasons, including a lack of sufficient information to effectively oversee and manage this complex transition, slowness in completing all the contract modifications needed to add transition-critical services to the FTS2001 contracts, slowness of some customer agencies to order FTS2001 services, staffing shortfalls and billing problems on the part of FTS2001 contractors, and local exchange carriers' difficulties providing facilities and services on time. Until the General Services Administration addresses the outstanding issues impeding transition and expeditiously completes this transition, it will be unable to fully achieve its basic FTS2001 goals of ensuring the best service and maximizing competition.

You are an expert at summarizing long articles. Proceed to summarize the following text: Shipping containers are reusable intermodal enclosures or flat, open platforms that meet International Organization for Standardization (ISO) container standards and are intended to be loaded with cargo and shipped on or in a transportation conveyance. The containers DOD uses are typically 20 to 40 feet long and 8 feet wide, some of which are refrigerated for perishable goods.equipment and supplies to destinations in support of troops conducting military operations worldwide, including Afghanistan. In austere environments, DOD also uses containers for many other purposes such as providing secure storage for goods and using container walls for force protection. DOD uses containers to transport The containers DOD has managed in the CENTCOM area of responsibility, including in Afghanistan, are owned or leased by DOD; owned by coalition partners; owned by contractors supporting DOD; or owned by commercial carriers operating under DOD’s Universal Services Contract. The Universal Services Contract provides international cargo transportation and distribution services using ocean common or contract carriers, and offers regularly scheduled commercial liner service for requirements that may arise in any part of the world. The contract is primarily for DOD requirements and applies to services performed in peacetime and exigency areas. Contract provisions include detention-fee rates, container purchase options and prices, and maximum detention-fee accrual periods, among other provisions. When carriers deliver goods using their own containers, DOD has a contractually specified number of days to return a container before incurring added fees—defined as “free- time” in the contract. After the free-time period ends, DOD accrues daily detention fees until the carrier is notified that an empty container is available for pickup. Under various circumstances, the contract also allows DOD to acquire a carrier’s container, either through the payment of a maximum amount of detention fees, or through payment of a contractually set purchase price after a minimum amount of detention fees has been paid. As of August 2014, DOD’s container-management system comprises two key information management systems—the U.S. Transportation Command’s Integrated Booking System/Container Management Module and the Army Container Asset Management System—along with the persons and organizations using, updating, and managing the two systems. The Surface Deployment and Distribution Command and CENTCOM use the Integrated Booking System/Container Management Module as their container-management system. The system provides data on all container ownership types used in theater including government-owned or leased, coalition partner-owned, and carrier-owned containers in theater and estimates detention costs for containers that are not returned to carrier owners prior to the end of the free-time period. The Army Container Asset Management System records all containers in DOD’s inventory and serves as the official property record for Army- owned containers. From the Army Container Asset Management System, personnel can conduct studies on Army container status, location, and disposition from data entered into the system by its users and data feeds from other sources. Detention fees, purchase prices, and maximum detention-fee accrual periods in Iraq and Afghanistan varied, according to the Universal Services Contract, depending on the size of a container and whether the container is refrigerated. For example, in 2013, detention fees for carrier- owned containers ranged from $22 to $127 per day and could accrue over periods ranging from 350 days to 700 days, at which point DOD would become the de facto owner. Containers could also be purchased prior to these maximum periods, but only after a minimum period of detention is paid: 60 days for containers shipped under the 2013 Universal Services Contract or 90 days for containers shipped under previous contracts. Purchase prices in 2013 ranged from $2,880 to $31,500 depending on the size of a container and whether the container was refrigerated. Figure 1 shows detention fees DOD accrued from fiscal years 2003 through 2012. Fiscal year 2013 and 2014 data are excluded from this figure because detention fees can accrue over a period of 350 to 700 days; therefore, payment of these fees for containers leased in a given fiscal year may extend into subsequent fiscal years. Moreover, until a contract is closed out, the contractor may continue to make detention- fee claims. Since the early years of operations in Afghanistan and Iraq, DOD officials have made efforts to improve container management in the CENTCOM area of responsibility. One way they continue to improve container management is by either updating existing or developing new container- management policy and guidance. To do so, they incorporated recommendations by DOD audit agencies and other organizations aimed at improving container management. However, it is uncertain whether all of the recommendations have been incorporated into DOD policy as appropriate because the department does not have a comprehensive list of the recommendations that have been made over the years. Since the early years of operations in Afghanistan and Iraq, DOD officials have made efforts to improve container management in the CENTCOM area of responsibility. One way they continue to improve container management is by either updating existing or developing new container management policy and guidance based on recommendations made by DOD audit agencies as well as other organizations. Specifically, these policy and guidance changes have addressed various aspects of container management including: (1) doctrine and planning for the use of containers in a contingency environment, (2) leadership’s responsibility for container management, and (3) efforts to improve the tracking and inventorying of containers. Doctrinal and planning guidance for Army units with distribution responsibilities in the CENTCOM area of responsibility, which includes responsibility for container management, is contained in three documents: Army Regulation 56-4: Distribution of Materiel and Distribution Platform Management, published in March 2007 and revised in September 2014; Army Theater Distribution, published in May 2011; and Army Container Operations, published in May 2013. However, according to Army officials, both Army Theater Distribution and Army Container Operations were informed by a recommendation made in a 2008 Army Audit Agency report that container management in a contingency environment be integrated into doctrine and planning. In addition, Army officials noted that these documents also address a 2011 Army Audit Agency recommendation that lessons learned about container management for ongoing and future contingencies be institutionalized in the contingency planning process. Leadership’s responsibility for container management in the CENTCOM area of responsibility is addressed in the Container Detention memorandum signed by both the commander of U.S. Transportation Command and CENTCOM in August 2012.Transportation Command officials, this memorandum was published as a direct result of a recommendation made in a Joint Logistics Board report, also published in 2012, that included additional recommendations aimed at enhancing senior leaders’ understanding of container-management challenges and detention-fee payments and enforcing compliance with previously published container-management policy as outlined in CENTCOM’s Container Management Letter of Instruction. Specifically, the Container Detention memorandum states that compliance with CENTCOM’s Container Management Letter of Instruction is mandatory and that all subordinate commanders in theater are to ensure that their respective units embrace container-management and detention-fee reduction goals. Moreover, the Container Detention memorandum states that subordinate commanders in the CENTCOM theater should report container transactions in order to track the receipt, location, and discharge of containers in accordance with procedures also specified in the CENTCOM Container Management Letter of Instruction. According to U.S. The tracking and inventorying of containers in the CENTCOM area of responsibility is addressed in the aforementioned CENTCOM Container Management Letter of Instruction, initially issued in 2006 according to U.S. Transportation Command officials and periodically updated thereafter, most recently in January 2014. In this letter, CENTCOM emphasizes the necessity for the timely entry of data for all containers moving into, within, or out of the CENTCOM area of responsibility; stresses the importance of maintaining accurate theater-wide container inventories through a robust inventory management program; and details the roles and responsibilities of the various DOD organizations that constitute the theater container- management structure. According to CENTCOM officials, the CENTCOM Container Management Letter of Instruction and its periodic updates address concerns raised by Army Audit Agency reports from 2005 and 2009 and the Joint Logistics Board’s report of 2012 that recommended enhancing and clarifying the authority of the theater container-management structure; conducting physical inventories of containers in order to better track them; and completing property-management functions for containers purchased in the CENTCOM area of responsibility. Notwithstanding DOD’s efforts to improve container management in the CENTCOM area of responsibility by either updating existing or developing new policy and guidance in response to recommendations made by DOD and other organizations, DOD cannot ensure recommendations have been addressed in policy and guidance as appropriate. This is because, according to DOD officials, no single office or entity within the department has comprehensively identified all of the reports and recommendations the various DOD and other organizations have made to improve container management in the CENTCOM area of responsibility. Standards for Internal Control in the Federal Government call for an organization’s internal control processes to ensure that the findings of audits and other reviews are promptly resolved. When we asked key officials from DOD organizations that play some role in or have some responsibility for container management to identify what, if any, steps had been taken to address recommendations that have been made by DOD and other organizations, the officials responded that this information was not easily available without extensive work to compile. Because DOD could not provide us with a comprehensive list of reports and their associated recommendations addressing container- management challenges in the CENTCOM area of responsibility, we conducted our own literature search and subsequently compiled a list of 25 reports and reviews issued by DOD and other organizations from 2003 through 2013. Included in these reviews and reports are 95 recommendations aimed at improving container management in the CENTCOM area of responsibility (see table 1). Although this list may not be comprehensive because our search was limited to the period 2003 through 2013, and DOD had no source or means to corroborate or verify what we identified, when we requested that DOD provide us information on the steps taken to address the recommendations we did identify, DOD provided information on steps taken to address 55 of the 95 recommendations that we identified. However, DOD did not provide answers for the remaining 40 recommendations. According to Standards for Internal Control in the Federal Government, internal control is an integral part of an organization’s management that provides reasonable assurance that operations are conducted effectively and efficiently, that financial reporting is reliable, and that applicable laws and regulations are complied with. One of the standards of internal control is Monitoring, which calls for agencies to assess the quality of performance over time and ensure that the findings of audits and other reviews are promptly resolved. In this vein, managers are to: (1) promptly evaluate findings from audits and other reviews, including those showing deficiencies and recommendations reported by auditors and others who evaluate agencies’ operations; (2) determine proper actions in response to findings and recommendations from audits and reviews; and (3) complete, within established time frames, all actions that correct or otherwise resolve the matters brought to management’s attention. A second standard, Information and Communications, states that information should be recorded and communicated to management and others within the entity who need it and in a form and within a time frame that enables them to carry out their internal control and other responsibilities. However, based on DOD’s container-management officials’ lack of comprehensive awareness of recommendations described previously, DOD cannot reasonably assure that all recommendations for the CENTCOM area of responsibility have been addressed in policy or guidance, as appropriate. Without a comprehensive list, DOD cannot reasonably assure whether it has addressed all of the recommendations related to container management operations as appropriate in policy or guidance, nor can it reasonably assure that policymakers have the information available and incorporate it as needed into new and existing container-management policies. DOD could use our work as a starting point for identifying additional recommendations to improve container-management policy and guidance for the next contingency. Since mid-2012, DOD has taken a number of steps to manage and reduce shipping-container detention fees incurred for the untimely return of commercial shipping containers used in Afghanistan. However, DOD’s ability to manage and reduce container detention fees is limited by inaccurate and incomplete data about the number and location of containers accruing detention fees. According to DOD, the department tracks the amount of detention fees it accrues each fiscal year and has worked to manage and reduce these fees through a variety of efforts. For example, in June 2012, a Joint Logistics Board-directed container-management team issued a report that included recommendations for improving global container management that would reduce detention costs in CENTCOM. Subsequently, in August 2012, DOD implemented one of the team’s recommendations when the commanders of the U.S. Transportation Command and CENTCOM issued their joint memorandum—addressed to the military services, the Defense Logistics Agency, U.S. Forces Afghanistan, and CENTCOM’s component commands—directing them to focus specifically on improving container-management operations to reduce detention fees. The joint memorandum also established a requirement within the CENTCOM area of responsibility that within 15 days of a shipping container’s arrival, receiving organizations are to acknowledge receipt of the container, unload the container, and notify the responsible carrier that its container is available for pickup. In addition, according to the joint memorandum, U.S. Transportation Command and CENTCOM developed a set of tracking metrics to monitor progress in meeting this requirement.Furthermore, in March 2013, U.S. Transportation Command’s subordinate organization, the Surface Deployment and Distribution Command, developed and began tracking data against container- management goals to support the drawdown from Afghanistan, according to officials from the organization. The data included the number of containers not released for carrier pickup and the number of containers accruing detention fees for longer than 3 months. Lastly, in September 2013, according to CENTCOM officials, CENTCOM formed an assistance team in Afghanistan to help operating bases focus on container management in order to improve container inventory database accuracy and reduce the number of containers, which could reduce detention fees. Following the collective actions it has taken to manage and reduce detention fees, DOD estimated that there would be a significant decrease in fees for 2013 and 2014. Specifically, DOD estimated that the $57 million in detention fees paid in 2012 will be reduced to $41 million in fiscal year 2013 and to $40 million in fiscal year 2014. DOD officials said that they expected the decrease in detention fees because of a combination of two factors: (1) a projected reduction in the number of containers being shipped into Afghanistan as operations draw down there, and (2) a reduction in the average detention fees that will be accrued per container resulting from actions DOD has taken to reduce and manage those fees. Because of insufficient data, however, according to Surface Deployment and Distribution Command officials, DOD could not determine the extent to which the expected decrease would be due to actions the department has taken in theater to reduce and manage detention fees or the expected decrease would be the result of other factors such as there being fewer containers in Afghanistan as a result of the drawdown. Further, according to Surface Deployment and Distribution Command officials, because there is a lag in the time carriers submit detention-fee invoices, it is difficult for DOD to determine a reliable estimate for detention fees for containers in theater at a given time. The officials said that they hope to have more reliable data after (1) operations cease in Afghanistan, when remaining detention invoices and requests- for-equitable-adjustment detention-fee claims are received and processed, and (2) the Universal Services Contract is closed out, which will not occur until fiscal year 2016 or later. Although DOD has estimated that there will be a decrease in the amount of detention fees it will pay, its ability to manage and reduce detention fees for containers subject to them in Afghanistan is limited by incomplete and inaccurate data on the number and location of containers in country. Moreover, DOD has not assessed contributing factors to determine the root causes for its incomplete and inaccurate data. According to Standards for Internal Control in the Federal Government, for an agency to run and control its operations, it must have relevant, reliable information relating to internal events. In this regard, the DOD Transportation Regulation specifies that combatant commanders are to collect and maintain data on every container in theater. However, DOD’s data on the number of carrier-owned containers subject to detention fees is incomplete and inaccurate. Without relevant and reliable data, DOD’s ability to monitor and reduce detention fees is limited. For example, DOD concluded that the total number of containers in DOD’s container-management system subject to detention fees were understated because the invoices DOD received for the same period indicated that there was a greater number of carrier-owned containers in theater. Specifically, using data from DOD’s container-management system on the number of carrier-owned containers used in the CENTCOM area of operations (including in Afghanistan), container managers estimated that detention fees for fiscal year 2011 would be about $23 million. However, DOD received detention-fee invoices totaling about $84 million for fiscal year 2011, about 3.7 times higher than estimated, which represents approximately 5,200 containers that DOD could not account for. According to Surface Deployment and Distribution Command officials, improvements in data feeds and user data entry have been made over the past 4 years as they have worked to resolve this discrepancy but have not yet fully done so. Nonetheless they believe that the discrepancy arose primarily from inaccuracies in inventory data. Without accurate inventory data to validate invoices, DOD is at risk for being overbilled, which happened during fiscal years 2010 and 2011 according to Surface Deployment and Distribution Command officials. Specifically, investigations by the Surface Deployment and Distribution Command and others beginning in 2010 led to recouping costs for incorrect carrier-shipment billings, resulting in $3.9 million and $9.0 million in detention-fee refunds to DOD for fiscal years 2010 and 2011, respectively. CENTCOM Container Management Letter of Instruction (Jan. 15, 2014). illustrates the portion of containers in Afghanistan with known and unknown locations on October 31, 2013. Moreover, our additional analysis indicated that, over the period September 2010 through December 2013, 7,707 individual carrier-owned containers had unknown locations recorded in the container-management system with 572 of those individual shipping containers accruing detention fees for 1 year or more. Without accurate location data, DOD’s ability to locate, empty, and return those carrier-owned shipping containers is limited, and detention fees, therefore, can continue to accrue unabated until reaching the maximum allowed by contract— approximately twice the purchase price of the container. DOD has identified several procedural weaknesses in the management of containers in theater that may affect the accuracy and completeness of container-management data. According to Surface Deployment and Distribution Command officials, one procedural weakness is that containers are not always being recorded in theater when received. Specifically, the officials stated that the procedures for verifying the receipt of a container at a base in Afghanistan do not require a receiving unit representative to sign directly for shipping containers upon arrival because operations at bases can be quite extensive, and waiting for a receiving unit representative to arrive at the delivery point would create or exacerbate backlogs. Therefore, according to Surface Deployment and Distribution Command officials, the person manning the delivery point when the container arrives signs for it, although that person has no responsibility for entering any data into the DOD container-management system. As a result, container managers may be unaware of containers delivered to their areas of responsibility and not learn that such containers are accruing detention fees until after DOD receives a bill from the carrier for the detention fees. CENTCOM’s container management policy specifies that within 48 hours of receiving a container the receiving unit should record the event in DOD’s container-management system. In addition, Standards for Internal Control in the Federal Government state that events such as the receipt of goods (e.g., shipping containers and their contents) should be promptly recorded to maintain their relevance and value to management in controlling operations and making decisions. However, our analysis of DOD’s container-management system data and carrier delivery data for the end of each month in 2013 showed that DOD had not recorded in the container-management system about 16 percent of the carrier-owned containers delivered and received in Afghanistan. Moreover, according to U.S. Transportation Command officials, without records of receipts, DOD does not always have complete documentation to confirm whether or not delivery dates and resulting detention fees claimed by the carrier are correct, and, as a result, has accepted unsupported delivery claims and billings for detention fees. Until the location of a container is determined, DOD may purchase containers that are known to be lost to avoid further detention payments or it may continue to pay the detention fees up to the maximum amount allowed by contract—ranging from approximately $3,200 to $47,500 depending on the type of container—at which time, DOD becomes the owner of that container. In addition, Surface Deployment and Distribution Command officials have identified a variety of other procedural weaknesses that they stated led to carrier-owned containers not being recorded in the container- management system, which may also affect the accuracy and completeness of data. Specifically, they identified instances where the following occurred: Containers were shipped into the theater outside of the DOD container-management system. For example, a carrier delivers a container to the theater before it is recorded in DOD’s container- management system. This situation may occur when a unit orders items that are shipped directly from a supplier or manufacturer instead of through an intermediary military supply activity. Container records were closed before the container was returned to the specified pickup location without prior approval from the carrier for this change. For example, a unit in theater unloads a container at a location other than the original delivery point and records the container as ready for carrier pickup without the carrier’s agreement to the alternative location. Recording the container as ready for carrier pickup causes DOD’s container-management system to disregard the container as subject to detention fee accrual. However, without carrier agreement to the alternative pick up location, detention fees continue to accrue under the terms of the Universal Services Contract. Container records were closed while the container was in use. For example, an in theater container manager may mistakenly conclude that because a container is no longer in a unit’s possession, it has been returned to a carrier. The container manager, therefore, designates the container record as inactive in DOD’s container- management system. However, the container may still be in DOD’s possession and subject to detention fees. Containers were recorded incorrectly as government-owned containers. For example, a container manager in theater with a large volume of containers may mistakenly code a carrier-owned container as a DOD container. The DOD container-management system does not consider these incorrectly coded containers as subject to detention fees, however detention fees continue to accrue. While DOD has identified the procedural weaknesses above that may affect the completeness and accuracy of container-management data and has, according to Surface Deployment and Distribution Command officials, researched container data and taken other steps to resolve most of these instances, the department has not assessed the extent to which these weaknesses have affected the data. For example, the Joint Logistics Board-directed container-management team recommended more automated reporting to significantly reduce manually inventorying containers, thereby improving the accuracy of inventory data. In response, DOD contracted for the development of automated technology for the recording of shipping containers as they enter and exit military installations and, according to DOD officials, expects to complete an initial evaluation of the selected technology after the end of fiscal year 2014. According to DOD officials, the technology is intended to provide irrefutable proof of a container’s movement, work without reliance on satellite tags, and supplement or even replace the need for human manual entry. However, DOD has not identified the root cause or causes for the inaccurate inventory data that this recommendation and the selected technology are intended to address, which is critical if the department is to correct the procedural weaknesses that contribute to inaccurate and incomplete data. Further, according to Surface Deployment and Distribution Command officials, no DOD office has identified the root causes of the other procedural weaknesses discussed above or developed a corrective action plan with corrective measures to address the root causes. In our process for determining agencies’ programs at high risk due to their greater vulnerabilities to fraud, waste, abuse, and mismanagement or the need for transformation to address economy, efficiency, or effectiveness challenges, we developed criteria stated in our November 2000 report, Determining Performance and Accountability Challenges and High Risks, which found that one step that agencies can take to help resolve their programs’ performance and accountability challenges is to develop a corrective action plan that includes identifying root causes and effective solutions. For container management, such a corrective plan would contain corrective measures intended to help develop effective solutions for better locating and confirming receipt of containers and verifying detention invoices as a means to manage and reduce detention fees in current and future contingencies. According to these criteria, for improving federal agency performance and accountability, agencies can help resolve a program’s performance and accountability challenges by developing a corrective action plan that identifies root causes and effective solutions and provides for completion of corrective measures in the near term. Further, Standards for Internal Control in the Federal Government state that an agency’s procedures are among the control activities that help ensure actions are taken to address risks and are an integral part of an entity’s implementing and accountability for stewardship of government resources and achieving effective results. One reason DOD has not identified the root cause or causes for the procedural weaknesses that contribute to inaccurate or incomplete container-management data nor developed a corrective-action plan with effective solutions that provide for completion of corrective measures, according to Surface Deployment and Distribution Command officials, is that the responsibility for handling containers in Afghanistan is dispersed among CENTCOM, U.S. Transportation Command, and U.S. Forces–Afghanistan and its subordinate units. According to the officials, their command, which is a subordinate element of U.S. Transportation Command, has attempted to improve the completeness and accuracy of container-management data and to identify root causes for its inaccuracy and incompleteness by focusing on areas that fall within their responsibility, such as providing training on managing containers and on assessing and improving the data systems. However, they also noted that other factors affecting the completeness and accuracy of container-management data fall outside of the Surface Deployment and Distribution Command. According to Surface Deployment and Distribution Command officials, other than the command’s attempts, no other DOD office has assessed root causes for the procedural weaknesses identified in this report or developed a corrective-action plan to assess the procedural weaknesses and determine their root causes. According to Surface Deployment and Distribution Command officials with global container management responsibilities, complete data on the number of carrier-owned containers, including which containers are accruing detention fees, would help DOD container managers achieve a reduction in these fees. Until DOD assesses its procedural weaknesses, identifies the root causes for those weaknesses, and develops and implements a corrective-action plan to address them, the department is limited in its ability to manage and reduce detention fees. Further, because it will not have the information it needs to correct the deficiencies in the data to better locate and confirm receipt of containers and verify detention invoices until it does so, DOD will not have reliable data to assess how well its efforts to manage and reduce detention fees are working currently and in future contingencies. The management of shipping containers has been a long-standing challenge for DOD, a challenge that is particularly acute during contingency operations and one that has been exacerbated in Afghanistan given the harsh conditions that exist there. Recently, the Deputy Secretary of Defense’s Global Container Policy and the August 2012 memo signed by the commanders of the U.S. Transportation Command and CENTCOM demonstrate that DOD’s top leadership recognizes the challenges container managers face in managing containers and the need for reducing detention fees during this most recent conflict. However, in order to proactively and successfully improve future container-management operations and prevent the accumulation of detention fees, DOD would benefit by being fully apprised of all recommendations made by DOD audit agencies and other organizations thus far and determining which actions would potentially resolve container-management challenges. DOD could use our work as a starting point for identifying additional recommendations to improve container- management policy and guidance for the next contingency. In addition, until DOD assesses its procedural weaknesses, identifies the root causes for those weaknesses, and develops and implements a corrective-action plan to address them to help improve the quality of its container- management data, it will be difficult for the department to determine how best to improve its container-management operations, including the reduction of detention fees. To help DOD to improve the overall management of shipping containers for current and future contingencies, we recommend that the Secretary of Defense take the following three actions. To more fully incorporate recommendations into its policy and guidance and to ensure that improvements to container management will be sustained for future contingencies, we recommend that the Secretary of Defense develop a comprehensive list of recommendations made by DOD agencies and other organizations, and make the information available for policymakers to incorporate, as appropriate, into new or existing container-management policy and guidance. DOD could use our work as a starting point for this assessment. To help ensure DOD’s container-management system has more complete and accurate data, and DOD is better positioned to assess progress in managing containers to reduce detention fees, we recommend that the Secretary of Defense direct the Commander CENTCOM to identify the root cause or causes for the procedural weaknesses in the handling of containers and the extent to which they contribute to the incomplete and inaccurate recording of container-management data in theater, and develop and implement a corrective action plan with effective solutions for the root causes identified that provide for completion of corrective measures. We provided a draft of this report to DOD for review and comment. In written comments, DOD concurred with one of the three recommendations and partially concurred with the two other recommendations. DOD’s comments are summarized below and reprinted in appendix II. DOD also provided technical comments on the draft report, which we incorporated as appropriate. DOD concurred with the first recommendation that the Secretary of Defense develop a comprehensive list of recommendations made by DOD agencies and other organizations, and make the information available for policymakers to incorporate, as appropriate, into new or existing container-management policy and guidance. DOD has requested that we provide a listing of the 95 recommendations identified during this review to use as a starting point for its assessment, to which we agreed. DOD partially concurred with the second recommendation that the Secretary of Defense direct the Commander CENTCOM, to identify the root cause or causes for the procedural weaknesses in the handling of containers and the extent to which they contribute to the incomplete and inaccurate recording of container-management data in theater. DOD stated that it concurred with the recommendation, but added that CENTCOM is responsible for theater container management and control in its area of responsibility. DOD also stated that CENTCOM will coordinate with U.S. Transportation Command to the extent that specific theater actions affect overall global container management. We initially drafted the recommendation to both CENTCOM and the U.S. Transportation Command in order to ensure that action would be taken from both commands; however, we agree with DOD that CENTCOM is responsible and that coordination with U.S. Transportation Command to the extent that specific theater actions affect overall global container management is appropriate. Therefore, we modified the recommendation accordingly. DOD partially concurred with the third recommendation that the Secretary of Defense direct the Commander CENTCOM, to develop and implement a corrective action plan with effective solutions for the root causes identified that provide for completion of corrective measures. DOD stated that it concurs with the recommendation, but also stated that implementing the recommendation is a CENTCOM responsibility. Further, DOD stated that only CENTCOM may direct military Service component commands to take specific actions in the CENTCOM area of responsibility. DOD added that if resolution of the issues requires actions beyond CENTCOM’s purview, then CENTCOM will refer specific actions to the Joint Staff for assistance in obtaining resolution with other commands and organizations. We initially drafted the recommendation to both CENTCOM and the U.S. Transportation Command in order to ensure that action would be taken from both commands; however, we agree with DOD that CENTCOM is responsible and that coordination with the Joint Staff for assistance in obtaining resolution with other commands and organizations is appropriate. Therefore, we modified the recommendation accordingly. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Commanders for CENTCOM and the U.S. Transportation Command, and other interested parties. In addition, this 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) 512-5431 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 assess the extent to which Department of Defense (DOD) policy and guidance incorporate recommendations that address container- management challenges in the U.S. Central Command’s (CENTCOM) area of responsibility, we reviewed DOD-wide, combatant command, and service-specific policy and guidance pertaining to container management to develop our understanding of container-management operations and roles and responsibilities. To identify recommendations made by DOD audit agencies and other organizations that addressed container- management challenges, we researched websites and databases and contacted officials as necessary from the following audit agencies: Army Audit Agency, Naval Audit Service, Air Force Audit Agency, DOD Office of Inspector General, Defense Contract Audit Agency, Defense Contract Management Agency, Special Inspector General for Iraq Reconstruction, Special Inspector General for Afghanistan Reconstruction, and GAO. We interviewed DOD logistics and container-management officials from the Office of the Deputy Assistant Secretary of Defense for Transportation Policy, U.S. Transportation Command, CENTCOM, the U.S. Army, the U.S. Marine Corps, Surface Deployment and Distribution Command, and the Defense Logistics Agency to discuss challenges with and efforts to improve container management, and identify additional reports or studies with findings and recommendations involving container-management issues. During this process, we observed that these recommended corrective actions were generated over time and concluded that development of such actions may be an ongoing effort. To identify findings and recommendations relating to container- management issues potentially affecting DOD operations in CENTCOM’s area of responsibility, we reviewed the reports and studies for the 10-year period 2003 through 2013—the period DOD began tracking detention fees for operations in Iraq and Afghanistan through the completion of field work on this objective of our review. The recommendations we identified may not be comprehensive because DOD did not have an alternative source or means to corroborate or verify what we identified. Additionally, the same or similar recommendations may appear in different reports and therefore may be duplicated. We analyzed the relevant recommendations to identify the organizations responsible for implementation and categorized the recommendations to determine patterns and repetition over time. We discussed the listing of recommendations with DOD container-management officials to determine how the department addressed the findings and recommendations. We then requested the department provide us with the status of the recommendations we had identified to determine whether actions were completed or implemented. We reviewed DOD policy and guidance pertaining to container management to determine the extent that the categories of recommendations we identified were reflected in them. We also reviewed the recommendations status updates DOD provided to identify instances where DOD stated that recommendations had been incorporated into container-management policy and guidance. We compared DOD’s inclusion of recommendations addressing container-management challenges into its policy and guidance documents against criteria for recording and communicating important information to management as contained in the Information and Communication, and Monitoring, standards in Standards for Internal Control in the Federal Government. To determine the extent to which DOD managed and reduced container detention fees, we met with officials from the Office of the Deputy Assistant Secretary of Defense for Transportation Policy, U.S. Transportation Command, CENTCOM, U.S. Army, U.S. Marine Corps, Surface Deployment and Distribution Command, and the Defense Logistics Agency to develop an understanding of how DOD accrues and pays detention fees, and manages shipping containers to reduce the accumulation of detention fees. We observed the processes and procedures by which invoices for detention fees are received, reviewed, and paid. Also, we observed demonstrations of the DOD system used to track and manage shipping containers used in the CENTCOM area of responsibility and collected comprehensive listings of containers and associated data for each container captured in these listings. We observed demonstrations of DOD’s two key systems used in container management for Afghanistan (the U.S. Transportation Command’s Container Management Module and the Army Container Asset Management System), collected information on the systems’ structure and data content, and requested and collected various reports produced in queries on 4 separate days, from April 2013 through December 2013, for complete data on the number of containers in theater that officials conducted at our request. From the U.S. Transportation Command’s Container Management Module we then collected and analyzed complete data sets for all shipping containers recorded for Afghanistan to understand the densities and usages of shipping containers in Afghanistan. This included determining locations where containers were recorded and the ratios of carrier-owned containers to government-owned containers; and identifying containers without recorded geographic locations, the length of time carrier-owned containers had been in Afghanistan, and the ratios of containers recorded as empty to those with contents or occupants. In Afghanistan, we met with U.S. Forces–Afghanistan officials and various container control officers identified by officials from the Surface Deployment and Distribution Command to discuss shipping-container management and the accuracy of data recorded in the Container Management Module. We also collected all available end-of-month DOD listings—from September 2010 through December 2013—of carrier- owned shipping containers subject to detention-fee accruals for analysis. We selected September 2010 because it was the first month for which DOD had available end-of-month data. We concluded with December 2013 because it was the cutoff date for the analyses that we had planned to conduct. We summarized and discussed our initial analysis with officials from the Surface Deployment and Distribution Command to ensure accurate interpretation of the data collected. We compared our observations, data we collected, and our analyses with Standards for Internal Controls in the Federal Government and DOD regulations such as the Defense Transportation Regulation and CENTCOM’s Container Management Policy Letter of Instruction that specify the need to accurately and timely record data that has an effect on detention fee accrual. We also assessed DOD’s efforts to improve its management of container data against best practices for improving federal agency performance and accountability found in Determining Performance and Accountability Challenges and High Risks, and Standards for Internal Control in the Federal Government, which address risks and accountability for achieving effective results. GAO developed the criteria for assessing performance and accountability for an agency’s major program and mission areas and management functions by considering the requirements of program-specific legislation as well as the requirements of management-reform legislation, such as the Chief Financial Officers Act of 1990, the Government Performance and Results Act of 1993, the Government Management Reform Act of 1994, the Federal Financial Management Improvement Act of 1996, and the Clinger-Cohen Act of 1996. We assessed the reliability of the data by reviewing related documentation, interviewing knowledgeable officials, and testing the data for obvious errors and completeness. We concluded the data were sufficiently reliable to present selected findings on the completeness and accuracy of the numbers and locations of shipping containers subject to detention fees, but identified limitations that are discussed in this report. We conducted this performance audit from February 2013 to November 2014 in accordance with generally accepted government auditing standards. These 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, key contributors to this report include Guy LoFaro, Assistant Director; Jim Ashley; Tracy Barnes; Richard Burkard; Virginia Chanley; Grace Coleman; Larry Junek; Anne McDonough-Hughes; Mary Catherine Hult; Carol Petersen; Pauline Reaves; and John Strong.

DOD uses DOD or commercial carrier shipping containers to transport supplies worldwide. Container management has been a long-standing challenge. DOD has paid detention fees of about $823 million from 2003 through 2012 for retaining containers longer than allowed, primarily due to operations within CENTCOM, including Afghanistan, where fees continue to accrue. GAO was asked to review DOD's efforts to address container-management challenges and the accumulation of detention fees. This report assesses the extent to which (1) DOD policy and guidance incorporate recommendations addressing container-management challenges in CENTCOM's area of responsibility, and (2) DOD has managed and reduced detention fees for containers in Afghanistan since 2012. GAO reviewed prior audit reports to identify container-management recommendations; analyzed data such as container type and ownership from 2010 through 2013; and interviewed DOD officials. Since the early years of operations in Afghanistan and Iraq, Department of Defense (DOD) efforts to improve container management in the U.S. Central Command (CENTCOM) area of responsibility have included either updating existing or developing new container-management policy and guidance. However, the department cannot provide reasonable assurance that all recommendations addressing container management in the CENTCOM area of responsibility have been incorporated in DOD's policy or guidance, as appropriate. DOD officials incorporated some recommendations made by DOD audit agencies and other organizations aimed at improving container management into policy and guidance. For example, in August 2012 the commanders of CENTCOM and U.S. Transportation Command issued a joint memorandum outlining leadership's responsibility for container management in the CENTCOM area of responsibility that was a direct result of a 2012 Joint Logistics Board report that recommended corrective actions to enhance senior leaders' understanding of container management. However, DOD does not have a comprehensive list of the corrective actions that have been recommended over time. Without such a list, DOD cannot reasonably ensure that all of the recommendations have been incorporated into policy and guidance as appropriate. For example, of the 95 corrective actions that GAO identified from reports by DOD audit agencies and other organizations issued from 2003 through 2013, DOD officials could not provide information on steps taken to address 40 of the corrective actions. Since 2012, DOD has taken steps to manage and reduce shipping container detention fees incurred due to the untimely return of commercial carrier-owned shipping containers in Afghanistan, but its ability to manage and reduce these fees is limited by inaccurate and incomplete data. In August 2012, DOD established the requirement that within 15 days of a shipping container's arrival: (1) receipt of the container was to be recorded by the unit in-theater, (2) the container was to be unloaded, and (3) the responsible carrier was to be notified that its container was available for pickup. DOD also developed a set of tracking metrics to monitor progress in meeting this requirement. However, incomplete and inaccurate data about the location and number of containers accruing detention fees hindered DOD's ability to manage and reduce detention fees for containers in Afghanistan. For example, GAO analysis of DOD's container-management system data and carrier delivery data for each month in 2013 showed that DOD had not recorded in the container-management system about 16 percent of the carrier-owned containers delivered and received in Afghanistan. DOD has identified factors, or procedural weaknesses, that may contribute to incomplete and inaccurate data; however, it has not assessed the extent to which these weaknesses have contributed to data inaccuracies, determined the root causes of these weaknesses, or developed a corrective-action plan for correcting them. Without an assessment of the root causes and a corrective-action plan, it will be difficult for DOD to have complete and accurate data, which could limit its ability to manage and reduce detention fees for containers in Afghanistan and in future contingency operations. GAO recommends that DOD (1) develop a list of recommendations and incorporate them into policy and guidance and (2) identify root causes for procedural weaknesses that contribute to inaccurate, incomplete container data and develop and implement a corrective plan. DOD concurred with the first recommendation and partially concurred with the second because it partially disagreed to whom GAO directed the recommendation. GAO concurred and modified the recommendation.

You are an expert at summarizing long articles. Proceed to summarize the following text: The F-22 is an air superiority aircraft with the capability to deliver air-to-ground weapons. The most significant advanced technology features include supercruise, the ability to fly efficiently at supersonic speeds without using fuel-consuming afterburners; low observability to adversary systems; and integrated avionics to significantly improve the pilot’s situational awareness. The objectives of the F-22 EMD program, begun in 1991, are to (1) design, fabricate, test, and deliver 9 F-22 flight test vehicles, 2 ground test articles, and 26 flight qualified engines; (2) design, fabricate, integrate, and test the avionics suite; and (3) design, develop, and test the F-22 system support and training systems. In June 1996, because of indications of potential cost growth on the F-22 program, the Assistant Secretary of the Air Force for Acquisition chartered a Joint Estimating Team (JET) consisting of personnel from the Air Force, the Department of Defense (DOD), and private industry. The objectives of the JET were to estimate the most probable cost of the F-22 program and to identify realistic initiatives that could be implemented to lower program costs. In January 1997, the JET estimated the F-22 EMD program would cost $18.688 billion, an increase of about $1.45 billion over the previous Air Force estimate. The JET also reported that additional time would be required to complete the EMD program and recommended changes to the EMD schedule. The Air Force and Under Secretary of Defense for Acquisition and Technology adopted the JET’s recommendations, including its cost estimate for the EMD program. Other JET recommendations included slowing the manufacturing of the EMD aircraft to ensure an efficient transition from development to low-rate initial production and increasing the time available to develop and integrate avionics software. In August and September 1997, the Air Force negotiated changes with the prime contractors to more closely align the cost-plus-award-fee contracts with the JET cost estimate and revised schedule. However, as of January 1998, many substantial planned changes recommended by the JET had not been incorporated into the Lockheed Martin contract, such as changes to the avionics estimated to cost $221 million. The National Defense Authorization Act for Fiscal Year 1998, enacted on November 18, 1997, imposed cost limitations of $18.688 billion on the F-22 EMD program and $43.4 billion on the production program. The limitation on production cost did not specify a quantity of aircraft to be procured. The act instructed the Secretary of the Air Force to adjust the cost limitations for (1) the amounts of increases or decreases in costs attributable to economic inflation after September 30, 1997, and (2) the amounts of increases or decreases in costs attributable to compliance with changes in federal, state, or local laws enacted after September 30, 1997. Conferees for the Department of Defense Appropriations Act, 1998, enacted October 8, 1997, provided direction to the Secretary of the Air Force regarding out-of-production parts on the F-22 program. Because it is not economical for some component manufacturers to keep production lines open to produce old technology parts with low demand, they have discontinued making parts, some of which are used on the F-22 EMD aircraft, and will discontinue making others. To minimize cost and schedule impacts on the F-22 EMD and production programs, the Air Force plans to redesign these out-of-production parts or buy sufficient quantities of them for the first five lots of production aircraft. The appropriations conferees directed the Secretary of the Air Force to fund the cost of redesigning out-of-production parts from the Research, Development, Test and Evaluation appropriation. The effect of following that direction would be to add that effort, expected by the Air Force to cost $353 million, to the EMD program. In January 1998, the Air Force notified the Congress that it increased the EMD cost limitation by $353 million, to respond to direction from the conferees, and decreased the production cost limitation by the same amount. As adjusted, the EMD cost limitation increased to $19.041 billion. In addition, the Air Force plans to adjust the cost limitation downward by $102 million to $18.939 billion, to recognize revisions to inflation assumptions by the Office of the Secretary of Defense. In the fiscal year 1999 President’s budget, the Air Force’s estimate to complete the EMD program was $18.884 billion. The estimated cost to complete EMD includes the negotiated prices of the major prime contracts, estimated costs of significant planned contract modifications, other government costs, and a margin to accommodate future cost growth. Although contractor reports through December 1997 project that the efforts on contract are expected to be completed within the negotiated contract prices, manufacturing problems with the wings and the aft fuselage could change those projections for Lockheed Martin. The Air Force contracts with Lockheed Martin and Pratt & Whitney, after being restructured, had negotiated prices of $16.003 billion. The Air Force, as of December 1997, planned to add modifications to the contracts totaling about $1.546 billion. The Air Force’s estimated costs for F-22 EMD are shown in table 1. Air Force officials provided us a list of planned and budgeted modifications that will increase the contract prices. The list is consistent with the JET findings. Modifications planned relate to efforts directed by the conferees on the Department of Defense Appropriations Act, 1998, to redesign out-of-production parts ($353 million); award fees to be paid to the contractor based on evaluations of contractor performance ($262 million); extending the time period for F-22 testing ($230 million); addition of changes (Block IV) to the avionics, including interface capability with the newly developed AIM-9X air-to-air missile ($221 million); extending the time period for keeping an active laboratory infrastructure ($158 million); efforts to provide the capability to perform air combat simulation and ground testing of avionics prior to its delivery ($65 million); provision for contractor resources to conduct initial operational test and evaluation ($60 million); efforts to test and approve the F-22 for supersonic launch of external missiles ($51 million); implementation of aircraft battle damage repair capability ($29 million); and other changes ($117 million). Since the contracts were restructured in August and September 1997, limited experience has been accumulated to indicate the extent to which contractors are completing scheduled work at the planned cost. Contractor reports reflecting experience through December 1997, however, indicate the contractors are predicting they will be able to complete efforts now covered by the contract within the negotiated costs. Lockheed Martin and Pratt & Whitney report to the Air Force monthly concerning their progress compared to contract costs and schedules. These reports define the cost and schedule variances from the contract plans. When the contracts were restructured, the contractors rebaselined their cost control systems that measure the cost and schedule progress and calculate how the actual costs and schedules vary from the goals. Prior to restructuring the contracts, the Lockheed Martin and Pratt & Whitney reports indicated unfavorable variances at completion of EMD totaling about $1.2 billion. Both Pratt & Whitney and Lockheed Martin reports showed variances of less than 1 percent from the negotiated contract cost and planned schedule through December 1997. The most significant variance identified in the contractor reports was about a $54 million unfavorable schedule variance for Lockheed Martin. The contractors’ reports showed that the negotiated costs include about $194 million for management reserves. Management reserves are amounts set aside to react to cost increases due to unplanned efforts or cost growth in planned efforts. Lockheed Martin and Pratt & Whitney December 1997 reports indicate they plan to complete the contract efforts within the negotiated costs. However, the impact of delays in the delivery of wing and aft fuselage assemblies and the flight test program have not been reflected in those reports. Lockheed Martin has advised the Air Force that it can execute the revised schedule caused by the late deliveries at no increased cost to the EMD contract. At the time of our review, the Air Force was assessing the impact of these delays and whether it agrees that the changes can be accomplished with no cost increase to the EMD contract. In January 1998, the F-22 program was not meeting its schedule goals. The first flight of an F-22 did not occur on time and resumption of its flight test program will be delayed by at least 2 to 3 weeks to correct a problem discovered in the horizontal tail of the aircraft. Also, the late delivery of aft fuselage assemblies and wing assemblies is expected to cause delays in delivery of other EMD aircraft. These problems will also delay the progress of the flight test program. The Air Force has revised its schedule to reflect the late first flight. However, it had not determined how the late deliveries of aft fuselage assemblies and wing assemblies will impact the overall F-22 EMD schedule. The Air Force planned to complete its evaluation of the impact on the schedule by the end of February 1998. Because of a number of technical problems with the aircraft, the first flight of the first F-22 EMD aircraft was delayed over 3 months, until September 7, 1997. According to the Air Force, the problems were not caused by the design of the aircraft but involved a fuel tank leak, failure of an auxiliary power unit resulting from faulty installation, a software defect, incorrect installation of the electrical connector to a fuel tank probe, and foreign object damage from debris being ingested into an engine. After making two flights, the aircraft flight test program was suspended to accomplish planned ground tests and minor structural additions to the airframe. Resumption of the flight test program, planned for March 1998, is expected to be delayed until at least April 17, 1998, because materials in the horizontal tail of the aircraft became disbonded, or separated. Air Force officials said a solution to this problem has been identified and it will not impact other EMD aircraft schedules. The flight test schedule was updated in May 1997 based on the review of the program by the JET, with first flight planned to occur in late May 1997. However, because first flight did not occur as scheduled, the beginning of the flight test program was delayed. Flight tests are also expected to be delayed because of problems with manufacturing wings and aft fuselages and expected late delivery of the third through sixth EMD flight test aircraft. Because of the delay in first flight and expected delays in delivery of several later EMD aircraft, a number of flight test hours planned for fiscal years 1998 and 1999 have been deferred until later in the test program. About 55 percent (120 of 217 hours) of the flight test hours planned for fiscal year 1998 and about 11 percent (51 of 449 hours) of the flight test hours planned for fiscal year 1999 have been deferred until later in the test program. Although test hours planned for the early stages of the flight test program are now planned to be accumulated more slowly, Air Force officials said the total number of flight test hours planned, the number of flight test months planned, and the completion date for the F-22 EMD program remain about the same. Wing deliveries are behind schedule because of problems with the development and manufacturing of large titanium wing castings, the foundation upon which the wing is built. As of January 1998, the contractor and the Air Force were still working to resolve the casting problem. The wings for the next four flight test aircraft and the two ground test articles are expected to be delivered about 2 weeks to over 4 months late to Lockheed Martin. Delivery of the F-22 aft fuselage—the rear aircraft body section—is expected to be late for the next four flight test aircraft and the two ground test articles because of late parts deliveries and difficulties with the welding process caused by tight tolerances when fitting the many pieces of the fuselage together. An Air Force and contractor team has been formed to evaluate potential cost, schedule, testing, and production impacts associated with this problem. This team plans to complete its assessment by the end of February 1998. As a result of the late deliveries of the wings and aft fuselages, the first flights of the third through the sixth EMD aircraft are expected to be from about 2 weeks to over 5 months late. Air Force officials said first flight of the second EMD aircraft is expected to occur on schedule because the time available between production of the first and second EMD aircraft is expected to be sufficient to allow the manufacturing problems to be corrected. Since there was significantly less time scheduled between the second EMD aircraft and subsequent EMD aircraft, first flight of later EMD aircraft will be delayed. Table 2 compares the May 1997 scheduled first flights to the expected dates of first flights as of January 1998. The Air Force estimates that the F-22 will meet or exceed the goals for the major performance parameters. These include 10 parameters for which the Air Force reports regularly to DOD, and two additional performance features GAO reviewed that relate to other critical characteristics of the F-22 aircraft. The Air Force estimates how performance is expected to compare to specific goals for each parameter by estimating and summarizing the performance of relevant subparameters. The estimates are engineering judgments based on computer and other models, tests of some components in flying test beds, ground tests, analyses, and, to a limited extent, flight tests. The goal for each parameter is based on the EMD contract specifications. Goals for the many subparameters (about 160) are established to ensure that the goal for each parameter can be met. Although the Air Force has not included them in the 10 parameters for regular reporting, we identified and reviewed two additional features—situational awareness and low observability—that are an integral part of the F-22 being able to operate as intended. The F-22 sensors, advanced aircraft electronics, and cockpit display screens are required to provide the pilot improved situational awareness of potential enemy threats and targets. This increased awareness is to improve pilot response time to the threats, thus increasing the lethality and survivability of the aircraft. The aircraft’s low observable or “stealthy” features allow it to evade detection by enemy aircraft and surface-to-air missiles. We believe the situational awareness and low observability features are critical to the success of the F-22 program and, therefore, we reviewed them and are reporting on the Air Force’s progress in achieving them along with the 10 parameters the Air Force established. The Air Force’s 10 parameters and the 2 additional features we identified and reviewed are described in appendix I. As of January 1998, the Air Force estimated that, at the end of the EMD program, the F-22’s performance will meet or exceed the goals for all 10 established parameters. Table 3 shows the goal (contract specification) for each parameter; the estimated performance achieved for each parameter based on computer models, analyses, or testing; and the Air Force’s current estimate of the performance each parameter is expected to achieve by the end of EMD. Most of the goals and related performance information are classified and are therefore shown as percentages instead of actual numbers. To interpret the table, it is constructed so that estimated performance greater than the goal is better than the goal, except for airlift support where using fewer assets is better. Table 3 also shows the two additional features that we included (situational awareness and aircraft low observability) because of their importance to the success of the F-22 program. We evaluated the basis for the Air Force’s current performance estimates by reviewing and analyzing performance information and estimates for subparameters that are the components of each parameter. We reviewed selected analyses, test reports, and plans the Air Force used to formulate its estimated performance achieved to date and projected estimates for the end of EMD. As of January 1998, estimated performance concerning two subparameters, aircraft weight and fuel usage, was not expected to achieve goals established for those subparameters. However, the Air Force’s analysis indicates that failure to achieve those goals will not cause the associated parameters to fail to meet their established goals. For example, aircraft empty weight is a subparameter that affects the supercruise, acceleration, maneuverability, and combat radius performance parameters. Although the aircraft’s empty weight is currently expected to be 2 percent higher than the established goal for that subparameter, Air Force analyses indicate that the increased weight is not significant enough to cause the estimates for the affected parameters to not meet their goals. A more extensive discussion of our analysis and a chart listing the major performance subparameters are included in appendix II. The Air Force’s estimate to complete F-22 EMD is $18.884 billion, $55 million less than the EMD cost limitation that will be adjusted to $18.939 billion. However, issues have emerged concerning production and delivery of wings and fuselages for the EMD aircraft, and test schedules have consequently been delayed. The Air Force is further assessing the impact of these issues on EMD cost, the schedule upon which test data is produced, and the schedule upon which the EMD program is to be completed. The Air Force is estimating that the F-22 will meet or exceed its performance goals. However, less flight test data have been accumulated through January 1998 than were expected because the flight test program was delayed and flight tests have been suspended to accomplish planned ground tests and minor structural additions to the test aircraft airframe. Delayed tests reduce the amount of actual F-22 performance information that will be available to support Air Force plans to begin production in fiscal year 1999. In commenting on a draft of this report, DOD generally concurred with it and advised us the Air Force has notified the Congress about changing the EMD and production cost limitations to recognize direction from the conferees on the fiscal year 1998 Defense Appropriations Act. As a result of this additional information, we have removed a matter for congressional consideration that had been included in the draft report. DOD’s comments are included in appendix III to this report. We performed our review between July 1997 and February 1998 in accordance with generally accepted government auditing standards. A description of our objectives, scope, and methodology is included in appendix II. We are sending copies of this report to the Secretaries of Defense and the Air Force; the Director, Office of Management and Budget; and other interested parties. Please contact me at (202) 512-4841 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix IV. Supercruise means the aircraft can sustain supersonic or mach speed without using its afterburners. Supercruise saves fuel and helps reduce the aircraft’s infrared signature by not using afterburners that produce a high infrared signature. A reduced infrared signature, in turn, helps make the F-22 low observable and harder for enemy aircraft and missiles to detect. The measurement used for supercruise is the highest mach obtainable in a stable, level flight at 40,000 feet altitude. The Air Force estimated the F-22 will exceed the supercruise goal by about 14 percent. This estimate was determined by analysis of computer models using the latest data available on aspects such as the engines’ thrust and fuel flow characteristics. Propulsion flight testing is scheduled to begin in the first quarter of 1998 and end in the second quarter of 2000. Acceleration is a key parameter because the F-22 must be able to outrun enemy aircraft and exit an area after it employs air-to-air or air-to-ground munitions. The acceleration parameter refers to the amount of time it takes the aircraft to go from 0.8 mach to 1.5 mach at 30,000 feet altitude. The Air Force estimated that the F-22 will be faster than the acceleration goal. This estimate was determined by analysis of computer models and ground test data using the latest data available on the major subparameters affecting acceleration. Propulsion flight testing is scheduled to begin in the first quarter of 1998 and end in the second quarter of 2000 and flight performance testing is scheduled to begin in the fourth quarter of 1998 and end in the third quarter of 2001. The maneuverability parameter is a measurement of the maximum force the aircraft can generate during a turn at 0.9 mach at 30,000 feet altitude without losing speed or altitude. Many additional measures that relate to the maneuverability of an aircraft exist, but the Air Force has determined that this measurement is the most appropriate to demonstrate the general F-22 maneuverability at key flight conditions. The Air Force estimated the F-22 will meet its maneuverability goal. The Air Force estimate was determined by analysis of computer models using the latest data available on the major subparameters affecting maneuverability. Flight performance testing is scheduled to begin in the fourth quarter of 1998 and end in the third quarter of 2001. This parameter measures the number of C-141B transport aircraft equivalents required to deploy and maintain a squadron of 24 F-22 aircraft for 30 days without resupply. The goal is to be able to provide this support with eight C-141 equivalents, thereby reducing the assets needed to deploy and the cost of deployment. The Air Force estimated it will require less than eight C-141 equivalents to transport a squadron of 24 F-22s. This estimate was based on a recent study. A mobility demonstration to verify the estimate, which cannot be done until a full squadron of 24 F-22 aircraft is activated, is scheduled for 2004 upon delivery of the 24th production aircraft. A squadron of 24 F-15s requires 19 C-141 equivalents. Sortie generation rate is defined as the average number of sorties or missions flown per aircraft per day for the first 6 days of a potential conflict. This parameter measures the degree to which the F-22 will be available during the first few days of a potential conflict to achieve and maintain air superiority. The Air Force estimated the F-22 will exceed the sortie generation rate goal. This estimate was based on the results of a 6-day surge analysis done on a computer model using many statistics such as maintenance characteristics, support equipment and resource availability, and aircraft maintenance policy. F-22 maintainability demonstrations are scheduled to be accomplished by 2002 to verify the sortie generation rate estimates. The radar cross section (RCS) parameter essentially refers to how large the F-22 should appear to enemy radar. The smaller an aircraft’s RCS, the harder it is for enemy radar to detect and track. A small RCS, along with several other factors, contributes to an aircraft’s low observability or “stealthy” nature. This particular parameter is called front sector RCS, which means it is the RCS when the F-22 is viewed from the front by enemy radar. While there are over 200 F-22 RCS measurement points, the Air Force considers the front sector RCS the most important measure of the aircraft’s ability to avoid detection by an enemy. The Air Force estimated the F-22’s front sector RCS will be smaller or better than its goal. Air Force RCS estimates were based on component models that predict the RCS of major components, such as engine inlets and wings, and then use this data to predict the RCS of an entire aircraft. There are 27 major subparameters of this RCS parameter. RCS design validation and specification compliance are also being conducted with a full-scale F-22 mounted on a pole enabling testers to take RCS measurements. This testing will continue into 1999. In-flight RCS measurements will begin in 1999 and continue into 2002. Mean time between maintenance is a measure of aircraft reliability defined as the total number of aircraft flight hours divided by the total number of aircraft maintenance actions in the same period. The F-22 goal is 3 flight hours between maintenance actions by the time the F-22 reaches system maturity. The Air Force estimated that by the time the F-22 reaches system maturity (100,000 flight hours, or about year 2008), the F-22 will only require maintenance every 3.1 flight hours. A reliability computer model was used to develop this estimate by using factors like the design of systems on the aircraft and scheduled maintenance activities. Throughout development and operational flight testing, maintenance data is to be collected from the 500th through the 5,000th hour of flight testing to update the maintenance estimate. Data will continue to be collected about operational usage of the aircraft through system maturity to verify requirements. The payload parameter is the number of air-to-air missiles, medium and short range, the F-22 is to carry when conducting an air superiority mission and not attacking enemy ground targets. Payload is a key parameter because the F-22 is designed to carry missiles in its internal weapons bay, not externally. Carrying weapons externally increases an aircraft’s radar cross section and can allow easier detection by enemy radar. The Air Force estimated that the F-22 will meet the payload goal of carrying six AIM-120C medium-range missiles and two AIM-9X short-range missiles internally. Weapons bay testing is scheduled for mid-2000 to determine how well the missiles can exit the weapons bay when launched. The combat radius parameter refers to the nautical miles the F-22 is required to fly to achieve its primary mission of air superiority. This mission requires the F-22 to be able to fly a certain distance subsonically and a certain distance supersonically to achieve the mission. The Air Force estimated the F-22 will exceed its combat radius goal by 23 percent. Unfavorable estimates for two of three major subparameters—fuel usage and aircraft weight—are not unfavorable enough to prevent the F-22 from meeting its combat radius goal. Performance flight testing to help compute the aircraft’s combat radius performance, as well as other aerodynamic capabilities, is scheduled to begin in late 1998 and end the third quarter of 2001. The radar detection range parameter refers to the number of nautical miles at which the F-22 radar should be able to detect enemy threats or potential targets. The radar needs to be able to detect enemy targets with small radar signatures at sufficient distance to ensure the F-22 can engage the enemy first. The Air Force estimated that the F-22 radar will exceed the established radar goal by 17 percent. This estimate was based primarily on digital simulations and models used to develop confidence in the tactical functions of radar search and detection capabilities. Radar detection performance is scheduled to be verified against the simulations and models in an aviation electronics laboratory from the first quarter of 1998 to the third quarter of 1999. Actual flight testing of the radar in F-22 EMD aircraft is scheduled to begin in the third quarter of 1999 and continue to at least the second quarter of 2001. The situational awareness parameter refers to the extent the F-22 sensors and aviation electronics systems are able to make pilots aware of the situation around them. The planned integration of the many aviation electronics systems and sensors is meant to (1) minimize pilot workload of managing and interpreting sensors and (2) provide previously unmatched awareness of potential F-22 threats and targets. Air Force data indicated the F-22 will meet the pilot situational awareness goal based on its performance estimates of the major aviation electronics subparameters affecting situational awareness including the radar system, the electronic warfare systems, and the communications, navigation, and identification systems. Sixty-three major aviation electronics functions contribute to these three major subparameters. Development of the integrated aviation electronics, however, is in the early stages. For example, the Air Force provided us information on 10 major milestones that must be completed before integrated avionics development will be complete and the first milestone is not scheduled until October 1998. The last of these milestones is scheduled for November 2001. The low observability parameter refers to the aircraft’s “stealthy” nature or ability to evade detection by enemy radar long enough for it to detect the enemy and shoot first. Five features of an aircraft contribute to its degree of low observability or “stealthiness” including radar cross section, infrared signature, electromagnetic signature, visual signature, and acoustic signature. However, the F-22 does not have a requirement for an acoustic signature. Air Force information indicated it expects the F-22 to meet the performance goals established for the various aspects of low observability. Specification compliance on the most critical feature, radar cross section, is being checked with a full-scale F-22 mounted on a pole and will continue into 1999. In-flight radar cross section measurements will begin in 1999 and continue into 2002. Flight testing to help predict the F-22 infrared signature, another critical aspect of low observability, is scheduled for the third quarter of 1999. Our objective was to determine whether the F-22 EMD program can be completed within the cost limitation established by the Congress. We also reviewed the extent to which the F-22 EMD program was achieving cost, schedule, and performance goals, including major modifications. To determine whether the program was expected to meet the cost limitation, we obtained the current cost estimate, which served as a basis for the fiscal year 1999 budget request. We compared that estimate to the estimate supporting the cost limitation and discussed the reasons for the differences with F-22 financial management officials. We made several analyses, including comparing the estimated cost at completion for the prime contracts with planned amounts, and evaluating cost variances identified in the earned value management system. We obtained and reviewed information on the cost and schedule goals for the F-22 EMD program established by the JET during its review of the F-22 program. Since the JET did not revise F-22 performance requirements, we defined the performance goals as those performance requirements on contract at the time the JET reviewed the program. To assist us in determining the goals, we also reviewed overall program documents such as Selected Acquisition Reports, Monthly Acquisition Reports, Defense Acquisition Executive Summaries, Program Management Reviews, contracts with the prime contractors, Test and Evaluation Master Plans, and Program Management Directives. To determine whether the program was expected to meet schedule goals, we obtained the current approved program schedule, which incorporated the latest restructured plans for the F-22 EMD program. We discussed the schedule and potential changes to it with F-22 program officials. We also reviewed the planned flight test schedule and the changes to it as a result of the late first flight of the first EMD aircraft. In addition, we discussed technical problems in assembling subsequent EMD aircraft. We evaluated schedule variances in the earned value management system and compared planned milestone accomplishment dates with actual dates of accomplishments. We also assessed the impact the late first flight may have on the overall EMD schedule. To determine whether the program was expected to meet the F-22 performance goals, we analyzed information on the performance of key performance parameters and of those important subparameters that are measured. We compared the Air Force’s current estimate for these parameters to previous estimates to determine whether estimated performance had changed. We determined whether the current estimates were based on actual tests, engineering models, or engineering judgment. We discussed each of the key performance parameters with program officials and determined the basis for the current estimates. We also reviewed past program documentation to determine the basis for the required performance and discussed the reasons for differences between required performance and estimated performance. To evaluate the bases for the Air Force’s current performance estimates, we collected information on the goals established for the major performance subparameters that are critical components of the performance parameters. We collected and analyzed information on Air Force estimates, as of January 1998, toward meeting the goals of these subparameters to determine whether the Air Force estimates seemed reasonable. For example, the major subparameters of the airlift support parameter are the number of aircraft support equipment items, the airlift loads necessary to transport aircraft support equipment items, and the maintenance manpower required for a squadron of F-22s. Each of these subparameters has a performance goal just as the overall parameter has a performance goal. The performance parameters and their associated major subparameters are shown in table II.1. Number of support equipment items Airlift loads required to deploy support equipment Number of support equipment items (27 individual subparameters) (No subparameters) To determine the status of contract modifications expected to have a significant effect on F-22 cost or performance, we reviewed the Air Force’s process for receiving, reviewing, approving, and monitoring engineering change proposals. We obtained a list of the proposals received and determined which had been approved. For those proposals that were approved, we reviewed the related documentation to determine their status and their estimated impact on aircraft performance and on the cost of the EMD program. To be able to certify whether we had access to sufficient data to make informed judgments on the matters covered in our report, we maintained a log of our requests and the Air Force responses. We numbered and tracked each request we made for documents and for meetings to determine how long it took to receive responses from the Air Force. As a result of this tracking, we were able to certify that we had access to sufficient information to make informed judgements on the cost, schedule, and performance matters covered in this report. The following is GAO’s comment on the Department of Defense’s letter dated February 12, 1998. 1. Our draft report was submitted to DOD for comment at about the same time as the Air Force notified the Congress that the EMD cost limitation was being increased and the production cost limitation was being decreased to recognize direction from the conferees on the Department of Defense Appropriations Act, 1998. Although direction from the conferees is technically not a change in federal, state, or local law defined as a criteria for changing the cost limitations, we believe the intent of the conferees’ direction is clear and that the types of adjustments the Air Force made to the cost limitations are appropriate. Tactical Aircraft: Restructuring of the Air Force F-22 Fighter Program (GAO/NSIAD-97-156, June 4, 1997). Defense Aircraft Investments: Major Program Commitments Based on Optimistic Budget Projections (GAO/T-NSIAD-97-103, Mar. 5, 1997). F-22 Restructuring (GAO/NSIAD-97-100R, Feb. 28, 1997). Tactical Aircraft: Concurrency in Development and Production of F-22 Aircraft Should Be Reduced (GAO/NSIAD-95-59, Apr. 19, 1995). Air Force F-22 Embedded Computers (GAO/AIMD-94-177R, Sept. 20, 1994). Tactical Aircraft: F-15 Replacement Issues (GAO/T-NSIAD-94-176, May 5, 1994). Tactical Aircraft: F-15 Replacement Is Premature as Currently Planned (GAO/NSIAD-94-118, Mar. 25, 1994). Aircraft Development: Reasons for Recent Cost Growth in the Advanced Tactical Fighter Program (GAO/NSIAD-91-138, Feb. 1, 1991). Aircraft Development: Navy’s Participation in Air Force’s Advanced Tactical Fighter Program (GAO/NSIAD-90-54, Mar. 7, 1990). Aircraft Development: The Advanced Tactical Fighter’s Costs, Schedule, and Performance Goals (GAO/NSIAD-88-76, Jan. 13, 1988). Aircraft Procurement: Status and Cost of Air Force Fighter Procurement (GAO/NSIAD-87-121, Apr. 14, 1987). DOD Acquisition: Case Study of the Air Force Advanced Tactical Fighter Program (GAO/NSIAD-86-45S-12, Aug. 25, 1986). 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 legislative requirement, GAO reviewed the Air Force's F-22 engineering and manufacturing development (EMD) program. GAO noted that: (1) the Air Force's estimate to complete F-22 EMD is $18.884 billion, $55 million less than the EMD cost limitation that will be adjusted to $18.939 billion; (2) however, the F-22 EMD program is not meeting schedule goals established in response to the Joint Estimating Team review; (3) the first flight of the F-22 was about 3 months late, issues have emerged concerning production and delivery of wings and fuselages for the EMD aircraft, and test schedules have consequently been delayed; (4) Lockheed Martin has indicated that negotiated costs should not be exceeded because of these issues; (5) the Air Force, however, is further assessing the impact of these issues on EMD cost, the schedule upon which test data is produced, and the schedule upon which the EMD program is to be completed; (6) the Air Force expects to complete this assessment at the end of February 1998; (7) the Air Force is estimating that the F-22 will meet or exceed its performance goals; (8) however, less flight test data have been accumulated through January 1998 than were expected because the beginning of the flight test program was delayed from May 1997 to September 1997 and flight tests have been suspended to accomplish planned ground tests and minor structural additions to the airframe; (9) flight testing will not resume until April 1998; and (10) delayed tests reduce the amount of actual F-22 performance information that will be available to support Air Force plans to begin production in fiscal year 1999.

You are an expert at summarizing long articles. Proceed to summarize the following text: Processing: IRS processes millions of paper and electronically-filed (e-filed) tax returns and validates key pieces of information during the tax filing season. The overwhelming majority of returns are e-filed through IRS’s Modernized e-File (MeF) system. Beginning last filing season, IRS and taxpayers benefitted from IRS’s switch from weekly to daily tax return processing on its Individual Master File (IMF) legacy system which allowed for faster refund processing for more taxpayers. IRS is continuing to transition from its antiquated IMF legacy system to a more modern return processing system known as the Customer Account Data Engine 2 (CADE 2). Telephone: Taxpayers can call to speak directly with an IRS customer service representative (CSR) to obtain information about their accounts or ask tax law questions. Taxpayers can also listen to recorded tax information using automated telephone menus. Automated services are provided on IRS’s 149 Tele-tax lines for tax law topics and 71 phone lines for account information. CSRs are also responsible for responding to paper correspondence from taxpayers. IRS tries to respond to paper correspondence within 45 days of receipt, and considers correspondence that is not addressed within that time to be overage. Minimizing the amount of overage correspondence is important because delayed responses may prompt taxpayers to write again or call IRS. Website: On IRS.gov, taxpayers can download forms, instructions, and publications and research tax law issues using interactive tools. Taxpayers can use interactive tools to check the status of their refunds, request transcripts (which are copies of a taxpayer’s account information), and apply for IAs. Face-to-Face Assistance: Taxpayers can obtain face-to-face assistance at IRS’s 390 Taxpayer Assistance Centers (TAC) or at more than 13,000 sites staffed by volunteer partners. At TACs, IRS staff provide answers to basic tax law questions, review and adjust taxpayer accounts, take payments, authenticate Individual Taxpayer Identification Number applicants and identity theft victims, and prepare returns for qualified taxpayers. At the sites staffed by volunteers, taxpayers can receive return preparation assistance as well as financial literacy information. Taxpayers can enter into IAs to pay their tax debts after filing their return with a balance due. IAs are an important tool for IRS to collect revenue. IRS assesses and collects billions of dollars each year through IAs. IAs can be established, paid off, defaulted on, reinstated, or terminated at any time during the year. IRS provides four types of IAs—Guaranteed, Streamlined, Regular/Routine, and Partial Payment—with different eligibility and payment requirements. IAs allow taxpayers to pay off their tax liabilities gradually over time and can encompass multiple years. Failure to adhere to the terms of the IA can cause default, termination, The most common type of IA by and more expensive collection actions.far is the streamlined agreement, which provides taxpayers with flexibility in paying off liabilities. Appendix I provides additional information on the types and characteristics of IAs. IRS defines a non-filer as a taxpayer who has a legal obligation to file a return, but fails to file a return by the filing deadline (either April or October depending on whether the taxpayer filed for an extension). IRS is authorized to issue a notice requesting a delinquent return and it can send up to four notices to taxpayers. Despite late tax law changes which delayed the start of filing season and compressed the time that IRS had available to process tax returns, IRS officials and external stakeholders such as large tax preparation firms reported relatively smooth processing, with a few exceptions. IRS usually begins processing tax returns in early to mid-January; this year, it started processing most returns January 30, 2013. Table 1 shows that IRS achieved an 84 percent e-file rate for individual returns, and processed 11 percent fewer paper returns compared to last year. Continued increases in e-filing are important because processing costs are lower for e-filed returns. According to IRS, in fiscal year 2012, it cost 23 cents to process an e-filed return, as opposed $3.36 for returns filed on paper. IRS relied solely on MeF this filing season, and attributed this success to expanded testing of the system which improved the MeF’s stability and facilitated return processing. External stakeholders confirmed IRS’s assertion about the reason for MeF’s success. Although operations were relatively smooth, IRS and others reported issues that delayed processing for tax returns filed with Form 8863 (Education Credits), and with Form 5405 (First-time Homebuyer Credit). While IRS was able to resolve processing delays for about 700,000 tax returns filed with the Form 8863, multiple class action suits have been filed against a large tax preparation firm regarding the issues involved in the processing delays.about 88,000 returns filed with Form 5405 that were caused by a compliance filter that resulted in additional scrutiny. Table 2 shows that, in 2013, IRS received 93.5 million calls— a 5 percent decrease from 2012 but higher than 2009 through 2011. Compared to 2012, IRS answered almost 9 percent fewer calls using automated services. Officials attributed some of the reduction in automated calls answered to fewer e-file personal identification number requests. Answering as many calls as possible through automation is important because IRS estimates that it costs 38 cents per call to provide an automated answer, but about $33 per call to use a live assistor. Table 2 also shows that callers experienced a shorter average wait time to speak to an IRS assistor this year compared to the same period last year, but the time was still much longer than 2008 through 2011. The percentage of callers seeking live help who received it stayed the same as 2012 at 68 percent. In 2010, we found that that IRS sets its annual goal based on factors such as resource availability, the expected number and complexity of calls, and anticipated volume of taxpayer correspondence, but not on an analysis of what taxpayers would consider to be good service. At that time, we recommended that IRS determine a telephone standard based on the quality of service provided by comparable organizations, what matters most to the customer, and resources required to achieve this standard based on input from Congress and other stakeholders. IRS disagreed saying its current process of developing a planned level of telephone service takes into consideration many factors, including its budget and assumptions about call demand. We noted, however, that such a standard would allow IRS to communicate to Congress what it believes constitutes good service. Further, since 2010, the IRS Oversight Board has said than an acceptable level of service (LOS) should be about 80 percent. However, IRS has yet to set such a standard. As shown in Table 3, the amount of correspondence received between 2009 and 2013 increased from 19 to 21 million (a 10.5 percent increase) and the percentage of overage correspondence nearly doubled to 47 percent in 2013 from 25 percent in 2009. As noted earlier, IRS generally considers paper correspondence that is not resolved within 45 days to be overage. In December 2010, we concluded that providing timely responses to paper correspondence remains critical to taxpayer service because if IRS’s responses take too long taxpayers may write again or call IRS for additional assistance. We recommended that IRS establish a performance measure that includes providing timely correspondence service to taxpayers. IRS agreed to this recommendation, and is beginning to take steps to implement it. Since we made that recommendation, the percentage of overage correspondence has continued to increase. IRS officials attribute the increase in the percentage of overage correspondence to budget constraints (less overtime for CSRs who provide both telephone assistance and work paper correspondence), and more complex taxpayer inquiries such as correspondence related to identity theft cases which can be more time consuming to address. IRS has taken some steps to identify why taxpayers write in. Based on a recent small, judgmental sample of correspondence cases, IRS found that the top three most common reasons taxpayers write in are: balance due payoffs, penalty abatements, and miscellaneous account inquiries. In that same sample, IRS found that its own processes, such as the wording of notices or requirements for a paper signature, influenced taxpayers to write in. IRS officials told us they are currently analyzing a statistically valid sample of correspondence to identify additional factors that influence the level of correspondence. Use of IRS.gov continues to increase, with IRS receiving approximately 374 million visits to its website through July 2013, an increase of nearly 26 percent over the same period in 2012. IRS officials attribute this increase to the launch of the redesigned website, introduction of new online tools such as Where’s My Amended Return, and implementation of the Patient Protection and Affordable Care Act.recommended that IRS develop a long-term strategy to improve web We previously services provided to taxpayers that includes studies of leading practices at a strategic level, measurable goals for taxpayer satisfaction, business cases for new online services that describe potential benefits and costs and prioritized projects, and links to investments in security. IRS reported that it is planning to update its long-term web services strategy to include our recommended changes in early 2014. See Appendix III for additional information on website use from 2008 through 2013. IRS received about 2.6 million visits to its TACs, a decline of approximately 5 percent from 2012. Additionally, the number of returns prepared continues to decline—in 2013, IRS prepared nearly 125,000 returns at TACs, about a 16 percent decline from 2012. IRS attributes the decline to its efforts to manage demand, and increased taxpayer awareness of online tools and services. In contrast, the number of returns prepared at the roughly 13,000 volunteer sites increased 5 percent between 2012 and 2013, to nearly 3.3 million in 2013. See Appendix IV for additional information on services and taxpayer use of TACs and volunteer sites since 2010. In 2012, we noted that IRS needs to dramatically revise its strategy for providing telephone and correspondence services and recommended that it define appropriate levels of telephone and correspondence services based on an assessment of demand and resources among other things.IRS neither agreed nor disagreed with our recommendation, saying it already has an objective of providing taxpayers with access to accurate services while managing demand. However, IRS’s efforts to date have not reversed the declines in taxpayer service. We noted, and IRS officials acknowledged, that incremental efficiency gains of the type IRS has realized in recent years would not be enough to combat the imbalance between taxpayer demand for services and available resources. We concluded that, with expected levels of resources, reversing the declines in telephone and correspondence services may require IRS to consider difficult tradeoffs such as limiting the types of phone calls that would be answered. Given expected budget levels for the 2014 filing season, IRS has identified six services for elimination or reduction, which officials told us were chosen because taxpayers had other options. IRS officials reported that they have discussed these options within IRS, with external stakeholders, and with Congressional committees that oversee IRS operations. IRS’s proposed service eliminations or reductions are: 1. Limiting tax law inquiries to answer only basic tax law questions during the filing season, and reassigning CSRs to work account- related inquiries; 2. Launching the “Get Transcript” tool, which will allow taxpayers to obtain a viewable and printable transcript online on www.irs.gov, and redirecting taxpayers to this and other automated tools for getting a transcript; 3. Redirecting refund-related inquiries to automated services and not answering refund inquiries until 21 days after the tax return has been filed, except for refunds held for potential fraud; 4. Limiting access to the Practitioner Priority Services line to only those practitioners working tax account issues; 5. Limiting live assistance and redirecting requests for domestic Employer Identification Numbers to IRS’s online tool; and 6. Eliminating free return preparation at IRS’s TAC sites and directing taxpayers to free alternatives including at IRS partner sites staffed by volunteers. The proposed elimination or reductions in services are examples of the difficult choices that we recommended need to be made if more timely access to telephone service and handling of correspondence is going to be achieved from the available IRS resources. While these cuts represent initial steps consistent with our recommendation from last year, they do not fully address it. Furthermore, even with these reductions, officials in IRS’s Wage and Investment Division responsible for the filing season told us they are anticipating that the level of telephone service could be 61 percent in 2014. IRS reported that it is working on final approval to implement the service options and bring about a better balance between demand for service and resources. However, the continued deterioration in taxpayer service in 2013, high cost of shifting staff from collections work to the telephones and correspondence, and anticipated level of telephone service for 2014 all highlight the importance of continuing to address the recommendation we made last year based on the need for a dramatic revision in IRS’s strategy. The choice may be between providing a broader range of services at a low level of performance or a narrower range of services at a higher level of performance. Until IRS develops a strategy, it risks not communicating expectations about the level of services it can provide based on the resources available. IRS could then use the strategy to facilitate a discussion with Congress and other stakeholders about the appropriate mix of service, level of performance, and resources. Taxpayers can apply for IAs online, by phone, in person, or by completing Depending on and mailing Form 9465, Installment Agreement Request.the type of IA, taxpayers can make their monthly payments via check or money order, direct debit, payroll deduction, online, or credit card. If a taxpayer fails to make monthly payments on time or incurs a new tax liability, the taxpayer is considered to be in default on the IA with a few exceptions. Appendix V shows the process for taxpayers entering into and making payments on IAs. Table 4 shows that, in fiscal year 2012, IRS approved more than 3 million new IAs and collected $9.8 billion. At the end of fiscal year 2012, IAs represented nearly $28 billion in unpaid balances. The difference between the amount of unpaid balance of assessment and amount collected is due to the fact that IAs can be paid off over multiple years. According to IRS officials, the increases in IA inventory since 2009 are due to a variety of factors, such as more taxpayers entering into IAs because of expanded eligibility and payment terms discussed below, and changes in the economy. Table 4 also shows, in fiscal year 2012, taxpayers defaulted on approximately 1.2 million IAs. In 2012, we found that, of those taxpayers that had a balance due at the filing deadline, almost two-thirds eventually paid in full or entered into IAs, and about 18 percent of taxpayers defaulted on IAs in fiscal year 2012. Therefore, we recommended that IRS pilot risk-based approaches for contacting taxpayers who have a balance with the goal of reducing the default rate. IRS agreed with the recommendation, but has not funded the related research project. Until IRS tests and implements more advanced risk-based approaches, it may be challenged to deal with the default problem. In 2012, IRS expanded its Fresh Start Initiative to assist struggling taxpayers in meeting their tax obligations. Specifically, the threshold for requesting a streamlined IA was raised from $25,000 to $50,000 and the maximum term for streamlined IAs was increased from 60 to 72 months for repayment. The expanded eligibility for streamlined IAs in particular allowed more people to qualify for the program and potentially pay taxes owed. Also under Fresh Start, IRS is encouraging taxpayers with IAs to sign up for direct debit agreements which generally have lower default rates. IRS said it is difficult to pinpoint which specific aspects of the Fresh Start initiative are effective. IRS is currently conducting an analysis of the initiative’s benefits in terms of collection and default prevention. As of November 2013, that analysis has not been completed. IRS allocated about 1,800 FTEs to the IA program in fiscal year 2012, which is over a 10 percent increase since fiscal year 2009. The level of and growth in this area highlights the importance of testing and implementing risk-based approaches for collecting balances due including through IAs. IRS recently made process improvements to help streamline and standardize its IA program operations. For example, IRS introduced automated tools, known as the Compliance Suite, which provides tax examiners (TEs) with online tools such as helping the TE determine which letter to send to the taxpayer. However, despite these process improvements, we observed some inefficiency. For example, we observed that some TEs had developed their own extensive sets of prewritten, standardized case notes that allowed them to quickly update a taxpayer’s account because the Compliance Suite lacked that capability. IA program managers were aware of this practice, said it gives TEs flexibility in writing case notes, but agreed that automated case notes may yield efficiencies. They also noted that the Compliance Suite was only introduced a few months ago, and its full capabilities were being explored. We agree that flexibility is desirable but providing an extensive set of standardized notes in the Compliance Suite would give all TEs the option of using them. This could lower the cost of making account entries. In addition, we found unnecessary redundancy. We observed TEs handwriting case notes on paper copies of IAs and then typing those same notes into IRS’s computer systems. IRS managers agreed this practice is redundant, and TEs noted this is the way it has always been done. Such redundant data entry increases the time it takes TEs to handle each IA case. Furthermore, GAO’s internal control guidance states that control activities should be regularly evaluated to ensure their appropriateness in intended function. By not developing a more standardized comprehensive set of case notes and not reducing redundant data entry, IRS is missing opportunities to reduce resources devoted to handling IA case files. With 1,800 FTEs devoted to the program, small gains in the efficiency of each TE could add up to substantial savings. Beginning in October, IRS uses prior year tax returns, third-party reports, such as W-2s and Forms 1099, and applications for automatic extensions of time to file to identify taxpayers who appear to have missed the mid- April tax return filing deadline. In June 2013, we found that most information reports are not received by IRS until well after the April tax return filing deadline. IRS does a second match in March of the following year for taxpayers who filed an extension. According to IRS officials, not all potential non- filer cases identified are selected for notification and review; IRS prioritizes cases based on factors such as income, the potential to collect taxes due, and whether the taxpayer is an IRS or other federal employee. After the first match in October, IRS sends notices to non-filers in November and December requesting the return or a justification for not filing. IRS begins to send notices to cases from the second match between March and July. Table 5 shows that, in tax year 2010 (the year for which the most current data are available), IRS identified over 7.4 million potential non-filer cases. Of these, IRS selected more than 3.2 million cases for review and sent notices to those non-filers requesting the return. IRS officials said the percentage of cases selected for review fluctuates based on resources and selection criteria, such as income and potential balance due amounts, which vary from year-to-year. Table 5 also shows in tax year 2008 (the year for which the most complete data are available), IRS received approximately 1.4 million delinquent returns, which is about 39 percent of the non-filers selected for review and notification. IRS officials attribute the relatively low number of returns filed in response to notices to taxpayers that have stopped filing for unknown reasons, those that do not have the resources to pay the potential balance due, and taxpayers who do not file until more extensive collection actions are taken. Securing the delinquent return as soon as possible as part of IRS’s notification process is important because taxpayers continue to incur penalties and interest until they file a return and IRS undertakes increasingly expensive enforcement actions against the taxpayer. In addition to taxpayers who do not respond to notices, IRS’s existing non-filer strategy notes that IRS also has a significant problem with repeat non-filers. For fiscal year 2012, IRS data shows that 43 percent of closed cases were repeat non-filers that did not file for more than 1 tax year. As of November 2013, IRS is waiting on executive approval for its updated non-filer strategy which it expects to receive by the end of the year and should address how IRS plans to improve non-filer compliance including notice response and repeater rates. IRS is currently analyzing data on the characteristics of non-filers, such as filing status, income, and other key characteristics, and their response rates to the notifications to determine the best approach, and expect this effort to be completed in January 2014. IRS officials also are considering several initiatives for improving the notification process once its updated non-filer strategy is approved. Despite efficiency gains in processing returns, additional website services, and shifting employees from working collections cases to handling telephone calls and correspondence, the gap between taxpayers’ demand for service and IRS resources widened. As a result, taxpayer access to IRS’s telephone assistors remained at a low level and the percentage of overage correspondence grew. The widening gap highlights the importance of fully implementing our recommendation made last year for a dramatic revision in managing taxpayer service that defines an appropriate level of service and recognizes both the demand for services and resources available. We stressed that this would mean making difficult tradeoffs. Consistent with our recommendation, IRS has proposed eliminating or reducing some services. By eliminating or reducing some services IRS should be able to devote more resources to its continuing services. However, IRS officials told us that the cuts proposed so far may not reverse the decline in telephone and correspondence performance. As a consequence, the cuts may only be a down payment on the difficult choices needed and our recommendation needs to be fully addressed. Fully addressing our recommendation would result in a strategy that could be used to facilitate a discussion with Congress and other stakeholders about the appropriate mix of service, level of performance, and resources. The imbalance between the demand for services and resources also puts a higher priority on scrutinizing existing processes for possible further efficiency gains. We identified opportunities in the processing of installment agreements where the existing process could be further streamlined to reduce resources by standardizing case notes and reducing unnecessarily redundant data entry. We recommend that the Commissioner of Internal Revenue develop a set of standardized account entries and eliminate unnecessary redundancy when entering installment agreement data into accounts. We provided a draft of this report to the Acting Commissioner of Internal Revenue. IRS provided written comments on a draft of the report, which are reprinted in Appendix VI. IRS also suggested technical changes to the report, which we incorporated where appropriate. IRS did not state whether it concurred with the recommendation. However, IRS acknowledged that standardized account entries can sometimes lead to increased efficiencies and lower costs, and taxpayers and IRS can benefit by the elimination of redundancy in its processes. IRS stated that as it continues to evaluate the Compliance Suite to determine its full capabilities, it will (1) explore whether the introduction of standardized account entries into the IA process will yield increased efficiencies and lower costs; and (2) evaluate whether there are unnecessary redundancies in its current processes that can be eliminated without adversely affecting tax administration. GAO believes the recommendation remains valid as discussed in the report. We plan to send copies of this report to the Chairmen and Ranking Members of other Senate and House committees and subcommittees that have appropriation, authorization, and oversight responsibilities for IRS. We will also send copies to the Acting Commissioner of Internal Revenue, the Secretary of the Treasury, the Chairman of the IRS Oversight Board, and the Deputy Director for Management of the Office of Management and Budget. 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 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 key contributions to this report are listed in Appendix VII. Of the four types of IAs available to individual taxpayers, the most common type of IA by far is the streamlined. Figure 1 shows that during the 2013 filing season, the Internal Revenue Service (IRS) received most of its calls in the period leading up to and including the April 15th filing deadline, with the heaviest volume of calls in the early to mid-February timeframe. Importantly, the figure below shows that access to live assistance begins to decline sharply in the weeks following the filing deadline. Table 7 shows that in 2013 use of IRS.gov increased by 26 percent compared to 2012. Use of the online tools such as the volunteer site locator, Where’s My Refund, electronic personal identification number requests, and interactive tax assistance tools continued to increase in 2013. IRS attributes declines in downloading forms and publications, and generally searching the website, to changes in how IRS tracks website use in these areas. Face-to-face service remains an important component of IRS’s efforts to serve taxpayers, particularly those with low incomes or limited proficiency in English. Table 8 shows that, for 2013, the total number of contacts at walk-in sites, Taxpayer Assistance Centers (TAC) staffed by IRS employees, is the lowest level for the 4 year period shown. Further, return preparation has steadily declined since 2010 due to IRS’s continuing efforts to reduce expensive return preparation services. Conversely, the total number of returns prepared at sites staffed by volunteers has increased since 2010. In addition to the individual named above, Joanna Stamatiades, Assistant Director; Shilpa Grover; Emily Gruenwald; Lois Hanshaw; LaKeshia Allen Horner; Kirsten Lauber; Natalie Maddox; Karen O’Conor; Anna Maria Ortiz; Kelly Rubin; and John Zombro made key contributions to this report.

The tax filing season is when IRS processes most tax returns and provides services including telephone, correspondence, and website assistance for tens of millions of taxpayers. IRS budgeted more than $2 billion for these activities in 2013. The filing season is also when IRS begins collecting delinquent taxes by, for example, approving installment agreements and checking for non-filers. GAO was asked to review the 2013 tax filing season. This report (1) assesses IRS's performance in processing tax returns and providing services to taxpayers; (2) describes the installment agreement process and assesses its efficiency; and (3) describes the process for detecting and notifying non-filers. To conduct the analyses, GAO obtained and compared IRS data from 2007 through 2013, reviewed pertinent IRS documents, observed IRS operations, and interviewed IRS officials and experts in tax administration, including tax preparation firms. Despite efficiency gains from processing more tax returns electronically, adding website services, and shifting resources from enforcement, the Internal Revenue Service (IRS) was unable to keep up with demand for telephone and correspondence services. Access to IRS's telephone assistors remained at 68 percent from 2012. The percentage of overage paper correspondence (over 45 days old) increased to 47 percent from 40 percent in 2012. In the face of similar trends, last year GAO reported that a dramatic revision in IRS's taxpayer service strategy was needed and recommended IRS take steps to better balance demand for services with available resources. GAO acknowledged this may require IRS to consider difficult tradeoffs, such as limiting some services. In response, IRS has proposed eliminating or reducing some services for 2014 such as answering basic tax law questions only during the filing season. However, IRS officials told GAO the proposed cuts may not be sufficient to stop the deterioration in services. Until IRS develops a strategy, it risks not communicating expectations about the level of services it can provide based on the resources available. IRS could use the strategy to facilitate a discussion with Congress and other stakeholders about the appropriate mix of service, level of performance, and resources. IRS offers options for installment agreements (IAs) to taxpayers who cannot fully pay their taxes when due. Taxpayers can enter into these agreements online, by phone, and by mail. In fiscal year 2012, IRS approved about 3.2 million new agreements and collected almost $10 billion. IRS devotes about 1,800 full-time equivalent staff to the program but it is not as efficient as it could be. GAO found opportunities to standardize account entries and reduce redundancy by eliminating dual entry of the same data on paper forms and into IRS's computers. IRS officials agreed that opportunities did exist to streamline the process. More standardized and less redundant data entry could reduce resource needs. IRS detects non-filers by matching third party information (i.e., Form W-2s) with tax returns. The first match is done in October, well after the mid-April tax filing deadline from the previous year, because of the time it takes to receive the third party information and process it. IRS sends notices to non-filers in November and December. GAO recommends that IRS develop standardized account entries and eliminate unnecessary redundancy in the installment agreement process. IRS did not state whether it concurred with our recommendation. GAO believes the recommendation remains valid as discussed in this report. In addition, GAO continues to believe the prior recommendation that IRS develop a strategy that defines appropriate levels of telephone and correspondence services based on an assessment of demand and resources among other things remains valid and should be addressed.

You are an expert at summarizing long articles. Proceed to summarize the following text: Welfare reform legislation, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), eliminated the federal entitlement to cash assistance under the Aid to Families with Dependent Children (AFDC) program and replaced it with a program of block grants to states known as the Temporary Assistance for Needy Families (TANF) program. At the same time, Congress amended the Child Care and Development Block Grant Act of 1990, and required HHS to consolidate federal child care funds and administer them as a unified program. HHS named this program the Child Care and Development Fund. The intent of CCDF is to support state-administered child care programs for both families receiving public assistance and low-income working families not receiving public assistance. Since welfare reform, federal expenditures for CCDF have increased significantly from $2.1 billion in fiscal year 1996 to $5.3 billion in fiscal year 2000. In fiscal year 2002, about $4.8 billion was appropriated for CCDF. States also contributed to CCDF, and their funding for this program has nearly doubled from about $1.0 billion in fiscal year 1996 to $1.9 billion in fiscal year 2000. The average number of children who received subsidized child care each month also increased from about 1.2 million in fiscal year 1996 to 1.7 million in fiscal year 2000. States receive CCDF funds from potentially four funding streams. Each state’s annual federal allocation consists of separate discretionary, mandatory, and matching funds. A state does not have to obligate or spend any state funds to receive the discretionary and mandatory funds.However, to receive federal matching funds—and thus its full CCDF allocation—a state must maintain its program spending at a specified level, referred to as a state’s maintenance of effort, and spend additional state funds above that level. In addition to consolidating federal funds, PRWORA significantly changed federal child care policy by giving states maximum flexibility to design child care programs for low-income families. States have broad discretion to establish subsidy amounts, family co-payments, and eligibility limits. States set maximum reimbursement rates that consist of two parts—the state subsidy paid directly to a provider and the co-payment the family pays to a provider. These co-payments vary according to family income and size, and the amount of the state subsidy declines as the family co- payment rises. Co-payments can be waived for any eligible family whose income is at or below the federal poverty threshold, including those in the TANF program, and for children in protective services on a case-by-case basis. As of March 2001, 23 states waived co-payments for TANF families engaged in TANF or other work activities. According to federal law, states can set income eligibility limits up to 85 percent of the state median income (in 2000, this limit ranged from a low of $24,694 for West Virginia households to a high of $43,941 in Maryland), but most states set eligibility limits below that level. In the three states we visited, Oregon reported setting its income eligibility limit at 70 percent of the state median income, Maryland at 50 percent, and Illinois at 43 percent. States are not required to provide assistance to all families that fall within state-established eligibility guidelines, but they are required to give priority to children in very low-income families and to children with special needs. The program serves children up to age 13, but HHS allows states to provide child care services to children with special needs up to age 19. CCDF subsidies can be used to obtain child care from various types of providers such as child care centers and family homes. Child care centers, group homes, and family homes are most often regulated but some are legally exempt depending on the state. Table 1 provides descriptions of the types of child care providers generally used by subsidized families. States must provide subsidies through vouchers, but some states also made child care available from providers who have contracts with them.Two of the three states we visited made this option available to subsidized families. Illinois had contracts with some child care centers to serve children of subsidized families. As of June 2000, Illinois reported that contracted facilities served about 12 percent of the total number of children in the state’s subsidized child care program. Oregon contracted with child care providers primarily to serve children from targeted, at-risk families. Periodically, states adjust their reimbursement rates, co-payment levels, and income eligibility limits. These policy decisions can affect families’ access to child care providers. For example, if states set reimbursement rates too low, some providers might choose not to serve children of subsidized families. On the other hand, if states set reimbursement rates too high, some providers might replace children of nonsubsidized families with those of subsidized families. Co-payment levels are also important. For example, in Oregon, one study indicated that, in some cases, a family’s economic position worsened as a parent moved from a job paying $6 per hour to one paying $8 per hour because increases in the family’s earnings were more than offset by decreases in child care and other subsidies. HHS is charged with providing oversight, technical assistance and guidance to states, which have responsibility for administering CCDF programs. HHS requires states to submit biennial state CCDF plans that include, among other things, certification that within the past 2 years they performed a market rate survey. A market rate survey is a tool to be used by states to obtain information about providers, including the fees they charge, the type of child care they provide, the age groups of the children they serve, and where they are located. Although states are required to conduct market rate surveys every 2 years and consider the results, they are not compelled to use them in setting child care reimbursement rates. States are also required to certify that they met the equal access provision, a part of the federal law that requires states to set rates that are sufficient to provide access to child care services for eligible families that are comparable to those of families that do not receive subsidies. While HHS reviews and approves CCDF state plans, states have substantial discretion in determining the basis on which they will certify to HHS that they meet the equal access provision. HHS has authority to sanction states if they do not substantially comply with the law, but HHS officials told us that these sanctions have never been used. HHS provided guidance indicating that co-payment levels at no more than 10 percent of family income could be considered affordable and reimbursement rates set at least at the 75th percentile of providers’ fees can be presumed to provide equal access. In this case, the maximum rate paid by the state and the family would be equal to or greater than the fees charged by 75 percent of providers or for 75 percent of providers’ slots. However, states are free to set co-payments and reimbursement rates at other levels. States used the results of market rate surveys to help set child care reimbursement rates, but also reported considering other factors such as budgets in rate setting. Consistent with HHS guidance, 40 states reported that the survey results were an important consideration when setting reimbursement rates. However, 10 states did not use their most recent surveys in setting current reimbursement rates. States establish different rate schedules for geographical areas and different age groups of children. To establish their rates, states often set maximum reimbursement rates at a percentile of the distribution of providers’ fees. However, in setting their child care reimbursement rates, many states considered their budgets and other policy goals. Thirty-two states reported that their current budgets were of great importance when setting reimbursement rates. Other factors that states considered important in setting their rates included achieving policy goals such as expanding eligibility, improving child care quality, and increasing the supply of certain types of child care providers. Most states reported using their current market rate survey results to help set reimbursement rates; some states reported that they referred to less current survey information. Forty states reported that the results of their most recent market rate survey were very important in determining their current child care reimbursement rates. However, while 10 states reported that they had completed current market rate surveys as required by regulations, they used less current market rate survey results to set their rates. The market rate surveys they used were not completed within 2 years of their approved fiscal year 2001 CCDF plans. Of these, 3 states (Michigan, North Dakota, and West Virginia) considered 1999 market rate survey results, 5 states (Arizona, District of Columbia, Illinois, Iowa, and North Carolina) reported considering results from 1998 market rate surveys, 1 state (New Hampshire) considered results from 1994, and 1 state (Missouri) considered market rate survey results from 1991 and 1996. States reported that their market rate survey results primarily included data on providers’ fees from regulated child care center, family home, and group home providers. For example, 48 states surveyed regulated child care centers and 47 states surveyed regulated family home providers. In contrast, 24 states surveyed unregulated providers. Of these, 15 states reported that they obtained information about child care fees from relatives and/or other unregulated providers, such as religious-affiliated child care providers. (See fig. 2 for the types of providers that states indicated were included in their market rate surveys.) After an examination of those fees, state officials decided whether and how to divide the state into regions based on variations in providers’ fees. State officials may use a variety of methods for dividing the state into regions. As shown in figure 3, 18 states reported setting rates for multicounty regions, and 16 states set rates based on political boundaries, such as counties or municipalities. Illinois and Maryland, two of the states we visited, established reimbursement rate schedules that combined areas into multicounty regions. These regions generally consisted of counties that were not necessarily contiguous to one another but were designed to capture providers who charged similar fees. Oregon, the third state we visited, grouped zip codes with comparable providers’ fees into three reimbursement rate areas. Conversely, 14 states reported that they did not pay different reimbursement rates to providers based on their location. In some cases, officials reported they did not divide the state into regions because there was little variation in fees across the state. Most states also reported setting distinct child care reimbursement rates based on the age group of the child needing care. The states we visited, for example, had differing rates for infants and school aged children. In addition, separate rates were often used for child care providers who accepted special needs children, exceeded quality standards, or offered evening and/or weekend care. For example, 24 states reported that they had distinct child care reimbursement rates for providers whose care exceeded state quality standards. In setting their reimbursement rates, most states ranked providers’ fees by type and location of care from highest to lowest, and set maximum reimbursement rates at a percentile of these fees. HHS suggested that states set their maximum child care reimbursement rate at least at the 75th percentile based on the most recent market rate survey results. In responding to our survey, 21 states indicated that they did so. An additional 7 states indicated that they set rates at least at the 75th percentile but used a more dated survey. While states most often reported that market rate survey results were very important in setting child care reimbursement rates, they also reported that their state budget and policy goals were important factors considered when setting rates. For example, 32 states reported that the amount of their current budget was of great importance when setting child care reimbursement rates. Budgets are important because they establish a financial framework for developing programs and policy goals. State budget processes and their contributions to CCDF affect the amount of money that states choose to spend on child care. During the budget process, trade-offs occur when state decision makers must balance policy goals and program needs against available resources. One potential result of such trade-offs could be that as resources available for child care programs become constrained, more states might be reluctant to adjust their maximum reimbursement rates in line with recent market rate surveys. However, in our survey, child care officials in 27 states indicated that they expected their child care budgets to remain the same, and child care officials in 11 states expected their child budgets to increase in the next fiscal year. Some state officials told us they used income limits and family co-payments to manage child care program expenditures and to target child care subsidies. Under CCDF, states are permitted to set income eligibility limits to include families whose incomes are up to 85 percent of the state median income (SMI), but most states set their limits below the allowable federal level. They may do so to accommodate state budgetary constraints, to target poorer families, or both. In our survey, states reported setting income eligibility limits that ranged from 42 percent of the SMI (in Missouri) to 105 percent of the SMI (in Pennsylvania). States also varied co-payments to accommodate their budgets and to target certain families. In Oregon, for example, as our hypothetical family’s income increased from 75 percent to 150 percent of the federal poverty threshold, required co-payments increased from 6 percent to 18 percent of monthly income. States also considered other child care policy goals in setting their reimbursement rates. Thirty-eight states reported that they used reimbursement rates to encourage child care providers to achieve specific results such as expanding eligibility and improving child care quality. Specifically, 29 states reported that they used reimbursement rates to encourage providers to increase staff education or training, 26 states used rates to encourage providers to make general improvements in quality, 20 states used rates to encourage providers to increase access to their facilities for special needs children, and 18 states reported using reimbursement rates to encourage improvements in providers’ facilities that promote children’s health and safety. In some states, providers received higher reimbursement rates for achieving these results. The three states we visited used reimbursement rates in different ways in pursuit of specific policy goals within their child care programs. For example, Illinois encouraged child care centers to increase the number of child care slots available to low-income families with infants and toddlers by paying up to an additional 10 percent to center providers who served a large number of subsidized children 2 years old or younger. For fiscal year 2000, the state reported that an additional 390 slots for subsidized infants and toddlers were added as a result of this initiative. Illinois also implemented a statewide initiative that paid providers an additional subsidy amount to care for children with disabilities. Based on receiving the increased subsidies, providers were expected to purchase adaptive equipment and obtain specialized training to improve the care they gave these children. In Maryland, a tiered reimbursement rate program—paying different rates to child care providers based on program accreditation, staff credentialing, continued training, staff compensation, and other achievements—was established to improve the qualifications of the child care workforce, encourage parent involvement, and promote a high level of program quality. Few states reported having evaluated the effects of such uses of reimbursement rates. In the nine communities we visited, we calculated that the maximum reimbursement rates afforded hypothetical 2-person families widely different levels of access to child care providers who accepted the subsidy. The state reimbursement rates, which consist of the states’ subsidies and families’ co-payments, allowed hypothetical families, for example, to purchase care from 6 percent to 71 percent of family home providers who accepted the subsidy in these nine communities. Families generally could afford child care from a greater percentage of providers in urban communities than suburban and rural communities. In all three states, the states’ subsidies decreased as families’ incomes increased; this sometimes resulted in steep increases in family co-payments. These required co-payments ranged from 1 percent to 18 percent of a hypothetical family’s income, varying by the level of income. However, reimbursement rates may not strictly limit families’ choices among child care providers. State officials reported that families were sometimes able to make financial arrangements with formal, regulated providers whose fees exceeded state reimbursement rates. In addition, families could obtain care they needed or wanted from informal providers who were generally reimbursed at lower rates than states paid formal, regulated providers. State officials were unable to provide information on how often these circumstances occurred. The affordability of child care for hypothetical families of two (consisting of a parent and 2-year-old) varied as a result of different subsidies and co-payments in nine selected communities. Moreover, the choice that rates afforded families among available providers was generally greater in urban communities than in suburban and rural communities. The only exception was among family home providers in Maryland, where families were able to afford a greater portion of this type of care in suburban and rural communities. We visited three communities in Illinois—one urban, one suburban, and one rural. Table 2 shows the characteristics of Chicago, DuPage County, and DeKalb County. While Illinois set the same reimbursement rate for child care centers for these three communities, the extent to which the rates afforded choice among family home providers and child care centers varied widely, resulting sometimes in large differences between prevailing local fees and maximum reimbursement rates. For example, of those family home providers who accepted child care subsidies, 6 percent to 71 percent had fees that were within (i.e., equal to or less than) the maximum reimbursement rate. Of those child care centers that accepted subsidies, 30 percent to 100 percent had fees within the rate. Moreover, to provide our hypothetical low-income families with greater access to family home providers in DuPage County would require a significant increase in the state’s maximum reimbursement rate. Specifically, to allow families access to approximately 50 percent of the family home providers, the maximum reimbursement rate would need to be raised 39 percent from $466 to $650, a monthly increase of $184. See table 3 for comparisons of providers’ fees, reimbursement rates, and percent of providers accepting subsidies who charged fees within the reimbursement rate in three Illinois communities. We visited three communities in Maryland—one urban, one suburban, and one rural. Table 4 shows the characteristics of Baltimore, Montgomery County, and Wicomico County. Across the three Maryland communities, the reimbursement rates afforded our hypothetical families varied access to family home providers and child care centers. As shown in table 5, of those family home providers who accepted child care subsidies, 45 percent to 64 percent had fees that were within the maximum reimbursement rate. The percent of participating child care centers that had fees within the rate varied—from 37 percent to 68 percent. In contrast to Illinois, providing low-income families with greater access to subsidized child care in Maryland would generally require smaller increases in the states’ maximum reimbursement rates. For example, to allow families access to approximately 50 percent of the child care centers in Wicomico County, would require raising the maximum reimbursement rate 5 percent from $358 to $375, a monthly increase of $17. See table 5 for comparisons of providers’ fees, reimbursement rates, and percent of providers accepting subsidies who charged fees within the reimbursement rate in three Maryland communities. We visited three communities in Oregon—one urban, one suburban, and one rural. Table 6 shows the characteristics of Portland, Washington County, and Linn County. In Oregon, hypothetical families’ access to providers varied slightly and was limited. For example, of those family home providers who accepted child care subsidies, 10 percent to 24 percent had fees that were within the maximum reimbursement rate. Of those child care centers participating, 0 percent to 17 percent had fees within the rate. See table 7 for comparisons of providers’ fees, reimbursement rates, and percent of providers accepting subsidies who charged fees within the reimbursement rate in three Oregon communities. In the nine communities we visited, most child care providers indicated to local resource and referral offices a willingness to accept subsidized children; center providers reported a willingness to accept subsidized children more often than family home providers. As shown in table 8, 85 percent to 100 percent of child care centers reported a willingness to accept subsidies compared with 47 percent to 97 percent of family home providers across the nine communities. State officials considered the percent of child care providers who were willing to participate in subsidized child care programs an important measure of access. Results from our national survey also showed that the providers’ participation rates varied. In our survey, states estimated that the proportion of licensed child care providers who participated in their subsidized programs ranged from 23 percent to 90 percent, with a median of 69 percent. However, even though provider participation was generally high, local child care resource and referral staff told us that some providers limited the number of subsidized children they accepted at any one time and others may have required parents to pay the difference between the reimbursement rates and providers’ fees. (This last point is discussed in greater detail later in the report.) Although maximum reimbursement rates were the same for all subsidized families within a community, a family’s share of this rate, or co-payment, increased as family income increased. For example, for a family of two in Linn County, Oregon, earning $1,017 a month (100 percent of the federal poverty threshold) the maximum reimbursement rate for family home care was $340—comprised of an $85 required family co-payment and a state subsidy of $255. As the family’s income increased to $1,526 a month (150 percent of the federal poverty threshold), its required co-payment rose to $271, and the state subsidy declined to $69. The relationships among co-payments, state subsidies, and income for a family of two in Linn County, Oregon, using family home care are illustrated in figure 4. Required co-payments resulted in families paying from 1 percent to 18 percent of their income for child care across the nine communities. Oregon, which had a statewide co-payment schedule, required our hypothetical families to make the highest co-payments of the three states we visited. Regardless of where they lived, subsidized families with monthly earnings of $1,526 paid 18 percent of their income for child care. Maryland, which varied co-payment amounts by region, required families in Montgomery County to pay higher co-payments than those in Baltimore and Wicomico County. In Illinois, which also has a statewide co-payment schedule, the co-payments in every community were less than 10 percent of family income at 150 percent of the federal poverty threshold. See table 9 for monthly income, family co-payment, and co-payments as a percent of income in the nine communities. While co-payments can be considered as a percentage of family income, they can also be considered as a percentage of the total reimbursement rate; this provides some sense of the portion of the total fee borne by the family and, to some extent, the benefit of participation in the subsidy program. When considered in this way, a family’s co-payment represented from 2 percent to 80 percent of the reimbursement rate; Oregon families paid the largest share of the reimbursement rate. For example, in rural Linn County, families who earned 150 percent of the federal poverty threshold were responsible for a monthly co-payment of $271, which represented 80 percent of the reimbursement rate for a family home provider. This share was significantly larger than that paid by similar families in the rural communities of DeKalb County, Illinois, and Wicomico County, Maryland, who were responsible for paying 32 percent of the reimbursement rate for family home providers. In addition, in Oregon and Illinois, rural families paid a larger share of the reimbursement rate than families in urban and suburban communities (see table 10). Families at the lowest income levels in each community paid a relatively small share of the total reimbursement rate. Even though our analysis showed that some reimbursement rates did not afford hypothetical families much choice among specific types of child care, state and local officials noted that actual families’ child care options may not be strictly limited by the reimbursement rates. In all three states we visited, families could choose providers whose fees exceeded the state-established reimbursement rates—by paying the co-payment and the difference between the providers’ fees and the reimbursement rates. Families were responsible for these additional payments, and states were generally not part of these financial arrangements with child care providers. State officials could not provide data on how often this occurred. In other instances, state and local officials told us they believed that some regulated providers subsidized the state child care program by accepting maximum reimbursement rates as full payment—even though the rates were less than the fees charged nonsubsidized families. These officials said that some providers were willing to do so because there was more certainty in receiving state subsidies than private payments from nonsubsidized families. They also told us that some child care providers may build a loyal customer base by accepting reimbursement rates as full payment until families can afford to pay the extra amount. Again, state officials could not provide data on how often this occurred or what adjustments providers made, if any, to accommodate any such foregone revenues. Consistent with federal law, all three state child care programs also allowed subsidized families to use informal child care providers (i.e., unregulated, legally operating providers) in addition to formal, regulated providers. Subsidized families in the three states we visited varied in how frequently they chose this option. States estimated that 25 percent of subsidized families in Maryland, 57 percent in Illinois, and 60 percent in Oregon relied on informal care providers. In our survey, state officials reported that families chose informal providers for many different reasons including convenience, flexibility in hours, and lower costs. State and local officials mentioned that some informal child care providers were willing to forego co-payments because they were aware of the families’ financial circumstances. They could not provide data on how often this occurred. While subsidized families could choose informal child care arrangements, the states we visited generally set lower reimbursement rates for these providers. For example, table 11 shows that informal providers in Baltimore received a maximum reimbursement rate of $215 which was about half of the $429 received by family home providers. See appendix II for information about the reimbursement rates and family co-payments for informal providers in the other eight communities we visited. Nonetheless, states varied considerably in the distinction drawn between rates paid to informal providers and those paid to formal, regulated family home providers. In Oregon, the rates were quite close; in Illinois and Maryland, they were much further apart. States made these different choices with regard to reimbursement rates despite the lack of information they reported having on informal providers’ fees or the relationship between the rates and the supply of such care. In the three states we visited, variations in the use of informal child care providers appeared to be influenced by state policies. Illinois and Oregon reported almost the same percentage of families selecting informal providers (57 percent and 60 percent, respectively). Yet, Illinois’ maximum reimbursement rates for informal providers was only about half as high as established for regulated family homes, while Oregon’s maximum reimbursement rate for informal providers was nearly the same as for regulated family homes. Moreover, like Illinois, Maryland established maximum reimbursement rates for informal providers that were about half those for regulated family home providers, but reported a much smaller portion of subsidized families (25 percent) selecting informal child care providers. However, in Illinois, informal providers may provide full-time child care in the child’s home or in their own home. In Maryland, only relatives may provide full-time child care in their own homes without seeking state licensure, and non-related, informal providers can provide such services only in the child’s home. These policy differences may affect informal providers’ willingness to participate in the states’ subsidized child care programs. Also, according to a Maryland state official, reimbursement rates for formal providers were increased, in part, as an incentive for informal providers to become licensed. In the 6 years since passage of PRWORA and the creation of the CCDF, states have exercised broad flexibility in designing child care subsidy programs to support parents’ workforce participation by enhancing their access to affordable child care. In doing so, states have made varied choices regarding which families will be eligible for child care subsidies, how much those families must pay for child care, and how much the state will supplement these payments to offer choice among additional providers. States’ decisions on these issues involve trade-offs and may have unintended as well as intended effects. For example, in the three states we visited, income eligibility standards varied from just over 40 percent to 70 percent of the state median income. However, the state with the highest eligibility standard, perhaps as a consequence, generally offered the lowest reimbursement rates. Similarly, based on our analysis of nine communities in 3 states, we observed that states were setting reimbursement rates in ways that had widely different implications for the number and type of child care providers from which a hypothetical family could choose, even across different communities within the state. In Illinois, the same maximum reimbursement rates were established for child care providers in Chicago and neighboring DuPage County, perhaps due to concerns for compensating providers equitably across political boundaries. However, the markedly different prices charged by providers in different localities made for very large differences in the selection that these rates afforded eligible families. Finally, the issue of selection or usage is more complex than reimbursement rates alone; states’ policies such as licensing provisions are also important because they affect parents’ choices and the supply of child care providers. The Department of Health and Human Services provided written comments on a draft of this report. These comments are reprinted in appendix III. HHS took no issue with our principle findings and indicated that the report raises important questions about information that would be helpful on the potential effects of reimbursement rates on families and other aspects of the child care market. In this connection, HHS cited studies it funds—through the CCDF set aside for research, demonstration, and evaluation—and its efforts to encourage states to study the relationship between state policies (including those related to child care subsidies) and the interrelationship between state policy and child care markets. HHS also provided technical comments, which we incorporated as appropriate. As requested, 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 of this report to the Secretary of Health and Human Services, appropriate congressional committees, 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 on (202) 512-7215. Other staff who contributed to this report are listed in appendix IV. To describe how states set reimbursement rates, we conducted a mail survey of the state child care officials in 50 states and the District of Columbia, of which 49 responded for an overall response rate of 96 percent. The survey included questions on market rate surveys and other factors that states may have considered in setting rates. While we asked state child care administrators to assess the importance of various factors in setting reimbursement rates, we did not independently verify their assessments by, for example, comparing historical data on these factors with actual state decisions. In addition to gathering this information through our survey, we interviewed state child care program officials in Illinois, Maryland, and Oregon to learn how they set reimbursement rates. We also interviewed consultants who assisted state program officials with analyzing their market rate survey results. In selecting the states for our field work, we sought to include states that had (1) child care resource and referral (CCR&R) networks with comprehensive data on providers and the fees they charged; (2) model market rate surveys; (3) varying income eligibility limits, reimbursement rates, and co-payment fees; (4) different utilization patterns for informal child care providers; and (5) some geographic diversity. We visited three states and met with officials of state, local, and community-based organizations in three locations in each state—one urban, one suburban, and one rural. Our field work was performed in Chicago, DuPage County, and DeKalb County, Illinois; Baltimore, Montgomery County, and Wicomico County, Maryland; and Portland, Washington County, and Linn County, Oregon. To determine the extent to which reimbursement rates were likely to afford hypothetical families access to specific types of child care providers, we obtained data on providers’ fees for full-time care from CCR&R network databases in each of the three states we visited. The local CCR&R offices in each of the communities we visited collected actual information on providers’ fees. The local CCR&R offices submitted the information about these fees to their networks that compiled this information throughout the state. CCR&R networks supplied us with provider fee data for each of the nine communities we visited. CCR&R databases were relied on because the data on providers’ fees were readily available and current. While we did not conduct tests for accuracy or reliability of the CCR&R databases, state officials and CCR&R staff expressed confidence in the accuracy and comprehensiveness of the data. In calculating the percentage of providers who had fees that were equal to or less than the state-established reimbursement rates, we included those providers who indicated a willingness to accept Child Care and Development Fund (CCDF) funded subsidies. This information was self- reported by most child care providers. In instances where providers did not report whether they accepted the state’s subsidy or indicate a willingness to accept the subsidy, they were included in the total number of providers in a community but were not counted as accepting the subsidy. Since Illinois provider fees were reported as a weekly rate and reimbursement rates were set on a daily basis, both sets of numbers were converted to reflect monthly provider fees and monthly reimbursement rates. Using a multiplying factor of 4.33, representing the average number of weeks in a month, we converted providers’ fees from a weekly to monthly basis. Using a multiplying factor of 21.65, representing the average number of work days in a month, we converted daily reimbursement rates to monthly rates. Because Maryland provider fees were reported as a weekly rate and reimbursement rates were set on a monthly basis, we converted the provider fees so we could compare them with the state-established reimbursement rates. Using a multiplying factor of 4.33, representing the average number of weeks in a month, we converted providers’ fees from a weekly to monthly basis. Oregon provider fee data were also reported in different time increments than the state-established reimbursement rates; however, we did not convert these fee data to a single common unit. Providers reported their fees in hourly, daily, weekly, or monthly increments; the state established hourly and monthly rates. Oregon consultants advised us not to convert provider fee data because providers who charged in different time increments may operate differently. The consultants suggested that providers who usually charge in less than monthly increments might offer slight discounts to families who use their services for a month or longer. As a consequence, we directly compared providers’ fees reported in hours and months to the state’s hourly and monthly reimbursement rates. For providers’ fees reported in days or weeks, we divided monthly reimbursement rates by 21 (slightly less than the average number of work days in a month to account for a discount) to determine daily rates. In addition, we multiplied these calculated daily rates by 5 to determine weekly rates. We discussed this approach with the consultant who conducted market rate studies for the state. Because of the complexity of converting data on providers’ fees, we did not calculate a median monthly provider fee for the three communities we visited in Oregon. In determining hypothetical families’ access to the nine communities across three states, in one case, we limited the scope of our analysis. To prevent geographical differences in income from limiting the usefulness of our analysis and because of the much larger size of the city of Chicago, we included only that area of Chicago that had a lower average median income. We selected the lower-income area based on preliminary analysis that showed a high percentage of providers in the area indicated a willingness to accept subsidies. Although some higher-income areas are covered and some lower-income areas excluded, for ease of analysis we included all contiguous zip codes south of the Chicago central business district. Since family co-payments vary by such factors as family income and family size, and the fees that providers charge also vary depending on a child’s age and the type of child care, we used a hypothetical two-person family (consisting of a parent and 2-year-old child) in our analysis. This family size was selected after reviewing fiscal year 1999 Temporary Assistance to Needy Children (TANF) recipient data that showed that most single parent families have one child, and most TANF cases that include adults have only one parent. The age of the hypothetical child was selected after reviewing CCDF recipient data on the ages of children served. To determine the percent of family income that would be spent for co- payments in the three states, we varied family income from 75 percent of the federal poverty threshold to 150 percent of the federal poverty threshold. We used the same procedure in determining the percent of the reimbursement rates represented by a family’s required co-payment. At the federal level, we interviewed officials at the Department of Health and Human Services in Washington, D.C., and regional offices in Chicago, Illinois, and Philadelphia, Pennsylvania. We reviewed documents concerning CCDF legislation, HHS rules and regulations, HHS data and reports on access for low-income families, and obtained copies of states’ CCDF plans for fiscal years 2002-2003 that contained the states’ co-payment fee structures, and generally included information about market rate survey results and reimbursement rates. We also interviewed child care policy experts and reviewed current literature on subsidized child care. For the three states we visited, we obtained data on family monthly co-payments and reimbursement rates for informal providers. These states generally did not collect information on the fees charged by informal providers. Moreover, local CCR&R offices generally did not collect information on informal child care providers or include them in their databases. As shown in tables 12 to 16, each of the three states we visited paid rates that were lower for informal care than for other types of care. States made different choices regarding such rates despite the lack of information on informal providers’ fees, or the effect of established rates on the supply of such care. See tables 12 to 16 for reimbursement rates and family co-payments for informal providers in eight communities we visited. Information on Baltimore, Maryland, is shown in table 11. The following people also made important contributions to this report: Danielle T. Jones; R. Scott McNabb; Cynthia Decker; Patrick diBattista; Joel Grossman; Elsie Picyk; Bill Keller; and Daniel Schwimer. Child Care: States Have Undertaken a Variety of Quality Improvement Initiatives, but More Evaluations of Effectiveness Are Needed. GAO-02-897. Washington, D.C.: September 6, 2002. Early Childhood Programs: The Use of Impact Evaluations to Assess Program Effects. GAO-01-542. Washington, D.C.: April 16, 2001. Child Care: States Increased Spending on Low-Income Families. GAO-01-293. Washington, D.C.: February 2, 2001. Child Care: How Do Military and Civilian Center Costs Compare? GAO/HEHS-00-7. Washington, D.C.: October 14, 1999. Child Care: Use of Standards to Ensure High Quality Care. GAO/HEHS-98-223R. Washington, D.C.: July 31, 1998. Welfare Reform: States’ Efforts to Expand Child Care Programs. GAO/HEHS-98-27. Washington, D.C.: January 13, 1998. Welfare Reform: Implications of Increased Work Participation for Child Care. GAO/HEHS-97-75. Washington, D.C.: May 1997.

Federal welfare legislation passed in 1996 placed a greater emphasis on helping low-income families end dependence on government benefits by promoting job preparation and work. To reach this goal, the legislation gave states greater flexibility to design programs that use federal funds to subsidize child care for low-income families. Under the Child Care and Development Fund, this flexibility includes the freedom to largely determine which low-income families are eligible to receive child care subsidies. These maximum rates consist of two parts--a state subsidy and family co-payment. States also establish maximum reimbursement rates for child care. States reported considering market rate survey and budget and policy goals in setting maximum reimbursement rates. All states reported conducting market rate surveys in the past 2 years that obtained data on providers' fees, but 10 states reported that they did not base the reimbursement rates for child care providers on their most recent market rate surveys. In the nine communities visited, GAO calculated that hypothetical families' access to child care centers and family home providers varied widely as a result of the different subsidies and family co-payments established by each state.

You are an expert at summarizing long articles. Proceed to summarize the following text: Medicaid is one of the largest programs in federal and state budgets. In fiscal year 2005, Medicaid expenditures totaled an estimated $317 billion. States pay qualified health providers for a broad range of covered services provided to eligible beneficiaries. The federal government reimburses states for a share of these expenditures. The federal matching share of each state’s Medicaid expenditures for services is determined by a formula defined under federal law and can range from 50 to 83 percent. Each state administers its Medicaid program in accordance with a state Medicaid plan that must be approved by HHS. Traditional Medicaid programs represent an open-ended entitlement, meaning the state will enroll all eligible individuals who apply for Medicaid, and both the state and federal government will pay their shares of expenditures for individuals covered under a state’s approved Medicaid plan. States have considerable flexibility in designing their Medicaid programs, but under federal Medicaid law, states generally must meet certain requirements for what benefits are provided and who is eligible for the program. Medicaid demonstrations provide a way for states to innovate outside of many of Medicaid’s usual requirements. Under section 1115 of the Social Security Act, the Secretary has authority to waive certain federal Medicaid requirements and authorize otherwise unallowable expenditures for “experimental, pilot, or demonstration projects” that are likely to promote Medicaid objectives. States have used the flexibility granted through section 1115 to implement major changes to existing state Medicaid programs. For example, some states used Medicaid section 1115 demonstrations in the 1980s and 1990s to introduce mandatory managed care for their Medicaid beneficiaries. Since the early 1980s, HHS has required that states show that their proposed section 1115 demonstrations will be budget neutral to the federal government—that is, federal expenditures under a state’s demonstration will not be greater than if the state had continued its existing Medicaid program. HHS requires states to show that proposed demonstrations are budget neutral by preparing 5-year projections of spending (1) under the current Medicaid program and (2) under the proposed demonstration. HHS policy states that for a demonstration to be considered budget neutral, the federal share of projected Medicaid expenditures under the demonstration can be no greater than the federal share of projected Medicaid expenditures based on continuing the existing Medicaid program. Because HHS bases spending limits for proposed demonstrations on the projected cost of continuing an existing Medicaid program, a state has an incentive to maximize its projected costs. HHS policy states that the federal share of spending on demonstrations will be limited by spending limits calculated from two components: Spending base. States select a recently completed fiscal year that establishes base levels of funding for services and programs affected by the proposed demonstration—a state’s “spending base.” States also identify beneficiary groups for inclusion in the proposed demonstration. These beneficiary groups can, at the Secretary’s discretion, include individuals enrolled in other demonstrations a state may be operating and beneficiaries from the State Children’s Health Insurance Program (SCHIP), which provides health coverage to children in families whose incomes, while low, are above Medicaid’s eligibility requirements. Growth rates. States should submit to HHS 5 years of historical data for per person costs and beneficiary enrollment in their existing Medicaid programs, including quantified explanations for anomalies in their historical trends. HHS policy says that spending limits should be based on growth rates that are the lower of state-specific history or estimates of nationwide growth for the beneficiary groups included in the demonstration (referred to in this report as benchmark growth rates). HHS’s guidance is specific to per person cost growth rates and does not explicitly address the application of enrollment growth rates; however, HHS refers to state historical and nationwide enrollment growth rates in considering the spending limits. Nationwide estimates of cost and beneficiary enrollment growth are developed by CMS actuaries to assist OMB in preparing the President’s Budget. To project the costs of continuing a state’s existing Medicaid program, HHS policy calls for applying the benchmark growth rates to the state’s spending base over a 5-year period to establish total projected costs absent the demonstration. HHS sets spending limits for proposed demonstrations based in part on these total projected costs (see fig. 1). HHS allows states to use higher-than-benchmark growth rates if they can establish that historical or nationwide data do not accurately depict anticipated growth in the state Medicaid program. HHS considers spending limits to be a product of negotiations that are informed by HHS’s policy to consider the state’s historical experience and projections of growth in the President’s Budget. In addition, HHS’s policy indicates that states, in providing HHS with state-specific historical growth rates, must quantify any anomalies in the trends. Recently approved section 1115 Medicaid demonstrations in Florida and Vermont significantly change the operation of the two states’ Medicaid programs. Both demonstrations expand the use of managed care by requiring most Medicaid beneficiaries to enroll in managed care plans: Florida through state contracts with multiple managed care plans to provide services and Vermont by creating a single managed care organization operated by an office within the state Medicaid agency. Florida: Approved by HHS in October 2005 and launched in July 2006, Florida’s demonstration is designed to give Medicaid beneficiaries different options for health care plans and benefits through increased use of managed care plans to provide Medicaid coverage to beneficiaries, in a competitive environment. In the initial phase of the demonstration, certain Medicaid beneficiaries in two counties are required to enroll in state-approved managed care plans. Managed care plans compete for Medicaid beneficiaries by offering different coverage options, including customized benefits and cost sharing, subject to certain limitations. Unlike many other previous Medicaid managed care systems, managed care plans in Florida have the authority to design benefit packages subject to approval by the state. Initially implemented in a two-county area, the managed care components of the demonstration are planned for statewide implementation by June 2010. Another key component of Florida’s demonstration was the establishment of a pool of funds to finance supplemental payments—payments above the state’s usual payment rate— to certain types of Florida health care providers. Known as the low-income pool, this component of the demonstration was designed in part to continue funding for a supplemental payment program for hospitals that the state had in place prior to the demonstration. Payments from the $5 billion low-income pool ($1 billion annually) are authorized for selected Medicaid providers statewide to help offset the cost of providing care to Medicaid beneficiaries and underinsured and uninsured individuals. Vermont: Approved by HHS in September 2005 and launched the following month, Vermont’s demonstration is designed to contain costs and, by potentially delivering services to Medicaid beneficiaries for less and reinvesting excess revenue, to allow the state to serve more of its uninsured population. Under the demonstration, Vermont created a single, state-operated managed care organization to cover virtually all of the state’s Medicaid population. HHS approved a managed care arrangement whereby the state Medicaid agency contracts with one of its own components (the Office of Vermont Health Access) to operate as a managed care organization. The Office of Vermont Health Access receives monthly actuarially certified lump-sum payments from the state Medicaid agency, which in turn receives the federal share of these lump- sum payments. The monthly payment is intended to cover the medical costs and administrative expenses of serving enrolled beneficiaries. Vermont also received authority to retain “savings,” that is, any excess revenue generated by the state managed care organization, and apply them to programs that meet certain agreed-upon health objectives, such as increasing health insurance coverage. On several occasions since the mid-1990s, we have reported concerns that HHS had approved Medicaid demonstrations that were not budget neutral to the federal government. In 1995 we reported that HHS applied new, more flexible budget neutrality guidance allowing three states to consider “new methodologies” for determining budget neutrality of proposed demonstrations. Based in part on these new methodologies, HHS had approved spending limits for these demonstrations that were not budget neutral and could increase federal Medicaid expenditures. In 2002, we reported that HHS approved spending limits for demonstrations that were not budget neutral to the federal government by allowing two states to include inappropriate or impermissible costs in their spending projections. We recommended that HHS ensure that valid methods are used to demonstrate budget neutrality by developing and implementing consistent criteria for reviewing and approving states’ budget neutrality analyses. HHS disagreed with the recommendation, stating that its methods were valid. In 2004, we reported that HHS approved spending limits for section 1115 demonstrations in four states that were not budget neutral to the federal government. These states projected the costs of their Medicaid programs at rates of growth exceeding state-specific and nationwide benchmarks for Medicaid cost and enrollment growth without documenting the rationale for the higher growth rates. We recommended that HHS (1) clarify criteria for reviewing and approving spending limits of states’ proposed demonstrations and (2) reconsider the spending limits of recently approved demonstrations. We also recommended that HHS document and make public the basis for any section 1115 demonstration approvals, including the basis for cost and enrollment growth rates used to set spending limits, and ensure that states comply with reporting and evaluation requirements. HHS concurred with our recommendations to make public the basis for its approvals, but did not concur with our recommendations on clarifying approval criteria and reconsidering recently approved demonstrations using these criteria. Our past work also includes reports addressing concerns with aspects of HHS’s oversight of certain state supplemental payment arrangements that threatened the fiscal integrity of Medicaid’s federal-state partnership. States, with HHS approval, can make supplemental Medicaid payments— payments above the state’s usual Medicaid payment rates for certain services, such as nursing home care—and they often do so for appropriate reasons. For example, states may make supplemental Medicaid payments to certain safety net providers that serve a large share of high-cost Medicaid beneficiaries. However, our work since the early 1990s examining some of these arrangements found that many states were, in essence, finding ways through the arrangements to inappropriately increase the federal share of Medicaid spending at little or no cost to the state. In February 2004, for example, we reported that states were taking advantage of Medicaid upper payment limit (UPL) provisions, resulting in excess federal payments. The UPL is the upper bound on what the federal government will pay as its share of Medicaid costs for different classes of covered services, and this limit often exceeds what states actually pay providers for services. This difference creates a “gap” between what states typically pay for services and the UPL. Some states took advantage of this gap between their usual payment rates and what Medicaid could pay under the UPL by making large supplemental payments to government providers, acquiring a federal share of those payments, and subsequently requiring the providers to return most or all of the supplemental payments to the state. These states have collected billions of excessive federal dollars in past years and often used these returned payments and the accompanying federal funds to finance their own share of the Medicaid program. We have reported on, and HHS has attempted to curb, such recycling of federal Medicaid funds. HHS approved 5-year demonstration spending limits for Florida and Vermont based on projections of cost and beneficiary enrollment growth rates that exceeded HHS’s own benchmarks—that is, the lower of the state’s recent historical experience or estimates of Medicaid growth nationwide—without adequate support for these deviations. For each state, HHS provided support for some, but not all, of the increase above these benchmark levels. For Florida, the unsupported difference totals about $6.9 billion of the $52.6 billion in projected spending over the 5-year demonstration. For Vermont, the unsupported difference totals about $246 million over its 5-year demonstration. HHS approved higher- than-benchmark growth rates in calculating spending limits for the demonstrations and, in the case of Vermont, allowed the state to include hypothetical projected expenses inappropriately. In particular, HHS allowed Vermont to include projected costs in its spending limit based on costs that had been budgeted for and allowed under a previous 1115 demonstration but that had not been spent. Although HHS provided some documentation to justify the deviations from its benchmarks that it approved, HHS did not justify all the deviations. In some cases, HHS officials told us that the higher growth rates were the results of negotiations. However, such negotiations were not always fully documented. HHS approved a spending limit for Florida’s demonstration that exceeded the amount HHS could have approved under its benchmark policy, but did not fully support the additional spending. Florida’s spending limit has two primary components, beneficiary services and supplemental payments to safety net hospitals. Beneficiary services account for the bulk of Medicaid spending and include the medical costs of demonstration enrollees. For beneficiary services, HHS established annual per person limits on federal funds for medical services to groups of beneficiaries. Projected over the 5 years of the demonstration, these per person limits would result in estimated Medicaid spending of about $47.6 billion. However, under HHS’s benchmark policy of limiting projected growth to the lower of a state’s recent historical experience or nationwide estimates of Medicaid growth, the maximum spending allowed would have been a projected $38.6 billion, or about $9 billion less. HHS supported deviations from its benchmarks that would allow spending projected at an estimated $40.7 billion— $2.1 billion above the level the benchmarks would have allowed, but still $6.9 billion less than what it approved. Table 1 shows the spending limit originally proposed by Florida and agreed to by HHS. It also shows the spending limit that would have resulted using the benchmark growth rates of the lower of the state’s historical growth or the growth projected in the President’s Budget, as well as the estimated spending limit that HHS and state officials supported through explanations and documentation. A further discussion of HHS’s explanations of its approvals follows. Projected spending on medical services to beneficiary groups in Florida is based on assumptions of per person cost and beneficiary enrollment growth rates for two primary groups of Medicaid beneficiaries: (1) the aged, blind, and disabled and (2) children and families. Florida submitted to HHS 5 years of historical data and calculations of cost growth rates over this period for the two groups. HHS, in turn, compared Florida’s state- specific history to estimates of Medicaid growth for these beneficiary groups nationwide. However, neither Florida’s proposed nor HHS’s approved spending limit is based on projected spending using the lower of the state-specific or nationwide benchmarks consistent with HHS policy. Instead, according to HHS and state officials, Florida proposed—and HHS approved—higher per person cost growth based on adjustments to the growth rates that were made during negotiations between HHS and state officials that were not documented. The cost growth rates HHS accepted in negotiations were substantially above those that would have been allowed under HHS’s benchmark policy. As table 2 shows, HHS approved cost growth rates of 8 percent for both aged, blind, and disabled beneficiaries, and for families and children—lower than Florida was proposing for the first group, and slightly higher than Florida was proposing for the second group. Under HHS’s benchmark policy, which calls for basing spending limits on projections of growth at the lower of state-specific history or estimates of Medicaid growth nationwide, the approved cost growth rates would have been 4.80 percent for aged, blind, and disabled beneficiaries and 3.11 percent for children and families. HHS officials allow states to use higher cost growth rates if state officials can establish that state-specific or nationwide data do not accurately depict expected growth in the state Medicaid program. HHS’s policy indicates that states are to provide quantified explanations of growth rate anomalies. For the Florida demonstration, HHS officials explained and provided public or internal documents to support part, but not all, of the increases to benchmark cost growth rates that HHS approved. 1. For aged, blind, and disabled beneficiaries, HHS allowed adjustments to nationwide estimates of cost growth to account for effects of the Medicare prescription drug benefit, but quantified explanations for only part of the approved increase. HHS officials explained that the implementation of the Medicare Part D prescription drug benefit, which would have the effect of shifting the cost of many prescription drugs out of the Medicaid program and into Medicare, caused a sharp decrease in estimated costs for aged, blind, and disabled Medicaid beneficiaries nationwide in 2006. This decrease in the cost growth rate for that unusual year lowered the nationwide benchmark growth rate for these beneficiaries. HHS officials adjusted for the effects of the Medicare prescription drug benefit by removing drug-related expenditures from the nationwide estimates over the time period under review and recalculating estimated nationwide cost growth. As a result of these adjustments, HHS provided quantified explanations to the deviation from its benchmark and supported projected cost growth of 6.45 percent for aged, blind, and disabled beneficiaries—higher than the 4.80 percent allowed under its benchmark policy. HHS officials indicated that the remaining deviation from the benchmark was attributable to adjustments they made to the growth rate to account for an expected increase in enrollment of low-cost beneficiaries. HHS officials, however, did not identify and correct anomalies in the nationwide enrollment data to support the additional increase in cost growth from 6.45 percent to the 8 percent HHS approved for the demonstration. 2. For families and children, HHS claimed that higher growth over a selected time period more accurately reflected cost growth. According to HHS’s guidance, state-specific growth rates are based on 5 years of historical data. HHS, however, allowed Florida to calculate a cost growth rate for its families and children based on data from a truncated period of higher growth of 3 years and 9 months. Cost growth over this shortened period of time was 5.88 percent, as compared to cost growth of 3.11 percent when using data from the full 5 years leading up to Florida’s base year. HHS officials explained that they allowed Florida to selectively use the higher years of data to calculate its growth rates for two reasons: (1) that the shortened time period replaced earlier years of unusually low cost growth with more recent data and (2) that HHS had recently approved a higher cost growth rate for a subset of this particular beneficiary group in renewing an ongoing Medicaid managed care demonstration. HHS officials did not, however, identify and correct an anomaly in the state’s earlier data, nor did HHS document and explain why the state was allowed to establish its spending limits using growth rates that were based on anticipated higher growth under the demonstration. In particular, the state, in its application, stated that it anticipated higher cost growth under the demonstration due to greater use of managed care by Medicaid children and families. A review of Florida’s historical cost growth that includes more recent data cited by HHS officials, and that uses data from a 5-year period as indicated by HHS policy, supports a cost growth rate of 3.77 percent. HHS officials maintained that HHS’s methods for ensuring budget neutrality are valid and indicated that the department’s budget neutrality decisions are, to some extent, the product of negotiations. HHS officials also said that HHS can assign growth rates that vary from the results of analysis of historical data and the President’s Budget projections if officials are convinced that the trends are merited. To a lesser degree than Florida, HHS approved a spending limit for Vermont’s demonstration based on assumptions of beneficiary enrollment growth that exceeded HHS’s benchmarks. HHS approved a spending limit of $4.7 billion for Vermont’s 5-year demonstration. This spending limit, however, is $180 million above the maximum supported by HHS and the state in explanations and documentation. HHS also allowed Vermont to include in its spending limit funds that were “hypothetical,” that is, $67 million in funds that had been approved as budget neutral for a prior section 1115 demonstration but that the state had not actually spent. Table 3 shows the spending limit as originally proposed by Vermont and as agreed to by HHS. It also shows the limit that would apply if HHS benchmarks had been used and the limit that HHS and state officials explained and supported in documentation. Although HHS reduced Vermont’s proposed spending limit by over $1.4 billion, this reduction resulted from an agreement that the state not include the financing of three major programs in the demonstration. These three programs that were removed from the state’s initial proposal—a long-term care demonstration, payments to hospitals under the Disproportionate Share Hospital program, and SCHIP—account for most of the $1.4 billion and will continue to be operated and reimbursed apart from the Vermont demonstration, thus having no affect on the budget neutrality of the demonstration. Vermont submitted 5 years of historical cost and beneficiary enrollment data for assessment by HHS. For per person costs, HHS required Vermont to hold growth rates in line with the department’s benchmark policy. For beneficiary enrollment, however, HHS approved growth rates that were higher than benchmark levels. For example, the benchmark rate for enrollment growth of aged, blind, and disabled beneficiaries was 1.52 percent per year; HHS approved a rate of 2.52 percent. For the largest group of beneficiaries under the demonstration—families and children— HHS approved an enrollment growth rate of 1.99 percent, higher than the 1.05 percent nationwide benchmark for this group (see table 4). Similar to Florida, but to a lesser degree, a portion of Vermont’s spending limit that exceeds HHS benchmarks was not supported. HHS used beneficiary cost and enrollment growth rates to provide the basis for Vermont’s aggregate spending limit. Although HHS held Vermont’s beneficiary cost growth rates to the lower of HHS’s benchmarks, HHS did not do so with regard to enrollment growth rates. HHS approved enrollment growth rates that were proposed by Vermont but were higher than the benchmarks without adequate documentation for the higher growth rate (see table 4). HHS officials told us the higher growth rates were the results of negotiations. However, such negotiations were not well documented. For one group of beneficiaries—families and children—HHS approved an enrollment growth rate of 1.99 percent, consistent with the state’s historical growth but almost twice the 1.05 percent nationwide benchmark for this group, without explanation. For another group— beneficiaries from an ongoing developmental services demonstration— HHS allowed the state to exceed the benchmark growth rate based in part on a state management plan to cover more people in the future by removing them from a waiting list for developmental services. For this same group, Vermont supported part, but not all, of the spending limit in excess of the benchmarks by presenting a more narrowly focused analysis of its historical enrollment data. Specifically, for this subset of the state’s aged, blind, and disabled beneficiary group, Vermont officials identified enrollment growth of 4.25 percent, higher than the benchmark level for aged, blind, and disabled beneficiaries. HHS officials told us that they considered both state-specific and nationwide benchmarks before approving Vermont’s requested enrollment growth rates. We estimate that the higher-than-benchmark enrollment growth rates approved by HHS that were not supported by explanation and documentation increased Vermont’s spending ceiling by about $180 million. HHS also allowed Vermont to include in its spending limit the projected costs for “hypothetical” expenditures, that is, expenditures the state could have made but did not make. Specifically, HHS allowed Vermont to include in its spending limit nearly $67 million that the state was authorized to have spent under an ongoing Medicaid section 1115 demonstration, but that was unspent under the program. At the time of its proposal, Vermont had an ongoing 1115 demonstration called the Vermont Health Access Program that began in 1996 and was later extended. While program expenditures for the Vermont Health Access Program were well under that demonstration’s spending limit in the early years of the demonstration, in 2004 the program began operating at a deficit as expenditures exceeded its annual spending targets (see fig. 2). Vermont ended this demonstration early because the state could no longer afford to incur the deficits. Because of its early completion, $67 million under the spending limit for the demonstration was unspent. HHS policy requires a state to capture actual expenditures in its spending base, and the $67 million allowed was a hypothetical expenditure that did not represent true expenditures of the state under its program. We have previously reported a concern about HHS’s allowing states to include hypothetical costs in their spending limits. For example, in 2002, we reported that HHS had approved an inflated spending limit for one state by allowing the state to include projected costs of covering a population that the state had not actually covered under its program. HHS has not ensured that demonstrations in Florida and Vermont maintain the fiscal integrity of the Medicaid program. In Florida, HHS approved the state’s use of spending from a problematic supplemental payment arrangement that the state had in place prior to the demonstration as the basis for allowed spending under the demonstration, without correcting all identified problems. A 2005 HHS financial management review found several problems with the earlier financing arrangement that involved supplemental payments to certain hospitals and other health care providers. Among the problems, the HHS review found that Florida had incorrectly calculated the level of supplemental payments for which federal Medicaid funds could be obtained, resulting in inflated payments under the arrangement. Without taking corrective action, HHS allowed Florida to use the prior financing arrangement as the basis for allowed spending in a $1 billion per year low-income pool under its current demonstration. We had, in 2004, recommended that HHS establish methods for states’ calculations of supplemental payments, but HHS has not implemented this recommendation. In Vermont, HHS allowed the state to operate a managed care organization and, through this arrangement, retain excess revenue from payments to the organization for previously state-funded programs. In July 2007, we raised concerns about this demonstration’s consistency with federal law. We recommended that the Secretary reexamine Vermont’s demonstration and, where appropriate, either modify the terms of the demonstration or seek statutory authorization for the state to continue the demonstration in its present form. A key component of Florida’s demonstration is a pool of federal, state, and local money to supplement payments to the state, or to hospitals, clinics, or other providers (see table 5). Florida agreed to discontinue its supplemental payment program under the terms of the demonstration, but to ensure continued funding for providers that had been receiving supplemental payments under the former program, requested HHS approval to make supplemental payments through a low-income pool. HHS approved a $5 billion low-income pool that allows Florida to spend $1 billion per year for the 5 years of the demonstration for uncompensated medical care costs to the uninsured and underinsured, Medicaid costs above standard Medicaid reimbursement rates, health insurance premiums, and insurance products for such services provided to otherwise uninsured individuals. At the time the demonstration was approved, however, HHS also had indications that Florida made excessive supplemental payments through the existing supplemental payment arrangement, and these concerns had not been resolved as of the time the demonstration was approved. A September 2005 HHS review of Florida’s financing arrangements found that the methods and data used to calculate the amount of supplemental payments eligible for federal matching funds were unreliable. The reviewer, for example, found that Florida established Medicaid UPLs— which cannot exceed what Medicare would pay for the same services, and which determine the maximum amount of federal matching funds the state could obtain for its supplemental payment program—without making adjustments to account for the fact that Medicare beneficiaries are typically older and more expensive to treat. For example, the review found that the state’s estimate of what Medicare would pay for hospital services was nearly three times what Medicaid would typically pay, which the reviewer questioned. Not adjusting for the higher cost of treating Medicare patients inflates the state’s calculation of allowable payments under the program. HHS’s review also found that the data used to calculate the supplemental payment levels under Medicaid’s UPL contained errors and did not provide a reliable basis for determining the appropriate payment levels. HHS’s 2005 review did not estimate the actual allowable payments under the program or the extent that the prior supplemental payment arrangement was considered excessive or inflated. HHS required the state to correct one issue the review had identified with the source of the state’s own funding for the supplemental payments it was making as a condition of approving the demonstration. However, HHS did not require Florida to address the problems with the methodology and data used to determine the amount of supplemental payments eligible for federal matching funds before projecting allowed spending under the demonstration. HHS’s required terms of the demonstration, however, did allow for future adjustments to the spending limit under certain circumstances. In November 2006, HHS officials said that problems identified with the improper calculation of states’ allowed supplemental payment amounts would be corrected at a later date. Under Vermont’s demonstration, HHS authorized the state to operate its own managed care organization and, through this arrangement, to apply federal Medicaid matching funds to programs that were previously funded by the state and that do not exclusively benefit those eligible for Medicaid. Under this approach, the state’s Medicaid agency—the Agency of Human Services—makes actuarially certified monthly lump-sum payments to one of its own offices. That office, the Office of Vermont Health Access, serves as the managed care organization for the Medicaid program. In state fiscal year 2006, for example, the state Medicaid agency made lump-sum payments to its Office of Vermont Health Access of $65.4 million per month. The Agency of Human Services, in turn, receives federal Medicaid matching funds on these monthly payments. If Vermont can operate its public managed care organization and provide services to Medicaid beneficiaries for less than $65.4 million per month, HHS allows the state, under the demonstration, to spend excess revenues on programs that meet any of four broad health care objectives: (1) increase health insurance coverage, (2) increase access to quality health care for Medicaid enrollees and those lacking adequate insurance, (3) improve health outcomes and quality of life for Medicaid-eligible individuals, and, (4) encourage public- private health care partnerships. In fiscal year 2006—the first full year of the demonstration—the Vermont- operated managed care organization generated $56.5 million in excess revenues and invested $43 million of the funds into various programs. HHS allowed Vermont to invest the remainder of the excess revenues generated by the managed care organization in a reserve fund for future use. Over the 5 years of the demonstration, Vermont estimates that it will accumulate $300 million in excess revenues. The state plans to use these excess revenues to supplant state funding for a number of programs that do not exclusively benefit Medicaid-eligible individuals (see table 6). For example, Vermont plans to use excess revenues from the demonstration to fund a grant for the University of Vermont and to provide loan forgiveness for doctors and dentists. Vermont officials indicated that state funds— freed up by investment of excess revenues from the demonstration—could then be used to reduce Vermont’s budgetary constraints, projected in the demonstration’s proposal as a $656.8 million 5-year shortfall in state funds to pay for the state’s own share of Medicaid expenditures. The Vermont arrangement generates excess administrative reimbursement in two ways. First, HHS allowed the Agency of Human Services to pay its Office of Vermont Health Access at a rate that, while typical for private managed care organizations, is higher than the rate Vermont had been paid prior to the demonstration and higher than average Medicaid agency administrative costs. Second, because the payments for which matching funds are provided are lump-sum payments that include the managed care organization’s administrative costs, HHS pays a higher portion of the administrative costs associated with the managed care organization than it pays for administrative costs in the rest of Vermont’s Medicaid program or in Medicaid programs in other states. At the state’s historical rate and in a proportion consistent with other states’ administrative costs, Vermont would have received an estimated $71 million less. The reimbursement attributable to administrative costs could help ensure that the state has excess revenues for the state’s purposes, including supplanting state funding for non-Medicaid programs. A September 2005 independent review and risk analysis conducted by a consultant to Vermont concluded that the likelihood that there would be savings under the demonstration available to be used for programs formerly funded with state dollars was very high for two reasons. First, the spending limit and corresponding premium structure of the managed care organization assumed a 9 percent administrative cost component, which is typical for private managed care organizations but nearly double the average state Medicaid agency administrative costs. According to the consultant, such costs typically run in the 3 to 5 percent range. According to HHS data, administrative costs averaged 4.6 percent nationwide in fiscal year 2005. Second, unlike the situation where the state contracts with a private managed care organization, there is an incentive to pay the state-operated managed care organization on the high end of the actuarial range approved for the managed care premium because any excess payments can be used for state-funded programs. This financing arrangement allows Vermont to increase federal Medicaid payments to the state without a commensurate increase in state Medicaid spending. The state agency, by making a payment to itself in excess of the cost of providing Medicaid services, generates federal matching funds, which can be used to supplant state spending on certain programs. This supplanted state money, in turn, can be used to reduce Vermont’s projected $656.8 million 5-year shortfall in state funds for Medicaid, thus generating even more federal matching funds in a process known as recycling. Curtailing practices that allow states to reduce the proportion of Medicaid spending for which they are responsible has been part of the ongoing congressional scrutiny of Medicaid programs. In a letter to the Secretary of HHS, we raised concerns about the Vermont program’s consistency with federal law. These concerns stemmed from HHS’s decision to allow the state to operate its own managed care organization and, through this arrangement, to apply federal Medicaid matching funds to programs previously funded by the state. The approval of the Vermont program raised the question whether the Vermont Medicaid agency could enter into a managed care contract with one of its own offices and receive federal matching funds for lump-sum payments to that office rather than for payments based on actual costs. The letter also noted that in connection with its managed care regulations, HHS has expressed concerns about states obtaining federal matching funds through managed care contracts for state-funded services for which such funds would not ordinarily be available. Given our concerns, we recommended that the Secretary of HHS reexamine the demonstration and, where appropriate, either modify its terms or seek statutory authorization for it to continue in its current form. After examining HHS’s approvals of demonstrations in Florida and Vermont, our long-standing cost and oversight concerns related to HHS approvals of comprehensive Medicaid demonstration proposals remain. In determining the budget neutrality of proposed demonstrations, HHS approved spending limits for Florida and Vermont that exceeded its own benchmarks without adequately supporting the basis for the deviations. Our findings in Florida and Vermont are similar to the concerns we raised in our earlier reports—during its budget neutrality process, HHS did not adequately support the deviations from benchmark rates that it allowed in the development of states’ spending limits, or clearly document and make public the basis for the approved limits. When combined, the spending limits approved for Florida and Vermont are nearly $7.2 billion more than what the documentation and explanations support for the demonstrations. Given the significant federal expenditures for these demonstrations, improved accountability and transparency in HHS’s budget neutrality process, including in the approval of states’ spending limits, is warranted. HHS’s approvals in Florida and Vermont also raise concerns about precedents they establish that affect the federal and state partnership and fiscal integrity of the Medicaid program. By allowing Florida to use spending from a prior supplemental payment arrangement as the basis for new spending without correcting known problems, and by allowing Vermont to create its own state-run managed care organization and use excess revenue to fund other state programs, HHS has not taken the steps needed to ensure that Medicaid funds are used for Medicaid purposes. HHS has not corrected the problems it found with historical spending under Florida’s supplemental payment arrangement—historical spending that was used to set the spending limit under the demonstration—and reexamined the level of Florida’s spending limit accordingly. We believe a related recommendation from our 2004 report on the fiscal integrity of state Medicaid supplemental payment arrangements remains valid: that the department establish uniform guidance to states setting forth acceptable methods for calculating supplemental payment arrangements, such as the one that served as the basis for Florida’s low-income pool. Such guidance could help ensure that payments under ongoing supplemental payment arrangements, and any related demonstration proposals, are appropriate in the future. HHS agreed to implement this recommendation in responding to our 2004 report, but as of December 2007 had not done so. Our concerns about HHS approvals extend beyond those related to costs and oversight. The Secretary’s approval of the Vermont demonstration establishes a precedent for future proposals, but raises legal concerns. As of January 2008, HHS had no plans to implement our July 2007 recommendation to address concerns with the demonstration’s consistency with federal law. Because HHS disagrees with this recommendation—and other recommendations we have made to improve the demonstration review process—we are elevating this and other recommendations to the Congress for its consideration. The Congress should consider requiring increased attention to fiscal responsibility in the approval of section 1115 Medicaid demonstrations by requiring the Secretary of HHS to improve the demonstration review process through steps such as (1) clarifying criteria for reviewing and approving states’ proposed spending limits, (2) better ensuring that valid methods are used to demonstrate budget neutrality, and (3) documenting and making public material explaining the basis for any approvals. The Congress should consider addressing whether demonstrations that allow states to operate public managed care organizations and retain excess revenue to support programs previously funded by the state— including the Vermont demonstration—are within the scope of the Secretary of HHS’s authority under section 1115 of the Social Security Act. To help ensure that the Florida demonstration will maintain the fiscal integrity of the Medicaid program, we recommend that the Secretary of HHS ensure that the level of supplemental payments for which the state could have obtained federal Medicaid funds in the absence of the proposed demonstration is calculated using appropriate methods and accurate data sources, and adjust the approved spending limit appropriately. We provided a draft of this report for comment to HHS, Florida, and Vermont. All three provided written comments which we summarize and evaluate below. The full text of HHS’s comments is reprinted in appendix II along with our response to certain comments. Florida’s and Vermont’s comments are reprinted in appendixes III and IV, respectively. HHS and each state also provided technical comments, which we incorporated as appropriate. In commenting on a draft of this report, HHS strongly disagreed with our findings, conclusions, and recommendation, stating that the draft report mischaracterized the nature of the approved demonstration programs and HHS’s budget neutrality policies. We based our characterizations of HHS programs and policies on documentation obtained from HHS and states and interviews with HHS and state officials; we believe we have captured and reported them accurately. In its comments, HHS also said that our analysis did not adequately account for the likelihood of differences in professional interpretation in quantifiable analyses. HHS emphasized that the demonstrations are approved at the discretion of the Secretary of HHS and that the review of demonstration proposals includes both budgetary and programmatic elements. We recognize that the Secretary has some discretion in approving demonstrations and in establishing policies and processes for doing so. But we believe that to maintain accountability and transparency in the Medicaid program, of which section 1115 demonstrations are a major component, the Secretary has the responsibility to approve demonstrations based on clearly articulated policies and spending limits that are consistent with these policies. In conducting our work and preparing the draft report, we accepted HHS’s explanations for spending limit amounts that deviated from HHS’s benchmarks when they were clearly articulated and documented. Our draft report acknowledged these explanations in noting that some of the deviations from the benchmarks were explained. We did not, however, accept estimates when program officials could not clearly articulate the reasoning they had used, demonstrate how this reasoning was consistent with budget neutrality and fiscal integrity principles, and explain how the resulting spending limits were derived. HHS commented that we unnecessarily cite points from prior reviews regarding section 1115 demonstrations. We cite our earlier work to provide a broader perspective and context for our discussion about individual states. We also use our prior work as a basis to highlight actions that we have recommended that HHS take and that relate to problems we identified in this review, but that HHS has not acted upon. We believe it is an important part of our work to underscore recurring problems as well as areas where HHS has made significant progress. HHS also said that we had not given the agency sufficient credit for the steps it has taken to ensure fiscal integrity within the Medicaid program, stating that we overlooked and understated the progress HHS has made since the early 1990s to curtail improper financing arrangements. HHS said that the draft report inappropriately focused on our 2004 report that did not address related issues and omitted mention of our other relevant reports, including those that had recognized HHS’s efforts. The reports we have cited were those that focused on areas relevant to the scope of this work. We have acknowledged in earlier reports that the agency has taken a number of steps in recent years to strengthen Medicaid’s financial management, but in the particular areas of concern here—the demonstration criteria, methods, and documentation for agreed-upon spending limits—HHS has chosen not to make changes that would better ensure accountability and transparency. In 2002 and 2004, we recommended that HHS undertake these changes. Because it has not, we now raise these as a matter for congressional consideration. HHS stated that there are multiple methods of establishing that a project is budget neutral and that each agreement must be considered as part of a larger picture, and suggested that we inappropriately characterized HHS’s internal guideline as a “benchmark policy” and then criticized HHS for making minor adjustments for real-world factors that could affect a state’s spending. We presented the information on HHS’s policy in the draft report as found in written HHS guidelines on its Web site in March 2007 and as told to us by HHS officials. As noted in the draft report, HHS’s policy for reviewing and approving demonstration proposals and their spending limits lacks transparency. HHS’s complete policy should be clearly identifiable, in writing, and publicly available. Furthermore, we disagree that adjustments that account for billions of dollars in federal spending, without documentation and explanation, are of a minor nature. Agreements that commit the federal government to reimbursing states tens of billions of dollars should be documented and include explanations of the basic reasoning behind the final spending limits, including the adjustments to benchmarks that have been approved. HHS noted that one of its most significant concerns about the draft was that it failed to acknowledge that HHS had capped Medicaid program growth in Florida, which had averaged 13 percent in recent years. We disagree. As noted in the draft report, HHS approved a per person spending limit for Florida’s demonstration; however, there is no aggregate cap on spending in Florida similar to that in Vermont, where HHS placed a cap on total spending. HHS also strongly disagreed with our recommendation that it recalculate the Florida spending limit using appropriate methods and data sources and adjust the spending limit accordingly. HHS indicated that Florida’s data and methods for calculating payments for its supplemental payment program were irrelevant to the development of the Florida demonstration. We disagree that Florida’s calculations were not relevant to the Florida demonstration, since Florida’s historical payments were used as a basis for the low-income pool spending limit under the demonstration, and as a result, the spending limit allows for continuation of spending that a HHS review suggests should not have been allowed. With regard to HHS’s approval of the Vermont demonstration, HHS disagreed with our concerns and prior recommendation to reexamine the terms of the demonstration and, where appropriate, to either modify its terms or seek statutory authority for the demonstration to continue in its current form. HHS maintained that issues of legal authority were adequately and appropriately addressed in the information provided to us during the course of our fieldwork. We disagree and note that HHS has not addressed the concerns raised in our July 2007 letter. HHS also commented that our concern regarding excessive reimbursement for administrative expenditures for the public managed care organization in Vermont was unwarranted because all demonstration revenue must be spent for demonstration purposes and costs matched by federal funds would be clearly identified. Our concern remains that the broad scope of costs identified as for “demonstration purposes”—for example, funding the state public health laboratory—can allow Vermont to shift costs to the federal government that were previously funded by the state and that do not exclusively benefit individuals eligible for Medicaid. We provided a draft of this report to Florida and Vermont. Florida stated that during the negotiations over the demonstration waiver, state officials worked closely with HHS to ensure that all data and documentation were provided in a timely and accurate manner to support the waiver application. Vermont indicated that the state had assumed an unprecedented amount of risk related to program expenditures in exchange for the flexibility granted by the Secretary and that state and federal staff had engaged in extensive discussion and analysis of Vermont’s historical expenditures, cost and caseload trends, and program policies in arriving at the final budget neutrality spending limit. Vermont also questioned our finding that HHS agreed to reimburse the state’s administrative expenditures under the demonstration at a rate higher than prior to the demonstration, indicating that an independent actuary relied on Vermont’s historical administrative expenditures in developing this component of the capitation rate. We agree that the states provided data and documentation to HHS to show the basis for their demonstration proposals. Our concern remains, however, with the lack of sufficient documentation showing how the final spending limits were derived, particularly since they were different from the proposals and were based on assumptions about cost and enrollment growth that were higher than HHS’s benchmarks. Finally, we base our finding that HHS agreed to reimburse Vermont at a rate higher than what the state received prior to its demonstration in part on our review of the independent actuary’s report. As arranged with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days after its issuance date. At that time, we will send copies of this report to the Secretary of Health and Human Services, the Administrator of the Centers for Medicare & Medicaid Services, 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 members 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. Major contributors to this report are acknowledged in appendix V. Section 1115 of the Social Security Act provides the Secretary of Health and Human Services the authority to approve demonstration projects that test policy innovations likely to further the objectives of certain programs, including Medicaid. Under section 1115, the Secretary has authority to waive provisions of the Social Security Act, allowing states to operate demonstrations, and to provide federal Medicaid matching funds for states’ costs that otherwise cannot be matched under federal law. Section 1115 demonstrations vary in scope, from targeted demonstrations limited to specific services or populations, to comprehensive demonstrations affecting Medicaid populations and services throughout a state and including most of a state’s Medicaid expenditures. For example, a section 1115 demonstration in Virginia that the Department of Health and Human Services (HHS) approved in July 2002 affects limited Medicaid services—family planning services—for about 8,300 beneficiaries. A section 1115 demonstration in New York that HHS approved in July 1997, on the other hand, changes the delivery of a broad range of Medicaid benefits for over 2.5 million beneficiaries from fee-for-service to managed care. Our review addressed the budget neutrality and fiscal integrity of recently approved, comprehensive section 1115 demonstrations. We selected demonstrations to include in this review based on when they were approved and whether they were comprehensive and accounted for a major portion of the state’s Medicaid program. Specifically, we selected demonstrations based on the following: 1. Approval by HHS from July 2004 (when we last reviewed HHS- approved section 1115 demonstrations) through December 2006. 2. Meeting HHS’s definition of comprehensive, that is, those that affect a broad range of services for Medicaid populations statewide. 3. The demonstration accounted for greater than 50 percent of the state’s Medicaid expenditures. We used a two-step process to identify demonstrations that met our criteria. First, to identify comprehensive section 1115 demonstrations approved by HHS from July 2004 through December 2006, we reviewed a Centers for Medicare & Medicaid Services (CMS) report that listed all section 1115 demonstrations approved through February 2006 and updated the list though discussions with agency officials. Four comprehensive demonstrations met these criteria: the California Medi-Cal Hospital Uninsured Care program; the Florida Medicaid Reform program; the IowaCare program, and the Vermont Global Commitment to Health program. Second, to identify which of these four demonstrations met our third criterion that expenditures under the demonstration account for a majority of state Medicaid spending, we compared estimated first-year spending under the demonstration to 2004 total Medicaid spending in each state. First-year spending in two of the four states, California and Iowa, was less than 5 percent of total 2004 Medicaid spending, so we did not include these two states in our study. First-year demonstration spending in Florida and Vermont was projected to account for 59.9 and 117.2 percent, respectively, of 2004 Medicaid spending, so we included the demonstrations in these two states for further review in our study. To determine the extent to which the Secretary of HHS ensured that Medicaid section 1115 demonstrations would be budget neutral to the federal government prior to approving them, we reviewed HHS’s policies for determining budget neutrality as documented on HHS’s Web site and in information provided by HHS officials. We examined each state’s projection of the total spending needed to maintain its existing Medicaid program in the absence of the proposed demonstrations. Specifically, we assessed the extent to which each state’s assumptions about per person cost and beneficiary enrollment growth conform to HHS’s policy that these growth rates are the lower of state-specific or nationwide benchmarks of Medicaid growth. In instances where per person and beneficiary enrollment growth rates exceeded the lower of these two benchmarks, we asked HHS and state officials for explanations and documentation to support the higher growth rates HHS approved. We also compared spending limits for the demonstrations—based on the per person cost and beneficiary enrollment growth rates HHS approved—against (1) our estimates of demonstration spending limits had HHS required Florida and Vermont to have spending limits consistent with benchmarks and (2) our estimates of the spending limits had HHS held per person cost and beneficiary enrollment growth in each state to levels we determined that HHS and state officials had explained with quantified support. HHS’s policy states that adjustments to benchmark growth rates should address anomalies in the underlying data. To determine the extent to which HHS ensured that the Florida and Vermont demonstrations maintain the fiscal integrity of the Medicaid federal-state financial partnership, we evaluated HHS’s process for reviewing section 1115 demonstration proposals and reviewed related financial management reports. We interviewed HHS officials from the Center for Medicaid and State Operations that has direct oversight responsibilities for these demonstrations, including officials from the Division of Reimbursement and State Financing who reviewed funding of the demonstrations in Florida and Vermont to ensure consistency and compliance with federal requirements. We also interviewed state officials to gain their understanding of the waiver authorities HHS granted each state by approving its demonstration, as well as their understanding of the special terms and conditions that govern each demonstration. We also relied on the work conducted for an earlier study that reviewed the consistency of the Florida and Vermont demonstrations with federal law. Our findings concerning HHS’s approval of these two states’ demonstrations cannot be generalized to HHS’s approval of other states’ demonstrations. We used the selection criteria discussed above for purposes of assessing HHS’s process as it was applied in these particular cases of importance. We considered these cases to be important because they allowed significant changes in the states’ Medicaid programs and the majority of the states’ Medicaid spending was governed by the terms of the demonstrations. To assess the reliability of the data submitted by states to HHS to calculate historical state spending and enrollment growth rates, we reviewed the steps HHS takes to ensure the accuracy of spending data compiled in states’ automated Medicaid information systems. We obtained the data states’ submitted to HHS and reviewed them for anomalies and missing information. We also interviewed HHS and state officials knowledgeable about the data. We discussed limitations of the automated Medicaid data, such as potentially incomplete data and states’ ability to revise data for up to 2 years, with HHS officials. Because the data used to establish spending limits were for a time frame for which the states’ data should have been largely completed and finalized, we concluded that states’ Medicaid spending and enrollment data are sufficiently reliable for the purposes of this report. We conducted our work from June 2006 through January 2008 in accordance with generally accepted government auditing standards. The following are GAO’s comments to certain concerns raised in HHS’s letter dated December 21, 2007. 1. We refer to our 2004 report because of the significant role supplemental payments play in Florida’s demonstration and our concern that HHS did not require the state to correct known problems with these supplemental payments before establishing a spending limit on the basis of historical payments. HHS stated that we did not address financing arrangements in our 2004 report, but we disagree. An objective of the 2004 report was to determine if HHS’s continuing oversight of supplemental payment arrangements was sufficient to ensure that claims submitted by states were calculated appropriately and complied with Medicaid requirements. Although we noted that HHS had taken a number of steps to strengthen its oversight of these payment arrangements, we found that HHS had not issued guidance for states’ use on appropriate methods for calculating their Medicaid Upper Payment Limit (UPL). We recommended that HHS establish uniform guidance that would set forth to states acceptable methods for calculating the UPL. Our concern in this report is that HHS approved a spending limit for Florida’s low income pool based on the state’s UPL without first requiring Florida to address problems HHS identified in Florida’s methodology for calculating this UPL. We disagree that the draft of this report erroneously suggested that Medicaid payment limits necessarily result in proper sources of state financing. As noted in the draft, we are concerned that HHS approved a spending limit for the low-income pool based on potentially inflated historical payments. Our draft report credited HHS for requiring Florida to correct the issue the department had identified with the source of the state’s financing. 2. We disagree with HHS’s characterization of the findings from our 2006 and 2007 reports. Although our 2006 and 2007 reports addressed HHS oversight of Medicaid and discussed agency actions to strengthen oversight, certain of the findings of these earlier reports resonate with our current findings. In 2007, for example, we found HHS review and approval of state plan amendments to be marked by a lack of transparency and clear guidance. And in 2006, although we noted recent improvements in the financial management processes HHS uses in its oversight of states, we found it too soon to assess their impact, and further noted additional weaknesses that HHS had not addressed. 3. As discussed in the draft report, we are concerned that HHS allowed Vermont to seek reimbursement for administrative costs higher than that of other public health entities, and that HHS agreed to reimburse Vermont for a larger portion of these administrative costs than typically afforded other states. We disagree that HHS transparently identified costs for which federal reimbursement of excess revenues from the public managed care organization are available. As noted in the report, the purposes for which Vermont may spend these excess revenues are governed only by a set of broad health objectives. For example, HHS allowed Vermont to spend excess revenues on expenditures that increase access to quality health care for Medicaid enrollees and those lacking adequate insurance and that improve health outcomes and quality of life for Medicaid-eligible individuals. 4. Our draft report recognized HHS’s discretion in making adjustments in the spending limits. For example, we accepted a projected $2.1 billion in adjustments to the spending limits for Florida and Vermont because these adjustments were supported by quantified explanations. As noted in the draft, seemingly small changes to per person cost growth rates are amplified by the high volume of beneficiaries that access Medicaid services and the number of years across which these cost growth rates are applied. As noted in the draft, the seemingly small changes to the growth rates in Florida and Vermont resulted in nearly $7.2 billion that we identified as not budget neutral. 5. As noted in the draft report, the established agreement did limit how Medicaid spending in Florida could grow in the future. Our concern, however, is that these spending limits are not budget neutral. Furthermore, we disagree with HHS’s assertion that Florida’s spending limits reflect projected future growth in the absence of the demonstration. For example, over $5.5 billion in projected spending we identified as not budget neutral stems from an adjustment to reflect in part what the state projected would be higher anticipated costs of delivering Medicaid services in a managed care environment. These costs would not be incurred absent the demonstration, and as noted in the draft report, absent evidence supporting the approved changes to benchmark amounts, HHS should not have allowed them as a consideration in establishing a higher spending limit for the demonstration. We also disagree that HHS capped Medicaid program growth in Florida. The agency approved per person spending limits rather than a total limit on programmatic spending. Thus Medicaid spending in Florida may grow by more or less than 13 percent per year depending on enrollment in the program. 6. We believe the spending limit HHS approved for Florida’s low-income pool was problematic because HHS did not require Florida to correct known deficiencies in the state’s method for calculating historical supplemental payments that served as the basis for the spending limit. We did not estimate how the low-income pool should have been adjusted because HHS’s September 2005 review—which identified the problems with Florida’s calculation of its financing arrangement—did not estimate the actual allowable payments under the program or the extent that the prior supplemental payment arrangement was considered excessive or inflated. Consequently, we did not have the information available to us that would allow a detailed estimate of how the low-income pool spending limit should be adjusted. We believe that the concerns raised by HHS’s own review should have been addressed prior to establishing a spending limit based on historical spending. As noted in the draft report, HHS should ensure that the level of supplemental payments for which Florida could have obtained federal Medicaid funds in the absence of the demonstration is calculated accurately, and adjust the approved spending limit accordingly. 7. By not requiring Florida to correct known deficiencies in the state’s historical spending, we believe HHS did not ensure the fiscal integrity of Florida’s low-income pool. In the draft report we credited HHS for requiring Florida to correct a problem the department identified with the manner in which Florida used local financing as the nonfederal share of its supplemental payments. Our concern remains, however, that HHS did not require Florida to correct a separate problem the department identified in the methods and data by which the state calculated the amount of supplemental payments eligible for federal matching funds under its program. By not requiring Florida to correct its method and data sources as a condition of approving the demonstration, HHS approved a spending limit for the low-income pool based on potentially inflated historical spending. 8. We believe that we accurately characterized Florida’s low-income pool in this report. We agree that Florida discontinued its inpatient supplemental payment UPL program as a condition of the demonstration, and have clarified the language to indicate that HHS allowed Florida to develop the low-income pool in order to continue funding for a program of supplemental payments to providers. 9. HHS’s estimation of the maximum amount Florida could have spent under its UPL is irrelevant to the discussion of the appropriate spending limit for the low-income pool. As we stated in the draft report, consistent with HHS policy, spending limits should be based on actual historical spending and quantified explanations for trend anomalies. We believe that, in the absence of reliable historical data, spending limits should be based on transparent, clearly articulated methodologies. Our concern is that HHS allowed Florida to base this spending limit on potentially inflated historical payments as a result of the state’s flawed methodology for calculating its UPL. 10. HHS’s efforts to limit and document Florida’s Medicaid state plan spending and low-income pool spending under the demonstration do not speak to the extent to which HHS ensured the fiscal integrity and budget neutrality of the state’s proposed demonstration prior to approving it. We are concerned that HHS approved growth rates for the demonstration without adequate support and did not require Florida to correct problems the department identified in the state’s methodology for calculating its UPL. 11. To ensure that the spending limit on Florida’s low-income pool is budget neutral and based on allowable historical spending, we believe that HHS should require Florida to correct problems the agency identified in Florida’s methodology for calculating its UPL and adjust the spending limit for future payments made under the low-income pool accordingly. We are not suggesting a retroactive adjustment to the spending under the supplemental payment program. This recommendation is consistent with our long-standing conclusions that spending limits for proposed demonstrations should be based on valid methods. 12. We characterize accumulated savings from an expired demonstration in Vermont as hypothetical because they do not represent actual expenditures incurred during the historical period HHS reviewed in approving a new demonstration in Vermont. We do not object to consideration of actual expenditures from a predecessor demonstration in determining a spending limit for a new demonstration. But according to HHS’s written budget neutrality guidance, surpluses generated early in the life of the expired demonstration would not have been available to Vermont in the absence of a new demonstration. 13. During the course of our review of the Vermont demonstration, we considered the statutory provisions cited by HHS, and nonetheless, as indicated in the July 2007 letter, had concerns about the consistency of the Vermont demonstration with federal law. 14. Our discussion and use of enrollment growth benchmarks reflect HHS’s description of its policy, as written in guidance and as described by officials. During the course of our work, HHS officials told us that they considered benchmarks of enrollment growth in determining an aggregate spending limit for the Vermont demonstration. Yet HHS approved enrollment growth rates for the demonstration equal to, and in some cases exceeding, the highest rates HHS considered. Our main concern is that HHS’s basis for approving these enrollment growth rates was not well documented. We believe that to maintain accountability and transparency in the Medicaid program, the Secretary’s approvals should be based on clearly articulated policies and spending limits that are consistent with these policies. In addition to the contact named above, Katherine M. Iritani, Assistant Director; Kathryn Allen; Ted Burik; Tim Bushfield; Helen Desaulniers; Tom Moscovitch; Hemi Tewarson; Terry Saiki; Stan Stenersen; and Jennifer Whitworth made key contributions to this report. Medicaid Demonstration Waivers: Lack of Opportunity for Public Input during Federal Approval Process Still a Concern. GAO-07-694R. Washington, D.C.: July 24, 2007. Medicaid Demonstration Projects in Florida and Vermont Approved Under Section 1115 of the Social Security Act. B-309734. Washington, D.C.: July 24, 2007. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. Medicaid Financial Management: Steps Taken to Improve Federal Oversight but Other Actions Needed to Sustain Efforts. GAO-06-705. Washington, D.C.: June 22, 2006. Medicaid: States’ Efforts to Maximize Federal Reimbursements Highlight Need for Improved Federal Oversight. GAO-05-836T. Washington, D.C.: June 28, 2005. Medicaid Waivers: HHS Approvals of Pharmacy Plus Demonstrations Continue to Raise Cost and Oversight Concerns. GAO-04-480. Washington, D.C.: June 30, 2004. Medicaid: Improved Federal Oversight of State Financing Schemes Is Needed. GAO-04-228. Washington, D.C.: February 13, 2004. SCHIP: HHS Continues to Approve Waivers That Are Inconsistent with Program Goals. GAO-04-166R. Washington, D.C.: January 5, 2004. Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002. Medicare and Medicaid: Implementing State Demonstrations for Dual Eligibles Has Proven Challenging. GAO/HEHS-00-94. Washington, D.C.: August 18, 2000. Medicaid Section 1115 Waivers: Flexible Approach to Approving Demonstrations Could Increase Federal Costs. GAO/HEHS-96-44. Washington, D.C.: November 8, 1995. Medicaid: Statewide Section 1115 Demonstrations’ Impact on Eligibility, Service Delivery, and Program Cost. GAO/T-HEHS-95-182. Washington, D.C.: June 21, 1995.

Medicaid, a joint federal and state program, finances health care for 60 million low-income people. Section 1115 of the Social Security Act authorizes the Secretary of Health and Human Services to waive certain federal Medicaid requirements and allow demonstration projects that are likely to promote Medicaid objectives. Under federal policy, states must show that federal spending for proposed demonstrations will be no greater than if the state's existing Medicaid program were continued. GAO examined the extent to which HHS ensured that recent comprehensive 1115 demonstrations--affecting a broad range of services for beneficiaries statewide--will (1) be budget neutral to the federal government and (2) maintain Medicaid's fiscal integrity. For demonstrations approved in 2005 (Florida and Vermont), GAO obtained information from federal and state officials and also relied on past reviews of other demonstrations. HHS did not adequately ensure that Florida's and Vermont's Medicaid demonstrations will be budget neutral to the federal government before approving them. HHS approved spending limits that were higher than the limits that would have been granted if HHS had held the states to limits based on benchmark growth rates, that is, the lower of the state's historical spending growth or nationwide estimates of Medicaid growth. Although HHS allows states to deviate from these benchmarks if states can show that using them would not provide accurate projections, HHS's basis for approving the higher spending limits was not fully supported by documentation. In Florida, HHS approved a $52.6 billion spending limit for the 5 year demonstration-- $6.9 billion more than the documentation supported. In Vermont, HHS approved a $4.7 billion spending limit--$246 million higher than supported. HHS also did not ensure that the two demonstrations maintain Medicaid's fiscal integrity. In Florida, HHS allowed the state to establish a spending limit using a historical spending base that included payments HHS had previously identified as problematic. In 2005, an HHS review found several problems with the payment arrangement--problems that potentially resulted in inflated and inaccurate payments. In Vermont, where the state proposed operating a managed care organization, HHS agreed to an administrative reimbursement rate higher than what the state received prior to the demonstration. Under this arrangement, the state can use excess revenues to pay for health-related programs that were previously funded by the state and that do not exclusively benefit Medicaid beneficiaries, such as a grant to the University of Vermont medical school. A July 2007 GAO letter to the Secretary discussed concerns about this approval's consistency with federal law and recommended that the Secretary reexamine Vermont's demonstration and, where appropriate, either modify its terms or seek statutory authority for it to continue in its current form. Concerns about HHS's demonstration approval process in this report are consistent with those GAO has raised in past reviews of other states' demonstration proposals. In 2002 and 2004, GAO recommended that HHS take steps to strengthen its fiscal oversight of Medicaid by improving the Medicaid demonstration review and approval process, in part by (1) clarifying criteria for reviewing and approving states' demonstration spending limits, (2) better ensuring that valid methods are used to demonstrate budget neutrality and (3) documenting and making public material explaining the basis for any approvals. HHS has not taken action on these recommendations and maintains that its process is sufficient. Because HHS continues to disagree with these recommendations and with the need to reexamine the Vermont demonstration, GAO is elevating these issues to the Congress for consideration.

You are an expert at summarizing long articles. Proceed to summarize the following text: VA has two basic cash disability benefits programs. The compensation program pays monthly benefits to eligible veterans who have service- connected disabilities (injuries or diseases incurred or aggravated while on active military duty). The payment amount is based on the veteran’s degree of disability, regardless of employment status or level of earnings. By contrast, the pension program assists permanently and totally disabled wartime veterans under age 65 who have low incomes and whose disabilities are not service-connected. The payment amount is determined on the basis of financial need. VBA and the Board process and decide veterans’ disability claims and appeals on behalf of the Secretary. The claims process starts when veterans submit claims to one of VBA’s 57 regional offices. (See app. I for the overall flow of claims and appeals processing.) By law, regional offices must assist veterans in supporting their claims. For example, for a compensation claim, the regional office obtains records such as the veteran’s existing service medical records, records of relevant medical treatment or examinations provided at VA health-care facilities, and other relevant records held by a federal department or agency. If necessary, the regional office arranges a medical examination for the claimant or obtains a medical opinion about the claim. The regional office adjudicator then must analyze the evidence for each claimed impairment (veterans claim an average of about five impairments per claim); determine whether each claimed impairment is service-connected (VA grants service-connection for an average of about three impairments per claim); apply VA’s Rating Schedule which provides medical criteria for rating the degree to which each service-connected impairment is disabling (disability ratings can range from zero to 100 percent, in 10-percent increments); determine the overall disability rating that results from the combination of service-connected impairments suffered by the veteran; and notify the veteran of the decision. If a veteran disagrees with the regional office’s decision, he or she begins the appeals process by submitting a written Notice of Disagreement to the regional office. During fiscal years 1999-2000, the regional offices annually made an average of about 616,000 decisions involving disability ratings, and veterans submitted Notices of Disagreement in about 9 percent of these decisions. Veterans can disagree with decisions for reasons other than the outright denial of benefits that occurs, for example, in a compensation case when a regional office decides an impairment claimed by a veteran is not service-connected. The veteran also may believe the severity rating assigned to a service-connected impairment is too low and ask for an increase in the rating. In response to a Notice of Disagreement, the regional office provides a further written explanation of the decision, and if the veteran still disagrees, the veteran may appeal to the Board. During fiscal years 1999- 2000, about 48 percent of the veterans who filed Notices of Disagreement in decisions involving disability ratings went on to file appeals with the Board. In fiscal year 2001, VBA began nationwide implementation of the Decision Review Officer position in its regional offices. Now, before appealing to the Board, a veteran may ask for a review by a Decision Review Officer, who is authorized to grant the contested benefits based on the same case record that the regional office relied on to make the initial decision. VBA believes this process will result in fewer appeals being filed with the Board. Located in Washington, D.C., the Board is an administrative body whose members are attorneys experienced in veterans’ law and in reviewing benefits claims. The Board’s members are divided into four decision teams, with each team having up to 15 Board members and 61 staff attorneys. Each team has primary responsibility for reviewing the appeals that originate in an assigned group of regional offices. Board members’ decisions must be based on the law, regulations, precedent decisions of the courts, and precedent opinions of VA’s General Counsel. During the Board’s appeals process, the veteran or the veteran’s representative may submit new evidence and request a hearing. During fiscal years 1999 and 2000, for all VA programs, the Board annually decided an average of about 35,700 appeals, of which about 32,900 (92 percent) were disability compensation cases. The average appealed compensation case contains three contested issues. As a result, in some cases, the Board member may grant the requested benefits for some issues but deny the requested benefits for others. During fiscal years 1999 and 2000, the Board in its initial decisions on appealed compensation cases granted at least one of the requested benefits in about 24 percent of the cases. In some instances, the Board member finds a case is not ready for a final decision and returns (or remands) the case to the regional office to obtain additional evidence and reconsider the veteran’s claim. During fiscal years 1999 and 2000, respectively, the Board in its initial decisions on appealed compensation cases remanded 38 percent and 34 percent of the cases. After obtaining additional evidence for remanded cases, if the regional office still denies the requested benefits, it resubmits the case to the Board for a final decision. If the Board denies benefits or grants less than the maximum benefit available under the law, veterans may appeal to the U. S. Court of Appeals for Veterans Claims. The court is not part of VA and not connected to the Board. During fiscal years 1999 and 2000, veterans filed appeals with the court in an estimated 10 percent of the Board’s decisions. Unlike the Board, the court does not receive new evidence, but considers the Board’s decision, briefs submitted by the veteran and VA, oral arguments, if any, and the case record that VA considered and that the Board had available. The court may dismiss an appeal on procedural grounds such as lack of jurisdiction, but in the cases decided on merit, the court may affirm the Board’s decision (deny benefits), reverse the decision (grant benefits), or remand the decision back to the Board for rework. During fiscal years 1999 and 2000, the court annually decided on merit an average of about 1,800 appealed Board decisions, and in about 67 percent of these cases, the court remanded or reversed the Board’s decisions in part or in whole.Under certain circumstances, a veteran who disagrees with a decision of the court may appeal to the U.S. Court of Appeals for the Federal Circuit and then to the Supreme Court of the United States. In fiscal year 1998, the Board established the first quantitative quality assurance program to evaluate and score the accuracy of its decisions and to collect data to identify areas where the quality of decision-making needs improvement. The accuracy measure used by the Board understates its true accuracy rate because the Board’s accuracy rate calculations include certain deficiencies that would not result in either a reversal or a remand by the court. Even so, the Board’s quality assurance program does not capture certain data that potentially could help improve the quality of the Board’s decisions. Such data include information identifying the specific medical issues involved in cases where a disability decision was judged as being in error. Having such data could enhance the Board’s ability to target training for its decision makers. On the basis of the results of the quality assurance program it established in fiscal year 1998, the Board estimated that 89 percent of its decisions were accurate (or “deficiency-free”). Using these results as a baseline, VA established performance accuracy goals for the Board. One of the Board’s strategic performance goals is to make deficiency-free decisions 95 percent of the time. To calculate its estimated overall accuracy rate, the Board does quality reviews of selected Board decisions. We reviewed the Board’s methods for selecting random samples and calculating accuracy rates and concluded that the number of decisions reviewed by the Board was sufficient to meet the Board’s goal for statistical precision in estimating its accuracy rate. However, we brought to the Board’s attention some issues that caused the Board to fall short of proper random sampling and accuracy rate calculation methods, such as not ensuring that decisions made near the end of the fiscal year are sampled or that the results from quality reviews are properly weighted in the accuracy rate calculation formula. We do not believe the overall accuracy rate reported by the Board for fiscal year 2001 would have been materially different if these methodological issues had been corrected earlier; however, if not corrected, these issues potentially could lead to misleading accuracy rate calculations in the future. The Board agreed in principle to correct these issues. As of June 2002, the Board had not yet instituted corrective actions. According to VA’s performance reports, the Board has come close but has not achieved its annual interim goals for accuracy (see table 1). However, in calculating its reported accuracy rates, the Board includes deficiencies that are not “substantive”—that is, they would not be expected to result in either a remand by the court or a reversal by the court. Consequently, the reported accuracy rates understate the Board’s level of accuracy that would result if only substantive deficiencies were counted in the calculation. Under its quality assurance program, the Board’s quality reviewers assess the accuracy of selected decisions on the basis of six critical areas (see table 2). One error (or deficiency) in any of these six areas means that a decision fails the quality test. However, according to the Board, all six areas would include certain deficiencies that are not substantive. In particular, according to the Board, most deficiencies in the “format” category are not substantive. In fiscal year 2001, the format category accounted for about 38 percent of all recorded deficiencies. At our request, the Board recalculated its accuracy rate for fiscal year 2001, excluding format deficiencies, and the resulting accuracy rate was 92 percent, as compared with the reported accuracy rate of 87 percent. Excluding all other nonsubstantive deficiencies presumably would have resulted in an even higher accuracy rate. In contrast with the Board, beginning in fiscal year 2002, VBA no longer includes nonsubstantive deficiencies in its accuracy rate calculations; however, it continues to monitor them. VBA took this action based on a recommendation by the 2001 VA Claims Processing Task Force, which said that mixing serious errors with less significant deficiencies can obscure what is of real concern. The Board’s quality review program subdivides the six critical areas shown in table 2 into 31 subcategories. For example, if a quality reviewer classifies an error as stemming from “reasons and bases,” the reviewer must then indicate whether the error was due to misapplying legal authority, failing to apply appropriate legal authority, using an incorrect standard of proof, or providing an inadequate explanation for the decision. This information is recorded in the Board’s quality review database, providing the Board with data that can be analyzed to identify training needed to improve quality. However, the Board does not record in its quality review database any information on the specific issue that prompted the appeal (such as whether a disability is service-connected) or the specific medical impairment to which an error is related. For example, a quality reviewer might find an error in a Board decision for an appeal that involved four separate medical impairments—two for which the veteran had requested service connection and two others for which he had requested a disability rating increase. On the basis of information that the quality review database currently captures, however, the Board could not determine which of the four impairments the error was related to, nor could the Board determine whether the error was related to a request for service- connection or an increased disability rating. This is not the case, however, for Board decisions remanded by the Court of Appeals for Veterans Claims. For these cases, the Board maintains a separate database with information on the reasons that the court remands decisions back to the Board for rework. For each issue that the court remands in a compensation case, the Board records in the database such information as: (1) whether the issue involved a request for service- connection or an increased rating, (2) the diagnostic code of the impairment involved in each issue, and (3) the reason for the remand. According to Board officials, being able to analyze the court’s reasons for remands by type of decisional issue and type of impairment enhances the Board’s ability to reduce remands from the court through appropriate training. VBA and the Board recognize that in some cases, different adjudicators reviewing the same evidence can make differing judgments on the meaning of the evidence, without either decision necessarily being wrong. In such cases, VBA and the Board instruct quality reviewers not to record an error. A hypothetical case provided by the Board furnishes an example. In this case, a veteran files a claim in 1999 asserting he suffered a back injury during military service but did not seek medical treatment at that time. One of the veteran’s statements says he injured his back during service in 1951, but another says he injured his back in 1953. An adjudicator may find that this discrepancy in dates adversely affects the claimant’s credibility about whether an injury actually occurred in service, but the quality reviewer may consider the discrepancy to be insignificant. Where such judgments are involved, the Board’s and VBA’s quality review programs recognize that variations in judgment are to be expected and are acceptable as long the degree of variation is within reason. (App. II provides other examples of difficult judgments that could result in decision-making variations and explains VA’s “benefit-of-the-doubt” rule.) The Board and VBA, however, differ in their approaches to collecting information about cases where this type of variation occurs. In such instances, the Board’s quality reviewers note why they believe an alternative decision could have been made and send the explanation to the deciding Board member. However, they do not enter any of this information in the quality review database. In contrast, VBA recently instructed its quality reviewers to enter such information in the VBA quality review database, even though no error is recorded in the database. VBA believes that by identifying and analyzing cases in which quality reviewers believed the adjudicator’s judgment was pushing against the boundary of reasonableness, it potentially can identify opportunities to improve the quality of decision making by improving training. Even though evidence suggests decision making across regional office and Board adjudicators may not be consistent, VA does not systematically assess decision making consistency to determine the degree of variation that occurs for specific impairments and to provide a basis for identifying steps that could be taken, if considered necessary, to reduce such variation. In its 2003 performance plan, VA acknowledged that veterans are concerned about the consistency of disability claims decisions across the 57 regional offices. In a nationwide comparison, VBA projected in its fiscal year 2001 Annual Benefits Report that the average compensation payments per disabled veteran in fiscal year 2002 would range from a low of $5,783 in one state to a high of $9,444 in another state. According to a VBA official, this disparity in average payments per veteran might be due in part to demographic factors such as differences in the average age of veterans in each state. However, this disparity in average payments per veteran also raises the possibility that when veterans in the same age group submit claims for similar medical conditions, the regional office in one state may tend to give lower disability ratings than the regional office in another state. Indeed, in 1997, the National Academy of Public Administration reviewed disability claims processing and said VA needed to identify the degree of decision-making variation expected for specific medical issues, set consistency standards, and measure the level of consistency as part of the quality review process or through testing of control cases in multiple regional offices. Furthermore, in 2001, VA’s Claims Processing Task Force said there was an apparent lack of uniformity among regional offices in interpreting and complying with directives from VA headquarters and that VA’s regulations and the procedures manual for regional offices were in dire need of updating. The task force concluded that there was no reasonable assurance that claims decisions would be made as uniformly and fairly as possible to the benefit of the veteran. Even though such concerns and issues exist, VA does not systematically assess the decision- making consistency of regional office adjudicators. Similarly, VA does not assess consistency between decisions made by regional offices and the Board even though evidence suggests this issue may warrant VA’s attention. Because veterans may submit new evidence during the appeals process, one might assume that the Board generally grants benefits denied by regional offices due to the impact of such new evidence. However, an analysis in 1997 of about 50 decisions in which the Board had granted benefits previously denied by regional offices yielded a different viewpoint. Staff from both VBA and the Board reviewed these cases and concluded that most of these Board decisions to grant benefits had been based on the same evidence that the regional offices had considered in reaching their decisions to deny benefits. The reviewers characterized the reason for the Board members’ decisions to grant benefits as a difference of opinion between the Board members and regional office adjudicators in the weighing of evidence. Furthermore, even in remanded compensation cases for which regional offices have obtained new evidence in accordance with the Board’s remand instructions and then again denied the benefits, the Board generally has granted benefits in about 26 percent of these cases after they have been resubmitted for a final decision. This seems to indicate that, in these particular cases, Board members in some way differed with regional office adjudicators on the impact of the new evidence obtained by the regional offices before resubmitting the remanded cases to the Board. Available evidence also provides indications that the issue of variations in decision making among the Board members themselves may warrant VA’s attention in studies of consistency. Historically, there have been variances in the rates at which the Board’s four decision teams have remanded decisions to regional offices for rework. No systematic study has been done to explain the variances in remand rates. Board officials said that it is their perception that the remand rates vary among the Board’s decision teams because the quality of claims processing varies among the regional offices for which each team is responsible. Similar concerns about consistency of claims adjudication in the Social Security Administration (SSA) have prompted SSA to begin taking steps to assess consistency issues in its disability program. As we reported in 1997, SSA’s primary effort to improve consistency has focused on decision- making variations between its initial and appellate levels. To gather data on variations between these two levels, SSA instituted a system in 1993 under which it selects random samples of final decisions made by administrative law judges and reviews the entire decisional history of each case at both the initial and appellate levels. The reviewers examine adjudicative and procedural issues to address broad program issues such as whether a claim could have been allowed earlier in the process. Data captured through this system have provided a basis for taking steps to clarify decision-making instructions and provide training designed to improve consistency between the initial and appellate levels. However, no systematic evaluations have been done to determine the effectiveness of these actions. In its January 2001 disability management plan, SSA said that it needed to take further steps to promote uniform and consistent disability decisions across all geographic and adjudicative levels. Opportunities exist to improve the quality of the Board’s reporting of accuracy and decision making. The Board includes nonsubstantive deficiencies in its accuracy rate calculation. By doing so, the Board may be obscuring what is of real concern. In addition, the Board’s quality assurance database does not capture data on specific medical disability issues related to the reasons for errors found in Board decisions. Also, in contrast with VBA, the Board’s quality assurance program does not collect information on cases in which quality reviewers do not charge errors but have differences of opinion with judgments made by Board members. We believe that analysis of such data could lead to improvements in quality through improved training or by clarifying regulations, procedures, and policies. Furthermore, because variations in decision making are to be expected due to the difficult judgments that adjudicators often must make, one must ask the questions: For a given medical condition, how much variation in decision making exists and does the degree of variation suggest that VA should take steps to reduce the level of variation? VA, however, does not assess variation in decision making. None of the quality review efforts of either VBA or the Board are designed to systematically assess the degree to which veterans with similar medical conditions and circumstances may be receiving different decisional outcomes or to help identify steps that could reduce such variation if necessary. Without ongoing systematic assessments of consistency across the continuum of decision making, VA cannot adequately assure veterans that they can reasonably expect to receive consistent treatment of their claims across all decision-making levels in VA. We recognize that our recommendations will have to be implemented within the context of VA’s current major efforts to reduce a large and persistent backlog of disability claims and appeals and to reduce the average processing time. Nevertheless, we believe it is critical that VA take the necessary steps to support improvements in training and in regulations, procedures, or policies that could enhance the quality of disability decision making across the continuum of adjudication and to help provide adequate assurance to veterans that they will receive consistent and fair decisions as early as possible in the process. Indeed, maintaining and improving quality should be of paramount concern while implementing a major effort to reduce backlogs and processing time. Accordingly, we recommend that the Secretary of VA direct the Chairman of the Board of Veterans’ Appeals to: Revise the quality assurance program so that, similar to VBA, the calculation of accuracy rates will take into account only those deficiencies that would be expected to result in a reversal of a Board decision by the U.S. Court of Appeals for Veterans Claims or result in a remand by the court. Revise the Board’s quality assurance program to record information in the quality review database that would enable the Board to systematically analyze case-specific medical disability issues related to specific errors found in Board decisions in the same way that the Board is able to analyze the reasons that the court remands Board decisions. Monitor the experience of VBA’s quality assurance program in collecting and analyzing data on cases in which VBA’s quality reviewers do not record errors but have differences of opinion with regional office adjudicators in the judgments made to reach a decision. If VBA finds that the analysis of such data helps identify training that can improve the quality of decision making, the Board should test such a process in its quality assurance program to assess whether it would enable the Board to identify training that could improve the quality of Board decisions. We also recommend that the Secretary direct the Under Secretary for Benefits and the Chairman of the Board of Veterans’ Appeals to jointly establish a system to regularly assess and measure the degree of consistency across all levels of VA adjudication for specific medical conditions that require adjudicators to make difficult judgments. For example, VA could develop sets of hypothetical claims for specific medical issues, distribute such hypothetical claims to multiple adjudicators at all decision-making levels, and analyze variations in outcomes for each medical issue. Such a system should provide data to determine the degree of variation in decision making and provide a basis to identify ways, if considered necessary, to reduce such variation through training or clarifying and strengthening regulations, procedures, and policies. Such a system should also assess the effectiveness of actions taken to reduce variation. If departmental consistency reviews reveal any systematic differences among VA decision makers in the application of disability law, regulations, or court decisions, the Secretary should, to the extent that policy clarifications by VBA cannot resolve such differences, direct VA’s General Counsel to resolve these differences through precedent legal opinions if possible. We received written comments on a draft of this report from VA (see app. III). In its comments, VA concurred fully or in principle with our recommendations. With regard to our first recommendation, VA said that the Board intends to revise its quality review system to count only substantive errors for computational and benchmarking purposes but will continue to track all errors. On the basis of VA’s comments, we also modified the report to accurately reflect the standard of review employed by the U.S. Court of Appeals for Veterans Claims in reviewing Board decisions. With regard to our second recommendation, VA said that it would use its Veterans Appeals Control Locator System to gather information on case-specific medical disability issues related to specific errors found in Board decisions. VA questioned our basis for concluding that tracking such information will yield useful data for improving the adjudication system. As stated in the draft report, we based our recommendation on the fact that the Board has already concluded that such information is beneficial for analyzing the reasons for remands from the Court of Appeals for Veterans Claims. With regard to our third recommendation, VA said representatives of the Board and VBA will meet so that a system may be established for the Board to access and review VBA’s methodology for assessing, reporting, and evaluating instances of “difference of opinion” between the quality reviewer and the decision maker. In its comments, VA concurred in principle with our fourth recommendation. VA agreed that consistency is an important goal and acknowledged that it has work to do to achieve it. However, VA was silent on how it would measure consistency for specific medical conditions that require adjudicators to make difficult judgments. Instead, VA described the kinds of actions underway that it believes will generally reduce inconsistency. While we support these efforts, we maintain that without a way to evaluate and measure consistency, VA will be unable to determine the extent to which such efforts actually improve consistency of decision- making across all levels of VA adjudication now and over time. Neither will VA have information needed to identify ways to reduce decision- making variations for specific medical conditions, if considered necessary. 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 issue date. At that time, we will send copies of this report to the Secretary of the Department of Veterans Affairs, appropriate congressional committees, 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 have questions about this report, please call me on (202) 512-7101 or Irene Chu on (202) 512-7102. Other key contributors were Ira Spears, Steve Morris, Patrick diBattista, and Mark Ramage. 57 Regional Offices Decide Claims and Notify Veterans of Decisions (estimated disposition of 100,000 compensation claims filed with regional offices) 1. Veterans either agree with regional offices decisions 2. Veterans submit Notices of Disagreement to regional or take no further action in 90,880 cases. offices in 9,120 cases. In 3,657 of these cases, veterans go on to file appeals with the Board. Board of Veterans' Appeals Board Members Review Regional Office Decisions Appealed by Veterans (estimated disposition of 3,657 compensation cases appealed to Board) 3. Board remands 1,311 cases to regional 4. Board grants at least one requested offices to develop further evidence and reconsider their decisions (Board remands 211 of these cases twice). benefit in 1,153 cases (Board makes 269 of these grants after regional offices resubmit remanded cases). 5. Board denies all benefits in 1,956 cases (Board makes 494 of these denials after regional offices resubmit remands). 6. Regional offices obtain more evidence 7. Regional offices obtain 9. Veterans appeal 307 but deny requested benefits in 839 cases and resubmit these cases to the Board for a final decision (of the 211 remanded twice, regional offices deny benefits in 135 and resubmit them to Board). more evidence and grant requested benefits in 339 cases (47 of these 339 grants occur after the second remand). 8. Veterans withdraw or regional offices close 209 cases (28 of these 209 withdrawals or closures occur after second remand). cases to U.S. Court of Appeals for Veterans Claims. U.S. Court of Appeals for Veterans Claims Court Reviews Board Decisions Appealed by Veterans (estimated disposition of 307 compensation cases appealed to the court) 10. Court dismisses 74 cases on 11. Court affirms Board decisions in whole 12. In whole or in part, Court reverses Board procedural grounds. in 77 cases (all requested benefits denied). decisions (grants requested benefits) or remands Board decisions in 156 cases. U.S. Court of Appeals for the Federal Circuit. the cases remanded by the court. The estimated disposition by VA’s regional offices of the 100,000 claims (in boxes 1 and 2) is based on data for claims involving disability ratings for fiscal years 1997 to 2000. During those years, veterans submitted Notices of Disagreement in about 9 percent of the regional office decisions and went on to file appeals with the Board in about 40 percent of the cases in which they had submitted such notices. On the basis of Board data for fiscal years 1999 and 2000, in its initial decisions on appealed compensation cases, the Board: (1) granted at least one of the requested benefits in about 24 percent of the cases, (2) denied all requested benefits in about 40 percent of the cases, and (3) remanded about 36 percent of the cases to regional offices for rework. After obtaining the additional evidence required by the Board for remanded cases, the regional offices granted requested benefits in about 22 percent of the remanded cases and denied requested benefits in 64 percent of the cases. After regional offices resubmitted denied cases to the Board for a final decision, the Board granted at least one of the requested benefits in about 26 percent of the cases, denied all benefits in about 49 percent, and remanded about 25 percent once again to regional offices for further rework. For this illustration, we assumed that the Board did not remand a case more than two times. The estimate of 307 cases appealed to the U.S. Court of Appeals for Veterans Claims (in box 9), the court’s estimated disposition of these 307 cases (in boxes 10, 11, 12), and the estimated number of decisions appealed to the U.S. Court of Appeals for the Federal Circuit (in box 13) are based on fiscal years 1999 and 2000 data from the court’s annual reports. Appendix II: Board of Veterans’ Appeals Illustrations of Difficult Judgments Resulting in Decision-Making Variations Examples of difficult judgments To be granted benefits for post-traumatic stress disorder, a veteran’s claim must have credible evidence that a stressor occurred during military service. Assume the record shows a claimant served in Vietnam as a supply specialist, and he identified mortar attacks as a stressor. Reports prepared by his military unit in Vietnam indicate a single enemy mortar attack occurred where the claimant was stationed. The claimant’s testimony was vague about the number and the time of the attacks. One adjudicator may rely on the unit’s reports and conclude the claimant engaged in combat and is entitled to have his lay statements accepted without further corroboration as satisfactory evidence of the in-service stressor. Another adjudicator may conclude that the claimant is not credible as to exposure to enemy fire and require other credible supporting evidence that the in-service stressor actually occurred. Assume an appeal for either service connection or a higher disability rating has two conflicting medical opinions, one provided by a medical specialist who reviewed the claim file but did not actually examine the veteran and a second opinion provided by a medical generalist who reviewed the file and examined the veteran. One adjudicator could assign more weight to the specialist’s opinion, while another could find the generalist’s opinion to be more persuasive. Thus, depending on which medical opinion is given more weight, one adjudicator could grant the claim and the other deny it. Yet, a third adjudicator could find both opinions to be equally probative and conclude that VA’s “benefit-of-the-doubt” rule requires that he decide in favor of the veteran’s request for either service-connection or a higher disability rating. Under the benefit-of-the-doubt rule, if an adjudicator concludes that there is an approximate balance between the evidence for and the evidence against a veteran’s claim, the adjudicator must decide in favor of the veteran. The Rating Schedule does not provide objective criteria for rating the degree to which certain spinal impairments limit a claimant’s motion. The adjudicator must assess the evidence and draw a conclusion as to whether the limitation of motion falls into one of three severity categories: “slight, moderate, or severe.” Similarly, in assessing the severity of incomplete paralysis, the adjudicator must draw a conclusion as to whether the veteran’s incomplete paralysis falls into one of three severity categories: “mild, moderate, or severe.” In each case, each severity category in itself encompasses a range of severity, and the judgment as to whether a claimant’s condition is severe enough to cross over from one severity range into the next could vary in the minds of different adjudicators. The Rating Schedule provides a formula for rating the severity of a veteran’s occupational and social impairment due to a variety of mental disorders. However, the formula actually is a nonquantitative, behaviorally oriented framework for guiding adjudicators in making judgments and drawing conclusions as to which of the following characterizations best describes the degree to which a claimant is occupationally and socially impaired: (1) totally impaired; (2) deficient in most areas such as work, school, family relations, judgment, thinking, or mood; (3) reduced reliability and productivity; (4) occasional decrease in work efficiency and intermittent periods of inability to perform occupational tasks; (5) mild or transient symptoms that decrease work efficiency and ability to perform occupational tasks only during periods of significant stress or symptoms can be controlled by continuous medication, and (6) not severe enough to interfere with occupational or social functioning or to require continuous medication.

For fiscal year 2002, the Department of Veterans Affairs (VA) will pay $25 billion in cash disability benefits to 3.3 million disabled veterans and their families. Veterans who are dissatisfied with VA's 57 regional offices' decisions may file appeals with VA's Board of Veteran's Appeals. In about half of such appeals, the Board has either granted the benefits denied or returned the cases to regional offices for rework. Additionally, VA reported an accuracy rate of less than 70 percent for regional office disability decisions when it tested a new quality assurance program in fiscal year 1998. When the Board itself denies benefits, veterans may appeal to the U.S. Court of Appeals for Veterans Claims. In over half of these appeals, the Court has either granted the benefits denied by the Board or returned the decisions to the Board for rework. In fiscal year 1998, the Board of Veteran's Appeals established a quantitative evaluation program to score its decisionmaking accuracy and collect data to improve decisionmaking. The accuracy measure used by the Board understates its true accuracy rate because the calculations include certain deficiencies, such as errors in a written decision's format, which would not result in either a reversal or a remand by the Court. VA does not assess the consistency of decisionmaking across the regional office and Board disability adjudicators even though VA acknowledges that in many cases adjudicators of equal competence could review the same evidence but render different decisions. Although available evidence indicates that variations in decisionmaking occur across all levels of VA adjudication, VA does not conduct systematic assessments to determine the degree of variations that occurs for specific impairments and to provide a basis for determining ways to reduce such variations.

You are an expert at summarizing long articles. Proceed to summarize the following text: Since World War II, many employers have voluntarily sponsored health insurance as a benefit to employees for purposes of recruitment and retention, and some have also offered these benefits to their retirees. The federal tax code provides incentives for employers to subsidize health benefits because their contributions can be deducted as a business expense from their taxes, and these contributions are also not considered taxable income for employees. Employer-sponsored health benefits are regulated under the Employee Retirement Income Security Act of 1974 (ERISA), which gives employers considerable flexibility to manage the cost, design, and extent of health care benefits they provide. However, ERISA established certain requirements for employers, including that they provide health plan participants and beneficiaries with a summary plan description (SPD) specifying the retirees’ rights and circumstances under which the health plan can be modified or terminated. Concern over the costs associated with retiree health benefits was compounded in 1993 when the Financial Accounting Standards (FAS) Board adopted FAS 106, requiring employers to report annually on the liability represented by the promise to provide retiree health benefits to current and future retirees. While FAS 106 did not affect an employer’s cash flow, there has been concern that listing this future liability could affect companies’ stock prices because the reporting of projected retiree health care costs affects the overall statement of financial profitability. Some companies have said that FAS 106 requirements lead to reductions in reported income and shareholder equity and are a reason for reducing retiree health benefits. As a means of reducing their reported liability as well as controlling rising costs associated with retiree health benefits, some employers have passed a share of cost increases to their retirees in the form of higher premiums, deductibles, or copayments. Some other employers have reduced benefits or simply ceased to sponsor coverage. In the absence of employer-sponsored retiree health benefits, retirees have certain coverage alternatives, but may find them to be expensive or even unaffordable. Individuals under 65 may rely on the individual insurance market or may, in limited instances, be eligible for continuation coverage from a former employer. For example, individuals whose jobs provided health benefits that ended at retirement may continue temporary coverage for up to 18 months under provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). For eligible individuals who exhaust available COBRA coverage, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) guarantees access to the individual market, regardless of health status and without coverage exclusions, but does not restrict the premiums that may be charged to older or less healthy individuals. For retirees 65 years or older, Medicare is typically the primary source of health insurance coverage. Under traditional Medicare, eligible individuals may apply for Part A, which helps pay for care in hospitals and some limited skilled nursing facility, hospice, and home health care, and may purchase Part B, which helps pay for doctors, outpatient hospital care, and other similar services. Medicare beneficiaries may rely on private retiree health coverage from a former employer or union or individually purchased Medicare supplemental insurance (known as Medigap) to cover some or all of the costs not covered by Medicare, such as copayments, coinsurance, deductibles, and most outpatient prescription drug costs.Depending on where they live, individuals may have the option of obtaining Medicare coverage on a fee-for-service basis or from a managed care or other private plan offered through the Medicare+Choice program since 1998. Many beneficiaries have been attracted to these plans because they typically have lower out-of-pocket costs than fee-for-service plans and offer services not covered by traditional Medicare, such as routine physical exams and prescription drugs. Nearly 6 million people, or approximately 15 percent of Medicare’s 39 million beneficiaries, were enrolled in a Medicare+Choice plan as of January 1, 2001, with recent plan withdrawals causing some beneficiaries to return to the traditional Medicare program. Despite a strong economy and relatively small premium increases during the latter part of the 1990s, available evidence from employer benefit surveys and employer benefit consultants we interviewed suggests the decline in employer-sponsored retiree health insurance has not reversed since 1997—the last year for which we had reported previously. Two widely cited employer benefit surveys estimate that just over one-third of large employers, and a smaller portion of small employers, offered health coverage to some of their retirees in 2000; however, one of these surveys shows the proportion of large employers offering coverage is the same as in 1997, whereas the other indicates a further small decline in coverage since 1997. Other data indicate that the percentage of retirees with employer-sponsored health insurance remained relatively stable during this time period. Still, many employers continuing to offer coverage have reduced the terms of coverage by tightening eligibility requirements, increasing the share of premiums retirees pay for health benefits, or increasing copayments and deductibles—thus, contributing to a gradual erosion of benefits. Employer sponsorship of retiree health benefits in 2000 was, at best, the same as in 1997 or, worse, continued to gradually erode according to two surveys. Surveys conducted by William M. Mercer, Incorporated, indicate that the portion of firms sponsoring health insurance for early retirees fell slightly from 41 percent in 1997 to 36 percent in 2000. Similarly, employer sponsorship of health benefits for Medicare-eligible retirees fell from 35 to 29 percent during this period. As shown in figure 1, this continues a gradual decline that began in the early 1990s. A second survey—conducted by the Kaiser Family Foundation and Health Research and Educational Trust (Kaiser/HRET)—estimates that about 37 percent of large employers sponsored retiree health benefits in 2000—the same percentage as in 1997, although with some year-to-year fluctuation. Like the Mercer survey, the Kaiser/HRET survey reflects a significant decline in coverage since 1991. Year-to-year fluctuations or gradual changes in these surveys’ results need to be interpreted with caution. These surveys are widely used and based on random samples designed to be representative of a broader employer population, but neither may have the precision needed to distinguish small changes in coverage from year to year because of the response rates and the number of firms surveyed. For example, only about 45 percent of the 1,887 firms in the Kaiser/HRET sample responded to the survey in 2000. Similarly, about 50 percent of the sampled firms responded to the Mercer survey, which included 2,797 respondents. Thus, year-to-year differences may have resulted from differences in those employers that chose to respond to the surveys. Also, while neither Mercer nor Kaiser/HRET reported the size of these sampling errors, Kaiser/HRET’s 1999 and 2000 reports indicated that 1-year differences in the percentage of large employers offering retiree health coverage since 1998 were not statistically significant. Large firms are more likely to sponsor health insurance for retirees than are smaller firms. For example, Kaiser/HRET reported that just over one- half of firms with 5,000 or more employees sponsored retiree health insurance in 2000, compared to only about 9 percent of firms with fewer than 200 employees. According to the Mercer data, the percentage of firms with 500 to 999 employees that sponsored retiree health insurance in 2000 was about 40 points lower than for those with 20,000 or more employees— about 30 percent or less compared to about 70 percent. The percentage of retirees obtaining health benefits through a former employer has remained relatively stable since 1997. According to our analysis of the Census Bureau’s Current Population Survey (CPS), in 1999, about 37 percent of retirees aged 55 to 64 had employer-sponsored coverage in their own names from former employers, as did about 26 percent of elderly retirees in 1999 (see figure 2). Since 1994, these figures varied by only 1 or 2 percentage points for early retirees and even less for elderly retirees. Year-to-year differences are too small to be statistically significant. This stability in coverage may exist in part because employers tend to reduce coverage for future rather than current retirees. Employers have adopted several strategies to limit their liability for retiree health costs other than terminating benefits, and these mechanisms contribute to an erosion in health benefits available to retirees. Some employers have restricted eligibility for retiree health insurance to certain employees, such as those hired before a certain date, thus reducing their future liability for these benefits without causing a large disruption in health coverage for those who are currently or soon-to-be retiring. According to Mercer’s data, about 5 percent of large employers sponsored retiree health insurance in 2000 for only selected employees, typically excluding employees hired more recently. Employers have also attempted to better manage or control their health care expenditures by increasing the share of health care costs for which the retiree is responsible. This approach encompasses a range of activities and includes employer efforts to increase the retirees’ deductibles, copayments, and premium share; cap the employer’s overall expenditures; or pay a fixed amount per retiree for health care. For example, more than 10 percent of employers reported having recently increased retirees’ potential out-of-pocket costs for deductibles, coinsurance, and copayments. Kaiser/HRET and Mercer, respectively, report that 16 to 25 percent of employers increased the retiree’s share of their premium contribution during the last 2 years. According to Mercer data, about 40 percent of large firms that offer early retiree health benefits now require these retirees to pay the entire premium—an increase of 8 or more percentage points since 1997. Likewise, the percentage of firms requiring Medicare-eligible retirees to pay the entire premium has increased 7 or more points during this time period. In other cases, employers have established caps on their overall expenditures for future retiree health benefits. The 1999 Kaiser/HRET survey estimated that about 35 percent of all large firms had recently capped their total projected contribution for retiree health benefits. How employers will ensure spending does not exceed the caps and how coverage will be affected are not clear. Benefit consultants we interviewed stated that employers typically set caps prospectively at a level higher than current spending. In some cases, employers that find they are approaching the cap for retiree health spending will raise it. Some employers are considering—but not yet widely implementing—a more fundamental change by shifting to a defined contribution plan, under which an employer directly provides each retiree with a fixed amount of money to purchase coverage, either in the individual market or through a choice of plans offered by the employer. The individual is then responsible for the difference between the employer’s contribution and the selected plan’s total premium. In addition to the potential cost savings, employers report that a defined contribution plan (1) could be administratively simpler (if the employer simply provided a payment retirees could use to purchase individual coverage) or (2) could allow them to offer retirees a wider choice (if the employer provided multiple plan offerings and retirees could purchase individual coverage as well). Thus far, few employers have adopted a defined contribution approach. Benefit consultants we interviewed said that many employers would prefer to move toward a defined contribution approach, but noted several issues that would need to be addressed before making such a fundamental change. For example, a recent study by PricewaterhouseCoopers stated that employers are uncertain about (1) the availability of insurance products that would meet their objectives for employee choice with a defined contribution approach, (2) retirees’ readiness to assume the responsibility for managing their health benefits, and (3) the potential loss of the existing tax exclusion for the employee if the employer shifts to a defined contribution. Contractual bargaining agreements with union plans and concerns among employees and retirees about major changes in their health benefits have also limited employers’ ability to shift to such an approach. Employer consultants also indicated that a defined contribution approach would highlight differences in health benefit costs among employees. Differences in how much an employer pays for an employee’s health benefits are not readily apparent with defined benefit plans because each employee is offered the same set of benefits at the same premiums. Such differences, however, could become apparent and potentially contentious under a defined contribution approach. For example, if each employee were given the same fixed amount for health insurance, those who were older, less healthy, in need of family coverage, or living in a more expensive area could pay significantly more than other employees to purchase comparable coverage. Alternatively, if employees were given a risk-adjusted fixed amount, those who were older or otherwise more costly would receive a larger payment than would others. Various factors suggest that an erosion in employer-sponsored retiree health insurance may continue. Most immediately, employers are experiencing the resurgence of inflation in their premium costs and thus could look for ways to further control costs to remain competitive, especially if the slowing of the economy continues. Moreover, if the Medicare program establishes an outpatient prescription drug benefit, some employers may reexamine their need to offer retiree health coverage. In addition, a recent court case validating a claim of age discrimination under federal law could have significant implications for employer-sponsored retiree health coverage. In the longer term, as the number of retirees relative to active workers increases with the aging of the baby boom generation, concerns over employers’ retiree health costs are likely to grow. The resumption of large health insurance premium increases and a general economic slowing could exacerbate the decline in employer-sponsored health insurance for retirees. Survey data suggest that health insurance premiums for employer-sponsored coverage are beginning to rise at an increasing rate, and these increases will likely be reflected in larger future reported liabilities. As shown in figure 3, premium increases were higher than the general inflation rate from 1990 through 1994, but increased less than general inflation from 1995 through 1997. Because the actual level of premium inflation was lower than what had been anticipated for this latter period, some firms reduced their projected FAS 106 liabilities, with some even showing increasing profits as a result of their adjusted liabilities for retiree health benefits. Beginning in 1998, however, premiums began again to rise faster than general inflation and were about 5 percentage points above general inflation in 2000. Premium increases have occurred among all major insurance types, including health maintenance organizations (HMO), preferred provider organizations (PPO), and traditional indemnity plans. The strength of the overall economy may also affect whether employers provide retiree health benefits. Employment remains at near-historic high levels, which could make employers hesitant to reduce employee benefits that potentially could harm their recruitment and retention in a tight labor market. However, if economic growth and employment levels decline, as economic indicators are starting to show, employers may be more willing to reevaluate salary and benefits to determine the combination that is most effective in recruiting and retaining employees. The strong stock market during the 1990s also provided some employers with high rates of return on pension and other assets that could be used to cover some retiree health benefit costs. ERISA requires employers to prefund their future pension benefit liabilities for retirees, but not their retiree health benefits. Thus, employers are unlikely to have significant investment income to fund retiree health benefits directly. However, some employers have transferred some of the excess pension assets generated by investment earnings to finance their retiree health benefits. This option to finance retiree health benefits could be curtailed as the rising stock market seen in the 1990s levels off. Further, recently proposed Internal Revenue Service regulations that clarify employers’ ability to transfer surplus assets from a defined benefit pension plan to a retiree health benefit plan would prevent an employer that does so from subsequently significantly reducing the number of retirees covered or the cost of such coverage. Recent and proposed changes to Medicare are also leading employers to reexamine their design of retiree benefits that supplement Medicare. Notable developments include withdrawals of health plans participating in the Medicare+Choice program and proposals to add prescription drug coverage to Medicare. A Medicare prescription drug benefit could significantly lower the cost of providing retiree health coverage, but may affect employers’ interest in doing so. Prescription drugs are typically the largest component of costs for employer-sponsored retiree health benefits for Medicare-eligible enrollees. The recent withdrawals of some health plans participating in Medicare+Choice could affect some employers that had anticipated savings in their retiree health benefit costs and had encouraged employees to join these plans. Medicare+Choice plans typically offer health benefits that are not available through traditional Medicare but are generally included in employer-sponsored Medicare supplemental coverage, such as prescription drugs and reduced cost sharing. Furthermore, many Medicare+Choice plans have historically charged enrollees small or no premiums. The 2000 Mercer survey indicates that 43 percent of large employers that provide retiree health coverage offer a Medicare+Choice HMO, and that 11 percent of Medicare-eligible retirees are enrolled in one of these plans. Some employers encouraged employees to enroll in Medicare+Choice plans by lowering their premium contributions or enhancing benefits. However, benefit consultants we interviewed report that some employers are concerned about recent Medicare+Choice plan premium increases and withdrawals. Mathematica Policy Research, Inc., reports that Medicare+Choice premiums more than doubled from an average of $6 per enrollee per month in 1999 to $14 in 2000 and are expected to increase further in 2001. Since 1999, more than 200 plans have fully terminated their Medicare+Choice contracts, reduced their service areas, or announced plans to reduce their participation in 2001.As Medicare+Choice plans drop out of the market, some employers are left to find alternative coverage for retirees for whom they had promised benefits. The effects of a Medicare prescription drug benefit, if enacted, are less certain but potentially significant. More than 40 percent of Medicare beneficiaries had prescription drug coverage from a private supplemental plan in 1996, and three-quarters of them received this prescription drug coverage from employer-sponsored plans. According to benefit consultants’ reports and some employers we interviewed, prescription drugs typically represent 40 to 60 percent of employers’ retiree health costs for Medicare-eligible enrollees and have been the fastest-growing element of health costs, increasing by 17 percent or more during the last year. Thus, adding a prescription drug benefit to Medicare could lower or make more predictable employers’ costs, encouraging some employers to retain retiree health benefits. Conversely, the enhanced Medicare benefit could reduce the value employees place on employer-sponsored retiree health benefits, making it easier for employers to reduce or eliminate coverage. Benefit consultants and recent studies indicate that employers’ responses to Medicare coverage of prescription drugs could vary depending on the prescription drug benefit design implemented, for example, the coverage limits that are included and beneficiary cost sharing that would be required. One study evaluating two general proposals estimated that employers would have significant cost savings and likely would retain supplemental prescription drug coverage for retirees to complement an outpatient prescription drug benefit. However, any savings that might actually be realized are dependent on the design features that Congress ultimately enacts and employers’ and beneficiaries’ responses. According to employer benefit consultants, an August 2000 court ruling raises concern among some employers and could potentially accelerate the decline of retiree health benefits, although its actual effect is uncertain at present. The Third Circuit Court of Appeals, which has jurisdiction for Pennsylvania, New Jersey, Delaware, and the Virgin Islands, held that Medicare-eligible retirees have a valid claim of age discrimination under the Age Discrimination in Employment Act (ADEA) when their employers provide them with health insurance coverage inferior to that provided to retirees not yet eligible for Medicare. In this case, Erie County, Pennsylvania, had offered Medicare-eligible retirees an HMO under contract with Medicare that had several features that were more restrictive than the point-of-service plan available to those retirees not yet Medicare-eligible, including a more limited choice of physicians and required primary care physician authorization for medical services. The Third Circuit decided that Medicare-eligible retirees were treated differently because of age but Erie County might not be in violation of the ADEA if the health plans provided to Medicare-eligible retirees are equal in either benefits or costs to the plans offered to retirees under age 65. The Third Circuit has sent the case back to the District Court for it to determine whether the county’s treatment of pre- and post-age 65 retirees, under their respective plans, meets either the equal cost or equal benefit requirement under ADEA. The implications of the Erie County decision for other employers remain uncertain. While only about 12 percent of employers offering retiree health coverage enroll Medicare-eligible enrollees in an HMO—the issue raised in the Erie decision—many other employers make further distinctions between the health benefits provided to their retirees based on their eligibility for Medicare. Also, some employers provide retiree health benefits only for early retirees and not for Medicare-eligible retirees. Some benefit consultants have said that this decision, if adopted by other federal courts, could lead some employers to make changes to their retiree health benefits so that benefits for Medicare-eligible retirees are no more restrictive than those offered other retirees, in some cases further eroding the level of employer-sponsored retiree health benefits. These changes could include eliminating retiree health benefits; reducing benefits to the lowest common level for all retirees; offering a Medicare supplemental plan that, combined with the traditional Medicare program, is at least as generous as benefits provided to pre-Medicare-eligible retirees; or paying retirees the same defined contribution to purchase retiree health coverage whether or not they are Medicare-eligible. In the past, retiree benefit litigation has not focused on age discrimination, but on employers’ ability to modify or terminate retiree health benefits. Since ERISA provides employers considerable flexibility to manage the cost, design, and extent of health care benefits they provide, federal courts have generally ruled in favor of the employer when challenged over termination of the plan or changes in retiree health benefits if the employer had included the right to change benefits in plan documents or collective bargaining agreements. Nearly all companies reserve the right in plan documents to modify health benefits for current and future retirees. See appendix II for an overview of the case law history regarding retiree health benefits. Over the next 30 years, both the number and proportion of Americans potentially affected by a decline in employer-sponsored retiree health insurance will increase, whether or not additional employers drop this coverage. Elderly and near-elderly individuals together will represent more than one-fourth of the population of the United States in the year 2011— the year when the first of the baby boomers will turn 65 years old— compared to one-fifth of the current population. As shown in figure 4, the number of near-elderly individuals will increase by 75 percent by 2020, and the number of elderly will double by 2030. Thus, employers will not only have a larger number of retirees for which to potentially provide health coverage, but comparatively fewer active workers to subsidize these benefits. This declining base of productive workers to support more retirees could make it more difficult for many employers to maintain retiree health benefits. Federal laws guarantee access to coverage to certain individuals who lose group coverage. However, the coverage options available to retirees whose former employers reduce, eliminate, or did not offer health coverage may be limited. Affected retirees may seek to purchase coverage on their own as individuals—either an individual insurance market product for those under 65 or a Medicare supplemental plan for those 65 or older. However, depending on their demographic characteristics and health status, retirees may encounter difficulty obtaining or affording comprehensive plans. Although federal laws, such as COBRA and HIPAA, guarantee some individuals leaving employer-sponsored group health plans access to continued coverage or to a product in the individual market, these laws may offer only limited protections to many retirees that lack access to employer-sponsored health benefits. Individuals whose jobs provided health benefits that ended at retirement may continue temporary coverage for up to 18 months under COBRA, but COBRA may be an expensive alternative because the employer is not required to pay any portion of the premium. Also, COBRA coverage is generally not available to individuals whose employers terminate health insurance after they retire. Likewise, HIPAA’s group-to-individual portability provision guarantees access to at least two individual insurance policies, regardless of health status and without exclusions, to eligible individuals leaving group coverage. States comply with this provision by using either the federal rules—which require carriers to guarantee access to certain insurance policies to eligible individuals—or an alternative mechanism. Under an alternative mechanism, states may, within broad federal parameters, design other approaches, such as a state high-risk pool, to provide eligible individuals with a choice of coverage. Depending on the approach taken by states to comply with HIPAA and the extent to which a state restricts premium rate variation in the individual market, the premiums these individuals face may be substantially higher than prices charged to healthy or younger individuals, and may be cost prohibitive to many retirees. Although these laws are limited in the protections they afford individuals without access to employer-sponsored health benefits, they may facilitate the transition of some retirees from employer-based coverage to coverage in the individual market. Although federal law provides some retirees with guaranteed access to certain coverage, others may encounter difficulty obtaining or affording coverage, especially since health insurance carriers often consider a retiree’s health status in making coverage decisions, and many retirees report poorer health. Near-elderly and elderly individuals are the most likely to report fair or poor health of any age group. The CPS indicates that more than one-fifth of near-elderly and one-third of elderly individuals reported fair or poor health in 1999, compared to about 14 percent of 45- to 54-year-olds. Moreover, as shown in table 1, the retired among these populations were more likely to report poorer health status than those who were employed. For retirees under 65, the individual insurance market, on which about 7 percent of the near-elderly population relied for their primary source of coverage in 1999, may be an option for some individuals until they reach Medicare eligibility. However, in most states, access to the individual market is not guaranteed, and individuals may encounter difficulty obtaining comprehensive plans at affordable prices, or any plans at all. The problems in purchasing plans may be exacerbated because retirees who lose employer-sponsored coverage and individually purchase private health insurance become responsible for the entire premium rather than the share they paid for employer-sponsored coverage. Further, except for some self-employed persons and certain individuals with medical expenses exceeding 7.5 percent of adjusted gross income, the federal tax code offers no subsidies for the individual purchase of private health insurance. Unlike the employer-sponsored market, where the price for coverage is based on the risk characteristics of the entire group, premium prices in the individual markets of most states are based on characteristics of each applicant, such as age, gender, geographic area, tobacco use, and health status. Even for persons with similar health, premium prices can vary significantly. For example, carriers anticipate that the likelihood of requiring medical care increases with age. Consequently, individuals between 55 and 64 in the individual market of most states pay considerably more than a 30-year-old for the same coverage. For group policies, older individuals usually pay the same amount as younger members of the group. Table 2 demonstrates the difference in premiums charged by carriers we contacted to applicants based solely on age for the same comprehensive health plan. About 20 states have passed legislation that limits the amount individual market carriers can vary premium rates or the characteristics they may use to vary these rates, but substantial variation exists among these states. For example, Minnesota allows individual market carriers to vary premiums for differences in individual characteristics such as occupation, age, and geographic area; New Hampshire allows carriers to modify premium rates only for differences in age; and New Jersey does not allow carriers to vary rates on the basis of any individual characteristics. In states where no restrictions apply, a carrier may also engage in medical underwriting, whereby it evaluates the health status of applicants to determine whether it will charge a higher premium rate, exclude an existing health condition from coverage, or deny coverage altogether. For example, individuals with serious health conditions such as heart disease are almost always denied coverage. Other, non-life-threatening conditions, such as chronic back pain, may also be excluded from coverage. In contrast, under a group plan, individuals with these conditions could not be denied coverage nor be required to pay a higher premium than others in the plan, and specific conditions could only temporarily be excluded from coverage. Table 3 provides examples of how several large individual market carriers treat non-HIPAA-eligible individuals with certain health conditions in states that do not prohibit medical underwriting. Federal law provides certain guarantees to ensure that retirees over 65 have access to Medicare supplemental policies in the event that an employer eliminates or reduces coverage; however, the coverage alternatives available to these individuals may be limited, less comprehensive, or more expensive. For example, a retiree over 65 receiving supplemental coverage through a typical private, employer- sponsored plan may receive coverage for a number of benefits, including prescription drugs. If the employer eliminated this coverage, the affected retiree could seek to purchase alternative coverage on his or her own through the Medigap market. However, under federal law, these individuals would be guaranteed access without medical underwriting to only 4 of the 10 standardized Medigap policies available in most states.None of these four plans includes prescription drug coverage. Access to other Medigap plans, including those with limited prescription drug coverage, could depend on the retiree’s health and the carrier’s willingness to offer coverage. Thus, retirees could end up with less comprehensive coverage than they received from their former employers. Further, in cases where the employer had contributed to the majority or all of the cost of the Medicare-eligible retiree’s health plan, the retiree will be responsible for the full premium price. Retirees who had obtained employer-sponsored coverage through a Medicare+Choice plan could potentially face similar challenges in terms of limited choice and coverage and higher costs in the event that health plans were no longer available, such as when a Medicare+Choice plan withdraws from the market. Regardless of how they lose their employer-sponsored coverage, purchasing Medigap coverage may be a costly alternative for many retirees. Table 4 shows examples of premiums for several popular Medigap plans in selected states. Premium increases and forecasts for a potential economic slowdown could pose concerns for many employers and may make employer- sponsored benefits vulnerable to further erosion. In the longer term, these factors, coupled with the potential for Medicare reforms and an increasing number of aging baby boomers, may produce even more uncertainty and cost pressures for employers. Consequently, as the number of retirees without employer-based coverage increases, retirees, particularly those in poorer health, may encounter difficulty finding affordable alternative health coverage. We provided a draft of this report to the Department of Labor and several expert reviewers for comments. The reviewers provided technical comments that we incorporated as appropriate. As agreed with your office, unless you announce the report’s contents earlier, we plan no further distribution of it until 30 days after its issue date. We will then send copies to the Honorable Elaine Chao, Secretary of Labor; the Honorable Michael McMullan, Acting Administrator of the Health Care Financing Administration; and other interested congressional committees and members and agency officials. We will also make copies available to others on request. Please call me at (202) 512-7118 if you have any questions. Another contact and major contributors are listed in appendix IV. In conducting our study, we reviewed available employer survey data, analyzed the March supplements of the Census Bureau’s 1995 to 2000 Current Population Survey, reviewed applicable laws and court decisions pertaining to changes in employer-sponsored coverage, obtained individual insurance market premiums from carriers, and interviewed employee benefit consulting firms and several large employers. We conducted our work from June 2000 through February 2001 in accordance with generally accepted government auditing standards. For information on the extent to which employers offer health coverage to retirees as well as the conditions under which coverage is made available, we relied on private employer benefit surveys, specifically those of (1) the Health Research and Educational Trust (HRET) sponsored by the Kaiser Family Foundation (and formerly produced by KPMG Peat Marwick) and (2) William M. Mercer, Incorporated (which were formerly produced by Foster Higgins). These surveys have more current or comprehensive information on retiree health benefits than do existing surveys conducted by the federal government. Also, these surveys are distinguished from a number of other private ones not only by their content but also by their large random samples, which allow their results to be generalized to a larger population of employers. Neither survey, however, reports sufficient information about its sampling errors to determine the precision of its estimates, although the Kaiser/HRET survey notes that year-to-year changes in the percentage of employers offering retiree health benefits have not been significant since 1998. The Kaiser/HRET surveys are based on samples of employers with three or more employees selected from a Dun and Bradstreet list of private and public employers. For some retiree health benefit questions, the Kaiser/HRET survey limits its reported data to employers with 200 or more employees. The Kaiser/HRET surveys’ sample size was about 1,800 in 1993 and 1,887 in 2000, with response rates of 55 percent and 45 percent, respectively (see table 5 for additional information on the Kaiser/HRET sample by firm size). The Mercer/Foster Higgins surveys are based on samples of employers with 10 or more employees selected from the Dun and Bradstreet database for private firms and the Census of Governments for government agencies. For some retiree health benefit questions, the Mercer survey limits its reported data to employers with 500 or more employees. The Mercer survey’s sample size was about 3,676 in 1993, with a response rate of 78 percent. In 2000, Mercer’s database contained 2,797 responses from its random sample—a response rate of about 50 percent. We relied on the Census Bureau’s March supplement of the Current Population Survey (CPS) for information on the demographic characteristics of retirees and their access to insurance. The survey is based on a sample designed to represent a cross-section of the nation’s civilian noninstitutional population. In March 2000, about 60,000 households were sampled for the survey, and about 47,000 of them, containing approximately 94,000 persons 15 years of age or older, were interviewed. The total response rate for the 2000 CPS March supplement was about 86 percent. Because the CPS is based on a sample, any estimates derived from the survey are subject to sampling errors. A sampling error indicates how closely the results from a particular sample would be reproduced if a complete count of the population were taken with the same measurement methods. To minimize the chances of citing differences that could be attributable to sampling errors, we highlight only those differences that are statistically significant at the 95 percent confidence level. The following provides more detail on how some of the CPS questions are phrased and how the responses are categorized, including some clarifications and limitations. The CPS asks whether a respondent was covered by employer/union- sponsored, Medicare, Medicaid, private individual, or certain other types of health insurance in the last year. Thus, the 2000 CPS asked what coverage an individual might have had in 1999. Until recently, individuals were not asked directly whether they were uninsured, but were deemed to be so if they denied having any of the above sources of coverage. As a result, the CPS is believed to have slightly overestimated the number of people who are uninsured. Beginning in 2000, the CPS insurance questions are being revised so that individuals who report no health insurance are specifically asked if they are uninsured; however, the Census Bureau has not yet reported the responses to this question. Another limitation to the CPS insurance questions is that they do not ask how long an individual had each source of insurance or whether the individual was covered through any source(s) at the time of the interview. Thus, the CPS considers a person to be insured even if he or she was covered for only 1 day in the past year, and regardless of whether the person was insured on the day of the interview. However, some individuals may respond with their current insurance status rather than their coverage for the past year. Because some people may receive coverage from several sources, we prioritized the source of insurance individuals reported to avoid double counting. That is, if individuals reported having coverage from two or more kinds of insurance, we assigned them to one type based on a hierarchy. Specifically, employer-sponsored coverage was considered primary to other sources of coverage for individuals less than 65 years of age, and respondents were classified as having employer-sponsored coverage even if they also had other types of coverage. The other types of health insurance were prioritized in the following order: Medicare, Medicaid, military/veterans, and individual insurance. For people 65 years of age or older, we first determined whether an individual had Medicare and then prioritized any remaining coverage in the following order: employer-sponsored, Medicaid, military/veterans, and individual insurance. The CPS also asks whether employer-sponsored insurance is provided “in their own name” or as a dependent of another policyholder. We primarily focused on whether retired individuals had employer-sponsored health insurance coverage in their own names because this coverage can most directly be considered retiree health coverage from a former employer. The CPS questions that we used for employment status are similar to those on insurance status. Respondents are considered employed if they worked at all in the past year and not employed only if they did not work at all during the past 12 months. We reviewed applicable laws and court decisions pertaining to changes in employer-sponsored coverage. Appendix II presents additional information on the results of this review. We contacted health insurance carriers in certain states with limited rating restrictions to obtain premiums for individual market policies available to applicants who were 30 and 60 years old. Similarly, we contacted several state insurance departments to obtain premium prices of Medigap policies available to eligible individuals. From carriers, we also obtained information on the kinds of health conditions that may be excluded from coverage or for which an applicant may be denied coverage altogether. For additional information on current and prospective changes to employer-sponsored retiree health benefits, we interviewed and obtained documents from several global employee benefits consulting firms. In addition, we contacted selected large employers for information on the kinds of changes they had made to their retiree health benefits as well as the factors that had led to these changes. Although employers often provide health benefits to retirees, they are not required to do so. However, employers that provide retiree health benefits are responsible for acting consistent with certain administrative and fiduciary requirements established by the Employee Retirement Income Security Act of 1974 (ERISA). In most retiree health benefit litigation, retirees have sought to restore health benefits that have been reduced or eliminated by alleging that the employer breached representations made about the quality, extent, and duration of retiree health benefits. Courts generally have ruled that an employer can modify or terminate health care benefits provided to retirees if the employer specifically had reserved that right in health benefit documents or collective bargaining agreements. A recent Third Circuit Court decision, which focused on whether differences in health benefits provided to Medicare-eligible retirees and retirees not yet eligible for Medicare violated the Age Discrimination in Employment Act (ADEA), could influence employer decisions on whether to continue retiree health benefits. Employer-sponsored retiree health benefits are considered welfare benefits under Title I of ERISA. To ensure a uniform federal law governing employee benefit plans, ERISA generally preempts all state law as it may pertain to employee benefit plans covered under its jurisdiction. Under ERISA, private employers who choose to provide retiree health benefit plans must give plan participants and beneficiaries a summary plan description (SPD) describing their rights and obligations, and are responsible for acting consistently with certain administrative and fiduciary requirements. The SPD, which must be written in a manner intended to be understood by the average plan participant, specifies retirees’ rights and the circumstances under which the health plan can be modified or terminated. In addition, ERISA establishes fiduciary standards to protect employee benefit plan participants and beneficiaries from plan mismanagement. Generally, these standards require fiduciaries to act with the care, skill, and diligence of a prudent person in protecting plan participants and beneficiaries. Federal courts generally have ruled that an employer can modify or terminate retiree health care benefits based on the fact that the employer specifically had reserved that right in health benefit documents or collective bargaining agreements. Challenges to maintain or restore these benefits largely have been unsuccessful. Generally, retirees cannot rely on oral communications or representations that benefits would be maintained for life or without reduction. ERISA requires that every plan be established and maintained under a written instrument. Thus, courts look to plan documents including the terms of the SPD to determine if the plan precludes an employer from modifying or terminating benefits. Courts, however, are divided on whether the reservation clause must be contained in the SPD. Several courts have held that, inasmuch as the SPD is an employee’s primary source of information regarding employment benefits, employees are entitled to rely on the descriptions in the summary. However, at least one appellate court has ruled that an employer reserved the right to amend or terminate health benefits if the reservation clause is in other plan documents, even if it is not mentioned in the SPD. Retirees receiving health benefits under collective bargaining agreements have fared only slightly better than salaried retirees in litigation. Absent a finding that the parties intended that the health benefits were to be maintained for the retiree’s life or some period beyond the expiration of the agreements, courts generally view these benefits as ending at the expiration of the agreements. In one of the earliest collectively bargained contract cases, UAW v. Yard- Man, Inc., the court noted that any right to lifetime benefits must be based on the contract. The contract contained the promise that the company will provide insurance to retired employees, which reasonably could be construed either as a reference to the nature of retiree benefits or as creating a benefit continuing beyond the life of the agreement. The court resolved the ambiguity by looking to other provisions of the collective bargaining agreement for evidence of intent and an interpretation in accord with the entire document. From that examination, the court concluded that the parties had intended to create insurance benefits that continued beyond the life of the collective bargaining agreement. The court noted that retiree benefits were permissive not mandatory subjects of collective bargaining, and that “it is unlikely that such benefits, which are typically understood as a form of delayed compensation or reward for past services, would be left to the contingencies of future negotiations.” The court characterized retiree health benefits as “status” benefits carrying with them “an inference that they continue so long as the prerequisite status is maintained.” The Yard-Man case served to spur some, but not all, courts into concluding that collective bargaining agreement language that appeared to require the continuation of retiree health benefits should require employers to provide those benefits. The First, Fourth, Sixth, and Eleventh Circuits have followed the “inference” standard first articulated in Yard-Man. The Fifth Circuit has questioned the inference. The Eighth Circuit has rejected the inference that employees engaged in collective bargaining are forgoing wages in consideration for retiree health benefits. The Seventh Circuit has also rejected the inference altogether, observing that the courts in this circuit do not distinguish between collective bargaining agreements and ERISA plans for this purpose. Claims of some retirees that modification or termination of their retiree health benefits constitutes a breach of fiduciary duty have, by and large, been denied. However, the Supreme Court articulated a standard for fiduciary liability in certain limited instances, finding that an employer acted as a fiduciary when it intentionally misled employees about the future and security of benefits. The Third Circuit has detailed four elements retirees must demonstrate to succeed in a breach of fiduciary duty claim: proof of fiduciary status, misrepresentations by the company, company knowledge of the confusion created, and resulting harm to the employees. The decision in Erie County Retirees Association v. County of Erie raises a new issue in evaluating retiree health benefits and could affect an employer’s continued provision of these benefits. Erie County selected a health plan for Medicare-eligible retirees that limited choice of a primary care physician and reimbursed for services, except emergencies, only if authorized by the primary care physician. However, unlike a traditional indemnity plan, there were no deductibles and few or no copayments. For former employees not yet Medicare-eligible, the county selected a hybrid point-of-service plan under which a retiree could choose an HMO option (and accept its benefits and limitations) or a traditional indemnity option. The Medicare-eligible retirees filed suit against Erie County, contending that the health coverage offered to them was inferior to that offered to retirees under 65, and therefore they were discriminated against based on section 4(a) of the Age Discrimination in Employment Act (ADEA). The Third Circuit ruled that Erie County treated its Medicare-eligible retirees differently from other retirees with respect to their compensation, terms, condition, or privileges of employment because of age, establishing a claim under the ADEA. The court also ruled that, under the act, the employer could provide different benefits to Medicare-eligible retirees only if (1) they provided equal benefits to those provided to retirees not yet eligible for Medicare or (2) the employer’s costs for Medicare-eligible retirees and retirees not yet eligible for Medicare were equal. The case was sent back to the trial court for a determination on the county’s compliance with this “equal benefit or equal cost” rule. The 10 standardized Medigap policies, called plans A through J, differ by the benefits they provide. However, all 10 plans include the same “basic benefits,” including Part A hospitalization coinsurance (days 61 to 90), lifetime reserve coinsurance (days 91 to 150), 365 extra days of hospital care, the first 3 pints of blood or equivalent quantities of packed red blood cells per calendar year that Medicare Parts A and B do not cover, and Part B coinsurance (20 percent). Individuals can purchase a Medigap plan with additional benefits, although the extent to which the 10 plans offer these various benefits differs. (Table 6 illustrates benefit differences among the three plans for which we obtained premium rates.) Plan F is the most popular Medigap plan. According to a HCFA official, plans C and F together represent over one half of all Medigap sales. Plan H is one of the three standardized plans that include a limited prescription drug benefit. Under Medigap’s special enrollment rules, eligible individuals have guaranteed access to four plans, including plans C and F. In contrast, access to plan H may be subject to medical underwriting. In addition to the above staff member named, Susan Anthony, Carmen Rivera-Lowitt, and Mark Vinkenes made key contributions to this report. Paula Bonin provided computer programming for the analysis of the CPS, and Dayna Shah and Roger Thomas provided a legal review of relevant statutes and court decisions. Medicare+Choice: Plan Withdrawals Indicate Difficulty of Providing Choice While Achieving Savings (GAO/HEHS-00-183, Sept. 7, 2000). Medigap: Premiums for Standardized Plans That Cover Prescription Drugs (GAO/HEHS-00-70R, Mar. 1, 2000). Prescription Drugs: Increasing Medicare Beneficiary Access and Related Implications (GAO/T-HEHS/AIMD-00-100, Feb. 16, 2000). Private Health Insurance: Progress and Challenges in Implementing 1996 Federal Standards (GAO/HEHS-99-100, May 12, 1999). Private Health Insurance: Declining Employer Coverage May Affect Access for 55- to 64-Year-Olds (GAO/HEHS-98-133, June 1, 1998). Implementation of HIPAA: State-Designed Mechanisms for Group-to- Individual Portability (GAO/HEHS-98-161R, May 20, 1998). Retiree Health Insurance: Erosion in Retiree Health Benefits Offered by Large Employers (GAO/T-HEHS-98-110, Mar. 10, 1998). Retiree Health Insurance: Erosion in Employer-Based Health Benefits for Early Retirees (GAO/HEHS-97-150, July 11, 1997). Private Health Insurance: Millions Relying on Individual Market Face Cost and Coverage Trade-Offs (GAO/HEHS-97-8, Nov. 25, 1996). Employer-Based Health Plans: Issues, Trends, and Challenges Posed by ERISA (GAO/HEHS-96-167, July 25, 1995).

In 1999, nearly 10 million retired people aged 55 or older relied on employer-sponsored health insurance as either their primary source of coverage or as a supplement to their Medicare coverage. Some of these persons are concerned about the continued availability of employer-sponsored coverage. Premium increases and forecasts for a potential economic slowdown could further erode employer-sponsored benefits. In the long term, these factors, coupled with the potential for Medicare reforms and the rising number of aging baby boomers, may produce even more uncertainty and cost pressures for employers. Consequently, as an increasing number of retirees lack employer-based coverage, those in poorer health may have difficulty finding affordable alternative health coverage.

You are an expert at summarizing long articles. Proceed to summarize the following text: Under the Medicaid program’s federal-state partnership, CMS is responsible for overseeing the program, while state Medicaid agencies are responsible for the day-to-day administration of the program. Although subject to federal requirements, each state develops its own Medicaid administrative structure for carrying out the program, including its approach to program integrity. To monitor program integrity in Medicaid, CMS estimates the national improper payment rate on an annual basis through the Payment Error Rate Measurement (PERM) program. The PERM involves reviews of sampled fee for service claims, payments to managed care entities, and beneficiary eligibility determinations in the states; the national improper payment rate is a weighted average of states’ rates in each of these components. State Medicaid programs do not work in isolation on program integrity; instead, there are a large number of federal agencies, other state entities, and contractors with which states must coordinate. (See fig. 1.) Recognizing the importance of federal state collaboration on program integrity issues, in November 2016, along with the Office of Management and Budget, we convened a meeting with state auditors, CMS, and other federal officials to discuss ways to strengthen collaboration between the federal government and the states. In recent years, Medicaid expenditures and enrollment grew under PPACA. Growth in enrollment is primarily due to more than half of the states choosing to expand their Medicaid programs by covering certain low-income adults not historically eligible for Medicaid coverage, as authorized under PPACA. In addition to expanding Medicaid eligibility, PPACA required the establishment of health insurance exchanges in all states, and provided for federal subsidies to assist qualifying low-income individuals in paying for exchange coverage. States may elect to establish and operate an exchange, known as a state-based exchange, or allow CMS—which is responsible for overseeing the exchanges—to do so within the state, known as a federally facilitated exchange (FFE). As of March 2015, CMS operated an FFE in 34 states, and 17 states were approved to operate state-based exchanges. CMS has taken steps to improve Medicaid program integrity and reduce improper payments; however, additional actions should be taken to help further prevent improper payments. Specifically, our work has identified four key program integrity issues for the Medicaid program—enrollment verification, managed care, provider screening, and coordination between Medicaid and the exchanges—along with CMS’s progress in addressing them, and additional necessary actions. Since 2011, CMS has taken steps to make the Medicaid enrollment- verification process more data-driven to improve the accuracy of eligibility determinations. For example, in response to PPACA, CMS established a more rigorous approach to verifying financial and nonfinancial information needed to determine Medicaid beneficiary eligibility. CMS created a tool called the Data Services Hub that was implemented in fiscal year 2014 to help verify beneficiary applicant information used to determine eligibility for enrollment in qualified health plans and insurance-affordability programs, including Medicaid. The hub routes to and verifies application information in various external data sources, such as the Social Security Administration and the Department of Homeland Security. According to CMS, the hub can verify key application information, including household income and size, citizenship, state residency, incarceration status, and immigration status. Despite CMS’s efforts, there continue to be gaps in the agency’s efforts to ensure that only eligible individuals are enrolled into Medicaid. In particular, our work found that federal and selected state-based marketplaces approved health insurance coverage and subsidies for 9 of 12 fictitious applications made during the 2016 special enrollment period. In another study, we found that CMS also had gaps in ensuring that Medicaid expenditures for enrollees—including enrollees eligible as a result of the PPACA expansion—are matched appropriately by the federal government. Specifically, we found that CMS had excluded from review federal Medicaid eligibility determinations in the states that have delegated authority to the federal government to make Medicaid eligibility determinations through the federally facilitated exchange. To address this gap in oversight of eligibility determinations, we recommended that CMS conduct reviews of federal Medicaid eligibility determinations to ascertain the accuracy of these determinations and institute corrective action plans where necessary. In October 2016, HHS provided additional information indicating that the department is relying upon operational controls within federal marketplaces to ensure accurate eligibility determinations as well as new processes that would identify duplicate coverage. However, we continue to believe that without a systematic review of federal eligibility determinations, the agency lacks a mechanism to identify and correct errors and associated payments. Lastly, CMS requires all states to participate annually in the Eligibility Review Pilots to test different approaches to measuring the accuracy of eligibility determinations under the new beneficiary enrollment processes. Oversight of beneficiary eligibility is important to program integrity. Our prior work has identified thousands of Medicaid beneficiaries involved in potential improper or fraudulent payments. Some of the concerns that we identified included beneficiaries having payments made on their behalf concurrently by two or more states, and payments made for claims that were dated after a beneficiary’s death. CMS has taken steps to provide states with additional guidance on their oversight of Medicaid managed care organizations. In October 2014, CMS made available on its website the managed care plan compliance toolkit to provide further guidance to states and managed care plans on identifying improper payments to providers. In May 2016, CMS issued a final rule on Medicaid managed care, which requires states to conduct periodic audits of financial data submitted by, or on behalf of each Medicaid managed care plan. The final rule takes additional steps to improve oversight of Medicaid managed care, with some provisions applying after 2018. CMS has also taken action in response to recommendations that we made with regard to increasing guidance for states, requiring states to audit managed care organizations, and providing states with additional audit support. Oversight of Medicaid managed care is increasing in importance as states’ use of managed care plans to deliver services has been growing. More than half of all Medicaid beneficiaries are now enrolled in managed care plans, and nearly 40 percent of Medicaid expenditures are for health care services delivered through managed care. The estimated improper payment rate for managed care is currently less than one percent; however, this estimate is based on a review of the payments made to managed care organizations and does not review any underlying medical documentation. Additional actions on the part of CMS and the states are critical to improving program integrity in Medicaid. In particular, we and the HHS Office of Inspector General have identified incomplete and untimely managed care encounter data. Encounter data are data that managed care organizations are expected to report to state Medicaid programs, allowing states to track the services received by beneficiaries enrolled in managed care. Our work found that encounter data for 11 states were not available in a timely manner, and that 6 states had encounter data that we deemed were unreliable. PPACA included multiple provisions aimed at strengthening the screening of providers who enroll to participate in Medicaid. While the act requires that all providers and suppliers be subject to licensure checks, it gave CMS discretion to establish a risk-based application of other screening procedures. According to CMS’s risk-based screening, moderate- and high-risk providers and suppliers additionally must undergo pre- enrollment and post-enrollment site visits, while high-risk providers and suppliers also will be subject to fingerprint-based criminal-background checks. This requirement may address some of the potentially fraudulent or improper payments. Additionally, CMS regulations now require that the state Medicaid agency enroll all Medicaid managed care providers, which has the potential to improve oversight of providers in managed care. Prior to PPACA, if one state terminated a provider from its Medicaid program, a provider could potentially enroll in or continue participation in another state’s Medicaid program, leaving the latter state’s program vulnerable to potential fraud, waste, and abuse. Our prior work has identified hundreds of Medicaid providers who were potentially improperly receiving Medicaid payments. Potential improper behavior included providers with suspended or revoked licenses, improper mailing addresses, or deceased providers. Actions to ensure appropriate oversight of Medicaid providers, however, continue to require additional action on the part of CMS and the states. Our work, which was based on 2 states and 16 health plans, found that these states and health plans used information that was fragmented across 22 databases managed by 15 different federal agencies to screen providers—and that these databases did not always have unique identifiers. Our work resulted in in a recommendation that CMS identify databases best suited for oversight of provider eligibility and coordinate with other agencies to explore the use of a unique identifier. CMS regulations now require that the state Medicaid agency enroll all Medicaid managed care providers, which has the potential to improve oversight of providers in managed care. However, CMS has not yet evaluated whether the additional database merit further action or considered ways to ensure that a unique identifier is available so that providers can be accurately identified. We also found that the 10 selected states that we reviewed used inconsistent practices to make data on ineligible providers publicly available, which could result in provider screening efforts that do not identify ineligible providers. CMS has taken action that is responsive to another recommendation on providing guidance to state Medicaid programs, establishing expectations and best practices on sharing provider screening data among states and Managed care plans. In addition, the recently enacted 21st Century Cures Act takes important steps to address this recommendation including requiring CMS to establish a provider termination notification database by July 2018 and requiring the agency to establish uniform terminology for reasons for provider terminations. Regarding coordination between Medicaid and the exchanges, CMS implemented policies and procedures to ensure that individuals do not have duplicate coverage (enrolled in Medicaid and in subsidized exchange coverage). Due to changes in income and other factors, it is likely that under PPACA many low-income individuals will transition between Medicaid and subsidized exchange coverage. Our prior work found that despite CMS policies and procedures designed to prevent duplicate coverage, it was occurring. In response, CMS has conducted three checks to identify individuals with duplicate coverage. CMS has also reported that the agency intends to complete these checks at least two times per coverage year, which has the potential to save federal—as well as beneficiary—dollars. While CMS has made progress by implementing checks for duplicate coverage, weaknesses remain. CMS has not developed a plan for assessing whether the checks and other procedures are sufficient to prevent and detect duplicate coverage. In March 2016, CMS reported that it was reviewing data on the number of people identified as having duplicate coverage through the first CMS check who subsequently disenrolled from subsidized exchange coverage. CMS reported reviewing these data as a means of assessing the effectiveness of the checks for duplicate coverage. We are continuing to monitor CMS’s efforts in this area, particularly whether CMS develops a plan, including thresholds for the level of duplicate coverage it deems acceptable, to routinely monitor the effectiveness of the checks and other planned procedures to prevent and detect duplicate coverage. In closing, Medicaid represents significant expenditures for the federal government and states, and is the source of health care for tens of millions of Americans. Its long-term sustainability is critical, and will require, among other things, effective federal and state oversight. Chairman Murphy, Ranking Member DeGette, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you might have. If you or your staff have any questions about this testimony, please contact Carolyn L. Yocom, 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 testimony are Ann Tynan (Assistant Director), Susan Barnidge, Leslie Gordon, Drew Long, Andrea E. Richardson, and Jennifer Whitworth. Patient Protection and Affordable Care Act: Results of Enrollment Testing for the 2016 Special Enrollment Period. GAO-17-78. Washington, D.C.: November 17, 2016. Medicaid Fee-For-Service: State Resources Vary for Helping Beneficiaries Find Providers. GAO-16-809. Washington, D.C.: August 29, 2016. Patient Protection and Affordable Care Act: CMS Should Act to Strengthen Enrollment Controls and Manage Fraud Risk. GAO-16-506T. Washington, D.C.: March 17, 2016. Medicaid Managed Care: Trends in Federal Spending and State Oversight of Costs and Enrollment. GAO-16-77. Washington, D.C.: December 17, 2015. Medicaid: Additional Efforts Needed to Ensure that State Spending is Appropriately Matched with Federal Funds. GAO-16-53. Washington, D.C.: October 16, 2015. Medicaid: CMS Could Take Additional Actions to Help Improve Provider and Beneficiary Fraud Controls. GAO-15-665T. Washington, D.C.: June 2, 2015. Medicaid: Service Utilization Patterns for Beneficiaries in Managed Care. GAO-15-481. Washington, D.C.: May 29, 2015. Medicaid: Additional Actions Needed to Help Improve Provider and Beneficiary Fraud Controls. GAO-15-313. Washington, D.C.: May 14, 2015. Medicaid Program Integrity: Increased Oversight Needed to Ensure Integrity of Growing Managed Care Expenditures. GAO-14-341. Washington, D.C.: May 19, 2014. The following table lists selected recommendations GAO has made to the Department of Health and Human Services regarding Medicaid program integrity. The agency has implemented 3 of these recommendations. The agency has either not taken or has not completed steps to implement the remaining 8 recommendations, as of January 2017.

Medicaid, a joint federal-state health care program, is a significant component of federal and state budgets, with estimated outlays of $576 billion in fiscal year 2016. The program's size and diversity make it particularly vulnerable to improper payments. In fiscal year 2016, improper payments were an estimated 10.5 percent ($36 billion) of federal Medicaid expenditures, an increase from an estimated 9.8 percent ($29 billion) in fiscal year 2015. States, which are responsible for the day-to-day administration of the Medicaid program, are the first line of defense against improper payments. Specifically, states must implement federal requirements to ensure the qualifications of the providers who bill the program, detect improper payments, recover overpayments, and refer suspected cases of fraud and abuse to law enforcement authorities. At the federal level, CMS is responsible for supporting and overseeing states' Medicaid program integrity activities. This testimony highlights key program integrity issues in Medicaid, the progress CMS has made improving its oversight of program integrity, and the related challenges the agency and states continue to face. This testimony is based on 10 products and 11 recommendations. Of these 11 recommendations, 3 have been implemented based on agency action. GAO's prior work has identified four Medicaid program integrity issues—where the program is vulnerable to improper payments such as those made for services that were not covered, were not medically necessary, or were not provided—as well as actions taken by the Centers for Medicare & Medicaid Services (CMS) to address the issues and additional actions that should be taken. Enrollment Verification: In response to the Patient Protection and Affordable Care Act (PPACA), CMS established a more rigorous approach for verifying financial and nonfinancial information needed to determine Medicaid beneficiary eligibility. Despite CMS's efforts, however, there continue to be gaps in efforts to ensure that only eligible individuals are enrolled into Medicaid, and that Medicaid expenditures for enrollees—particularly those eligible as a result of the PPACA expansion—are matched appropriately by the federal government. Oversight of Medicaid Managed Care: CMS has provided states with additional guidance on their oversight of Medicaid managed care. Oversight of managed care is increasing in importance and improvements in measuring the improper payment rate are needed. For example, the estimated improper payment rate for managed care is based on a review of payments made to managed care organizations, and does not review any underlying medical documentation. GAO and the Department of Health and Human Services (HHS) Office of Inspector General have identified incomplete and untimely managed care encounter data—data that managed care organizations are expected to report to state Medicaid programs, allowing states to track the services received by beneficiaries enrolled in managed care. Provider Eligibility: PPACA included multiple provisions aimed at strengthening the screening of providers who enroll to participate in Medicaid. While the act requires that all providers and suppliers be subject to licensure checks, it gave CMS discretion to establish a risk-based application of other screening procedures, such as fingerprint-based criminal-background checks for high-risk providers. Also, CMS regulations now require that all Medicaid managed care providers enroll with the state Medicaid agency, which has the potential to improve oversight of providers in managed care. However, GAO's work based on 2 states and 16 health plans identified challenges screening providers for eligibility, partially due to fragmented information. Coordination between Medicaid and the Exchange: CMS implemented a number of policies and procedures to ensure that individuals do not have duplicate coverage (enrolled in both Medicaid and in subsidized coverage through an exchange, which is a marketplace where eligible individuals may compare and purchase private health insurance). CMS has conducted checks to identify individuals with duplicate coverage, and plans to complete these checks at least two times per coverage year, which has the potential to save federal—as well as beneficiary—dollars. However, CMS has not developed a plan for assessing whether the checks and other procedures—such as thresholds for the level of duplicate coverage deemed acceptable—are sufficient to prevent and detect duplicate coverage.

You are an expert at summarizing long articles. Proceed to summarize the following text: According to the Defense Health Board’s Task Force on the Future of Military Health Care, rising health care costs result from a multitude of factors that are affecting not only DOD but also health care in general. These factors include greater utilization of health care services, increasingly expensive technology and pharmaceuticals, growing numbers of users, and the aging of the retiree population. Additionally, in 2009, the Defense Business Board reportedcosts are taking up more of the defense budget, and its health care programs may eventually compete with other critical defense acquisition and operational programs. Figure 1 illustrates the actual and projected that defense health care future cost growth for DOD’s MHS according to the Congressional Budget Office. DOD operates a large, complex health system that provides health care to 9.6 million beneficiaries. DOD employs almost 140,000 military, civilian, and contract personnel who work in medical facilities throughout the world. Beneficiaries fall into different categories: (1) active duty servicemembers and their dependents, (2) eligible National Guard and Reserve servicemembers and their dependents, and (3) retirees and their dependents or survivors. In fiscal year 2009, active duty servicemembers and their dependents represented 32 percent of the beneficiary population, eligible National Guard and Reserve servicemembers and their dependents represented 14 percent, and retirees and their dependents or survivors made up the remaining 54 percent. The management of DOD’s MHS crosses several organizational boundaries. Reporting to the Under Secretary of Defense for Personnel and Readiness, the Assistant Secretary of Defense for Health Affairs is the principal advisor for all DOD health policies, programs, and force health protection activities. Health Affairs issues policies, procedures, and standards that govern management of DOD medical programs and has the authority to issue DOD instructions, publications, and directive-type memorandums that implement policy approved by the Secretary of Defense or the Under Secretary of Defense for Personnel and Readiness. It integrates the services’ budget submissions into a unified medical budget that provides resources for DOD’s MHS operations. However, Health Affairs lacks direct command and control of the services’ military treatment facilities. See figure 2 for the current organizational structure of DOD’s MHS. Operationally, DOD’s MHS has two missions: supporting wartime and other deployments, known as the readiness mission, and providing peacetime care, known as the benefits mission. The readiness mission provides medical services and support to the armed forces during military operations, including deploying medical personnel and equipment throughout the world, and ensures the medical readiness of troops prior to deployment. The benefits mission provides medical services and support to members of the armed forces, retirees, and their dependents. DOD’s dual health care mission is delivered by the military services at 59 military treatment facilities capable of providing diagnostic, therapeutic, and inpatient care, as well as hundreds of clinics and private sector civilian providers. The military treatment facilities make up what is known as DOD’s direct care system for providing health care to eligible beneficiaries. The Departments of the Army and the Navy each have a medical command, headed by a surgeon general, who manages each department’s respective military treatment facilities and other activities through a regional command structure. The Navy’s Bureau of Medicine and Surgery supports both the Navy and Marine Corps. The Air Force Surgeon General, through the role of medical advisor to the Air Force Chief of Staff, exercises similar authority to that of the other surgeons general. Each service also recruits, trains, and funds its own medical personnel to administer the medical programs and provide medical services to beneficiaries. For the management of military treatment facilities within the National Capital Region and the execution of related Base Realignment and Closure (BRAC) actions in that area, an additional medical organizational structure and reporting chain was established in 2007. This structure is known as the Joint Task Force National Capital Region Medical, whose Commander reports to the Deputy Secretary of Defense, and the two inpatient medical facilities in the area are considered joint commands assigned to the task force. DOD also operates a purchased care system throughout the country that consists of a network of private sector civilian primary and specialty care providers. The TRICARE Management Activity, under the authority, direction, and control of Health Affairs, is responsible for awarding, administering, and managing these contracts. For many years, GAO and other organizations have highlighted a range of long-standing issues surrounding DOD’s MHS and its efforts to reorganize its governance structure. For example, in 1995, we reported that interservice rivalries and conflicting responsibilities hindered improvement efforts. We further noted that the services have historically resisted efforts to change the way military medicine is organized, including consolidating the services’ medical departments, in favor of maintaining their own health care systems, primarily on the grounds that each service has unique medical activities and requirements. Since the 1940s, there have been over 20 studies that have addressed military health care organization. DOD has identified 11 initiatives aimed at slowing medical cost growth, but it has not fully applied results-oriented management practices to its efforts. Specifically, it has developed an implementation plan and related estimates of potential cost savings for only 1 of the 11 initiatives. As a result, DOD has limited its effectiveness in implementing and monitoring these initiatives and achieving related cost savings and other performance goals. The Senior Military Medical Advisory Council—a committee that functions as an executive-level discussion and advisory group, has approved 11 initiatives that it believes will help reduce rising health care costs. (See table 2 for a list of these initiatives.) These 11 initiatives consist of changes to MHS clinical and business practices in areas ranging from primary care to psychological health care to purchased care reimbursement practices. DOD’s initiatives generally reflect broader concepts that were discussed by health care experts, business leaders, and public officials at two separate forums convened by GAO in 2004 and 2007 on ideas for responding to cost and other challenges in the health care system. For example, in the 2004 forum, 55 percent of participants strongly agreed that the U.S. health care system is characterized by both underuse of wellness and preventive care and overuse of high-tech procedures. In addition, the plenary speakers at the 2004 forum observed that unwarranted variation in medical practices nationwide points to quality and efficiency problems. Similarly, DOD developed initiatives that seek to increase the productivity of and to ease access to primary care and encourage wellness, preventive, and evidence-based health care. Further, in the 2007 forum, 77 percent of participants strongly agreed that the federal government should revise its payment systems and leverage its purchasing authority to foster value-based purchasing for health care products and services. Similarly, MHS officials discussed potential changes that led to the fourth and fifth initiatives as listed in table 2. Both initiatives involve changes to payment for medical care to reward quality of care and health outcomes instead of volume of services rendered. Another of the 11 initiatives aims to reduce costs by keeping patients as healthy as possible during treatment and recovery. With this initiative, MHS officials hope to reach the goal of reducing hospital readmissions by 20 percent and hospital acquired infections by 40 percent by 2013 from the baseline year of 2010. DOD has not fully developed results-oriented management plans for implementing its health care initiatives, which could help ensure the achievement of these initiatives’ cost savings goals. Specifically, we found that as a start to managing the implementation of its initiatives, DOD has developed a dashboard management tool that will include elements such as an explanation of the initiative’s purpose, key performance measures, and funding requirements for implementation. In December 2011, the Senior Military Medical Advisory Council approved six dashboards that were significantly, but not entirely completed. A Health Affairs official stated that DOD currently lacks net cost savings estimates for all but one of the initiatives. Cost savings estimates are critical to successful management of the initiatives so that DOD can achieve its goal of reducing growth in medical costs as stated in the 2010 Quadrennial Defense Review. Further, DOD developed an implementation plan to support the dashboards. The implementation plan has a set format to include such information as general timelines and milestones, key risks, and estimated cost savings. DOD currently has one completed implementation plan, which also contains the one available cost savings estimate among all the initiatives. See table 2 for the progress made for each of these initiatives. As table 2 shows, DOD had completed a dashboard, an implementation plan, and a cost savings estimate for only 1 of its 11 initiatives as of January 13, 2012. As DOD completes its dashboards, implementation plans, and cost savings estimates, it could benefit from the application of the six characteristics of a comprehensive, results-oriented management framework, on which GAO has previously reported, including a thorough description of the initiatives’ mission statement; problem definition, scope, and methodology; goals, objectives, activities, milestones, and performance measures; resources and investments; organizational roles, responsibilities, and coordination; and key external factors that could affect the achievement of goals. DOD has completed an implementation plan for 1 of its 11 initiatives—the Patient Centered Medical Home initiative, which seeks to increase access to DOD’s primary care network. Based on DOD data, we estimate that this initiative will have a net cost Using the desirable savings of $39.3 million through fiscal year 2016.characteristics of a results-oriented management plan, we assessed the one approved implementation plan, and our analysis of this plan showed that DOD addressed four of the characteristics and partially addressed two other characteristics. For an overview of the six desirable characteristics of comprehensive, results-oriented management plans and our assessment of the extent to which DOD’s Patient Centered Medical Home implementation plan incorporates these desired characteristics, see table 3. Our review of the Patient Centered Medical Home implementation plan found that DOD partially addressed the desired characteristic regarding resources and investments. While DOD acknowledged that some staff will be committed full-time to working on this initiative, it did not show in the plan, as prescribed, the number of personnel needed in total to implement the initiative. A DOD official noted that the section in the plan that asks for the number of personnel needed was intended for officials to show if additional personnel and funding beyond the current level were needed. However, the absence of information concerning DOD’s use of current staff renders the size of the initiative’s impact on utilization of personnel unclear. In addition, the Patient Centered Medical Home implementation plan’s annual cost savings estimate did not reflect net losses when they occur in a given fiscal year. For example, in fiscal years 2012 and 2013, DOD’s investment in the Patient Centered Medical Home initiative is larger than savings, but the implementation plan does not show the net losses for those early years.those years. A DOD official responded by noting that DOD interpreted estimated savings to only include actual savings in any given year and not net losses. However, without accounting for both cost savings and investments, decision makers lack a comprehensive understanding of a program’s true costs. Instead, it shows zero cost savings for Additionally, our review of this implementation plan found that DOD partially addressed the desired characteristic of discussing the key external factors that could have an impact on the achievement of goals. While it provided an extensive overview of internal and external challenges, DOD did not outline a specific process for monitoring such developments. Further, the implementation plan does not fully explore the effect of such challenges on the program’s goals or explain how it takes such challenges into account, such as by outlining a mitigation strategy to overcome them. As DOD further develops its dashboards and implementation plans and incorporates the desired characteristics, it will be in a stronger position to better manage its reforms and ultimately achieve cost savings. For example, DOD was experiencing a 5.5 percent annual increase in per capita costs for its enrolled population according to data available as of December 2011, but DOD had set its target ceiling for per capita health care cost increases for fiscal year 2011 at a lower rate of 3.1 percent. According to DOD calculations using 2011 enrollee and cost data, if DOD had met its target ceiling of 3.1 percent increase as opposed to a 5.5 percent increase, the 2.4 percent reduction would have resulted in approximately $300 million in savings. As DOD’s initiatives evolve and each of these management tools is completed for each of the initiatives, they may provide DOD with a road map to improve its efforts to implement, monitor progress toward, and achieve both short-term and longer-term financial and other performance goals. DOD also has not completed the implementation of an overall process for monitoring progress across its portfolio of health care initiatives and has not completed the process of identifying accountable officials and their roles and responsibilities for all of its reform efforts. Our work on results- oriented management has found that a process for monitoring progress is key to success. We have also reported that clearly defining areas of responsibility is a key process that provides management with a framework for planning, directing, and controlling operations to achieve goals. In addition, as MHS leaders develop and implement their plans to control rising health care costs, they will need to work across multiple authorities and areas of responsibility. As the 2007 Task Force on the Future of Military Health Care noted, the current MHS does not function as a fully integrated health care system. As we reported in October 2005, agreement on roles and responsibilities is a key step to successful collaboration when working across organizational boundaries, such as the military services. Committed leadership by those involved in the collaborative effort, from all levels of the organization, is also needed to overcome the many barriers to working across organizational boundaries. For example, Health Affairs centrally manages Defense Health Program funds for the military services, but it lacks direct command and control of the military treatment facilities. Additionally, we that the commitment of agency managers reported in September 2005to results-oriented management is an important practice to help increase the use of performance information for policy and program decisions. DOD’s one approved implementation plan for the Patient Centered Medical Home initiative provides further information on how DOD has applied a monitoring structure, defined accountable officials, and assigned roles and responsibilities in the case of this initiative. Senior officials stated that they plan to monitor performance, specifically cost savings, and said that if projected cost savings were not realized, senior leadership would reconsider further investment in the program. We reported that in some instances, up-front investments are needed to yield longer-term savings and that it is essential for officials to monitor and evaluate whether the initiative is meeting its goals. However, DOD has not completed this process for the remainder of its initiatives. Without sustained top civilian and military leadership which is consistently involved throughout the implementation of its various initiatives and until DOD fully implements for all of its initiatives a mechanism to monitor performance and identify accountable officials, including their roles and responsibilities, DOD may be hindered in its ability to achieve a more cost-efficient MHS and at the same time address its medical readiness goals, improve its overall population health, and improve its patients’ experience of care. Beyond the medical initiatives designed to slow medical cost growth, DOD has taken steps to implement several other initiatives designed to improve MHS governance. However, DOD officials have not fully employed several key management practices to help ensure that these medical governance initiatives will achieve their stated goals. DOD has to varying degrees taken steps to implement some of the seven governance initiatives approved by the Deputy Secretary of Defense in 2006 with the goal of achieving economies of scale, operational efficiencies, and financial savings as well as consolidating common support functions and eliminating administrative redundancies. In 2007, after the initiatives were approved, we recommended that DOD demonstrate a sound business case for proceeding with these initiatives to include providing detailed qualitative and quantitative analyses of benefits, costs, and associated risks. Initially, DOD expected that the seven initiatives would save at least $200 million annually once implemented. However, more than 5 years later, DOD officials have projected estimated financial savings for only one of the seven initiatives concerning the governance and management of the MHS—an initiative to consolidate the command and control structure of its health services within the National Capital Region. Similarly, as part of a separate initiative aimed at increasing efficiency and conserving funds, DOD consolidated its operations at the Naval Health Clinic Great Lakes with the Department of Veterans Affairs’ (VA) North Chicago Veterans Affairs Medical Center, but has not measured its progress in achieving financial Officials said that many of the governance initiatives have savings.significant potential for cost savings, and some of these governance initiatives have already achieved various efficiencies. However, financial savings have not been demonstrated for the majority of the initiatives because most have not been fully implemented. For those that have been implemented, such as the Joint Medical Education and Training Campus in San Antonio, Texas, officials stated that they were unable to develop baseline training costs against which to measure future costs and potential savings. However, the governance structure to command, control, and manage operations at the campus has resulted in the consolidation of 39 of 64 courses. According to officials, this has resulted in efficiencies such as the standardization of pharmacy clinical policy across the services. Table 4 lists the steps DOD has taken to implement the seven governance initiatives, the results of those actions, and potential opportunities to achieve additional cost savings and efficiencies. Although DOD has achieved varying levels of implementation of its MHS governance initiatives, it did not consistently employ several key management practices found at the center of successful mergers, acquisitions, and transformations. Further, BRAC implementation requirements drove implementation progress for a number of initiatives. At a GAO forum in September 2002, leaders with experience managing large-scale organizational mergers, acquisitions, and transformations identified at least nine key practices and lessons learned from major private and public sector organizational mergers, acquisitions, and transformations. During the course of our work examining DOD’s health care initiatives, we determined that six of the key practices identified at our 2002 forum were especially important to ensure that DOD has the framework needed to implement its governance initiatives: (1) a focus on a key set of principles and priorities that are embedded in the organization to reinforce the new changes, (2) coherent mission and integrated strategic goals to guide the transformation, (3) implementation goals and a timeline to build momentum and show progress from day one, (4) a communication strategy to create shared expectations and report related progress, (5) a dedicated implementation team with the responsibility and authority to drive the department’s governance initiatives, and (6) committed and sustained leadership. To its credit, DOD developed a set of guiding principles to facilitate its transformation of DOD’s medical command structure. A clear set of principles and priorities can serve as a framework to help the agency create a new culture and drive employee behavior. For example, a set of core values can become embedded in every aspect of the organization and can serve as an anchor that remains valid and enduring while organizations, personnel, programs, and processes change. Senior DOD officials developed a set of guiding principles to direct efforts throughout the governance transformation. These principles and goals were included in the November 2006 memorandum: (1) provide a healthy, fit and protected force; (2) create a trained, ready, and highly capable medical force that delivers superior medical support; and (3) ensure efficient delivery of a comprehensive health benefit to eligible beneficiaries. Although DOD provided initial guidance and strategic goals in its November 2006 memorandum, it did not follow leading results-oriented strategic planning guidance by establishing performance measures. As we have previously reported, effective implementation includes adopting leading practices for results-oriented strategic planning and reporting, such as establishing specific and measurable performance measures for the transformed organization. In addition, intermediate measures can be used to provide information on interim results and show progress toward intended results. DOD provided initial guidance, which includes strategic goals to assist in the implementation of the governance transformation. For example, the memo provided that lessons learned from the consolidation and realignment of health care delivery within the National Capital Region and San Antonio be used as the basis for establishment of similar structures in other multiservice medical markets. However, MHS officials stated that Health Affairs did not fully monitor and evaluate the progress of its governance initiatives using performance measures. Specifically, DOD leaders stated that specific measures to evaluate the outcomes of the different governance approaches taken in these two locations had not been established. Therefore, DOD lacked information that would be useful in deciding if governance changes are needed in other multiservice medical markets. Such measurable outcomes provide the information DOD needs to determine if it is meeting its goals, make informed decisions, and track the progress of the governance transformation activities. The November 2006 memorandum provided a brief, initial 3-year timetable for the implementation of the governance transformation initiatives; however, this timetable is high level and did not contain interim dates indicating progress. Besides meeting the approval date of the memorandum, MHS officials did not meet any of the other major dates that were set in the timetable. We have reported that establishing implementation goals and a timeline is critical to ensuring success, as well as pinpointing performance shortfalls and gaps and suggesting midcourse corrections. A transformation, such as changing DOD’s MHS governance, is a substantial commitment that could take years before it is completed and therefore must be carefully managed and monitored to achieve success. At a minimum, successful mergers and transformations should have careful and thorough interim plans in place well before the effective implementation date. However, the timetable lacked any interim goals. While DOD has made progress in implementing the three initiatives that were related to BRAC recommendations, this is most likely because DOD was required by law to complete most implementation of BRAC recommendations by September 15, 2011, and to have a monitoring process in place to support these efforts. These three initiatives are (1) create governance structures to command, control, and manage the combined operations at the military treatment facilities in the National Capital Area and in the San Antonio, Texas, area; (2) create a governance structure to command, control, and manage the Joint Medical Education and Training Campus in San Antonio, Texas; and (3) colocate Health Affairs, TMA, and the services’ medical headquarters staff. However, the latest completion date for the colocation of the Health Affairs, TMA, and the services’ medical headquarters staff is the summer of 2012. DOD’s governance initiatives may have been better implemented if MHS officials had maintained a long-term focus on the transformation by setting both short- and long-term goals to show progress and developing a more complete and specific timetable to guide the efforts. DOD has not established an effective and ongoing communication strategy to allow MHS officials to distribute information about its governance changes early and often. Key practices suggest that a transforming organization develop a comprehensive communication strategy that reaches out to employees, customers, and stakeholders and seeks to genuinely engage them in the transformation process. This includes communicating early and often to build trust, ensuring consistency of message, encouraging two-way communication, and providing information to meet specific needs of employees. While MHS officials communicated their transformation initiatives in the 2007 TRICARE Stakeholders’ Report, subsequent reports did not contain any references to the governance initiatives. In addition, the 2008 Military Health System Strategic Plan references a goal to “improve governance by aligning authority and accountability” as a strategic priority; however, the plan does not elaborate on how this goal will be met, and it has not been reissued since. Furthermore, the lack of a communication strategy is evident based on the fact that officials in San Antonio responsible for the initiatives related to establishing the Joint Medical Education and Training Campus and San Antonio Military Health System told us they were unaware of the approved governance initiatives. DOD has not developed an approach to communicate its governance transformation initiatives with stakeholders to ensure that they have a basic understanding of their role and involvement. Without a comprehensive communication strategy, MHS officials will remain limited in their ability to gain support for the governance transformation. Further, this lack of communication can create confusion or a lack of awareness among stakeholders, which can place the success of DOD’s initiatives at risk. DOD did not form an overarching implementation team for all seven of its initiatives to direct their progress. Our prior work has shown that a dedicated team vested with necessary authority and resources to help set priorities, make timely decisions, and move quickly to implement As we have decisions is critical for a successful transformation.previously reported, a strong and stable implementation team responsible for day-to-day management is important to ensuring that a transformation effort receives the focused, full-time attention needed to be sustained and successful. The Deputy Secretary of Defense’s November 2006 memorandum directed DOD to build such a team by 2007. Instead, according to a DOD official, it initiated independent transition teams to guide the implementation of some of its initiatives, such as the Joint Task Force National Capital Region Medical and the colocation of the MHS’s and the services’ medical headquarters staff. The lack of an overarching implementation team likely hampered progress and contributed to uneven progress in the implementation of the initiatives. GAO-03-669. Defense internal efficiencies review. Further, officials told us that the lack of Senate-confirmed, presidentially appointed leadership also presented challenges in moving forward with governance changes. For example, the position of the Under Secretary of Defense for Personnel and Readiness was vacant from January 2009 to February 2010, and the position of Assistant Secretary of Defense for Health Affairs was vacant from April 2009 to January 2011. According to officials, these vacancies hindered progress toward greater unification, as someone temporarily filling the position may be reluctant to make major decisions to change the strategic direction of the MHS. Without involved and sustained military and civilian leadership being held accountable to guide and sustain progress of its initiatives, it may be difficult for the department to fully and successfully achieve its governance transformation. Overall, DOD did not consistently employ key management practices to help improve the implementation of its MHS governance initiatives or to evaluate the extent to which it accomplished the initiatives’ costs savings and other performance goals. As a result, the gaps we identified may have created risks that undermined DOD’s efforts as it began to implement its plans. Specifically, without key management practices in place, DOD lacks both a day-to-day and long-term focus on achieving its goals and accountability to guide and sustain progress of its initiatives. If military health care costs continue to rise at their current rate, they will consume an increasingly large portion of the defense budget and potentially divert funding away from other critical DOD priorities. MHS medical-related and governance-related initiatives represent potential opportunities to implement more efficient ways of doing business, reduce overhead, and slow the rate of cost growth while continuing to meet the needs of military personnel, retirees, and their dependents. While DOD has developed a number of medical initiatives aimed at slowing health care cost increases, successful implementation will depend upon incorporating characteristics of results-oriented management practices, sustaining top military and civilian leadership that holds officials accountable for achieving agency goals, and establishing clear cost savings targets where applicable. By fully employing the characteristics of results-oriented management with greater attention to its investments and resources and key external factors that could affect the achievement of its goals, DOD will gain more assurance that it is effectively managing its health care initiatives and saving money. Additionally, opportunities exist for an improved governance structure that can result in direct cost savings but also help to drive clinical savings. As DOD moves forward with its governance, clinical, and other initiatives, significant financial savings as well as other efficiencies may be possible with the appropriate level of management attention to ensure success. With sound decision making and analysis and by consistently employing key management practices throughout their implementation, DOD officials will be in a position to make informed decisions, to better measure DOD’s progress toward its cost and performance goals, and to be more assured that their efforts yield necessary improvements and achieve efficiencies within the MHS. In order to enhance DOD’s efforts to manage rising health care costs and demonstrate sustained leadership commitment for achieving the performance goals of the MHS’s strategic initiatives, we recommend that the Under Secretary of Defense for Personnel and Readiness direct the Assistant Secretary of Defense for Health Affairs, in conjunction with the service surgeons general, to take the following three actions: Complete and fully implement, within an established time frame, the dashboards and detailed implementation plans for each of the approved health care initiatives in a manner that incorporates the desired characteristics of results-oriented management practices, such as the inclusion of performance metrics, investment costs, and cost savings estimates. Complete the implementation of an overall monitoring process across DOD’s portfolio of initiatives for overseeing the initiatives’ progress and identifying accountable officials and their roles and responsibilities for all of its initiatives. Complete the implementation of the governance initiatives that are already under way by employing key management practices in order to show financial and nonfinancial outcomes and to evaluate both interim and long-term progress of the initiatives. In written comments provided in response to a draft of this report, DOD concurred with our findings and recommendations. Regarding our first recommendation to complete and fully implement, within an established time frame, the dashboards and detailed implementation plans for each of the approved health care initiatives in a manner that incorporates the desired characteristics of results-oriented management practices, DOD concurred and noted that it anticipates that these dashboards and detailed implementation plans will be fully implemented within a year. Regarding our second recommendation to complete the implementation of an overall monitoring process across DOD’s portfolio of initiatives for overseeing the initiatives’ progress and identifying accountable officials and their roles and responsibilities, DOD concurred and noted that such a system is being implemented and it anticipates that the overall monitoring process will also be fully implemented within a year. Regarding our third recommendation to complete the implementation of the governance initiatives that are already under way by employing key management practices in order to show financial and nonfinancial outcomes, DOD concurred and noted that the department will take further action once the legislative requirements concerning its submitted task force report on MHS governance have been fulfilled. DOD noted that it will employ key management practices in order to identify financial and nonfinancial outcomes. DOD’s comments are reprinted in their entirety in appendix II. We are sending copies of this report to the Secretary of Defense, the Deputy Secretary of Defense, the Under Secretary of Defense for Personnel and Readiness, the Assistant Secretary of Defense (Health Affairs), the Surgeon General of the Air Force, the Surgeon General of the Army, the Surgeon General of the Navy, the Commander, Joint Task Force, National Capital Region Medical, and interested 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 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 key contributions to this report are listed in appendix III. To obtain general background information, we obtained and reviewed various directives, instructions, and policies that defined the organization, structure, and roles and responsibilities of the Military Health System’s (MHS) key leaders. To determine the extent to which the Department of Defense (DOD) has identified initiatives to reduce health care costs and applied results- oriented management practices in developing plans to implement and monitor them, we interviewed DOD officials concerning their approach to this challenge and examined documentation of related plans and policies. Specifically, we interviewed DOD officials in the Health Budgets and Financial Policy Office and in the Office of Strategy Management, within the Office of the Assistant Secretary of Defense for Health Affairs (Health Affairs), as well as officials in the TRICARE Management Activity concerning their 11 health care initiatives and obtained and reviewed documentation concerning their efforts. We compared DOD’s efforts to our prior work on the desirable characteristics of comprehensive, results- oriented management and noted any differences. We compared DOD’s one available implementation plan, concerning the Patient Centered Medical Home initiative, to key practices that guide federal agencies’ approaches to strategic planning efforts by examining the extent to which the implementation plan contained the desirable characteristics of a comprehensive, results-oriented management framework. To perform this comparison, we developed a data collection instrument that contained desirable characteristics and elements that help establish comprehensive strategies using information from prior GAO work examining national strategies and logistics issues. The data collection instrument included the following six desirable characteristics: 1. Mission statement: A comprehensive statement that summarizes the main purposes of the plan. 2. Problem definition, scope, and methodology: Presents the issues to be addressed by the plan, the scope of its coverage, the process by which it was developed, and key considerations and assumptions used in the development of the plan. 3. Goals, objectives, activities, milestones, and performance measures: The identification of goals and objectives to be achieved by the plan, activities or actions to achieve those results, as well as milestones and performance measures. 4. Resources and investments: The identification of costs to execute the plan and the sources and types of resources and investments, including skills and technology and the human, capital, information, and other resources required to meet the goals and objectives. 5. Organizational roles, responsibilities, and coordination: The development of roles and responsibilities in managing and overseeing the implementation of the plan and the establishment of mechanisms for multiple stakeholders to coordinate their efforts throughout implementation and make necessary adjustments to the plan based on performance. 6. Key external factors that could affect the achievement of goals: The identification of key factors external to the organization and beyond its control that could significantly affect the achievement of the long-term goals contained in the plan. These external factors can include economic, demographic, social, technological, or environmental factors, as well as conditions that would affect the ability of the agency to achieve the results desired. We used the data collection instrument to determine whether each characteristic was addressed, partially addressed, or not addressed. Two GAO analysts independently assessed whether each element was addressed, partially addressed, or not addressed, and recorded their assessment and the basis for the assessment on the data collection instrument. The final assessment reflected the analysts’ consensus and was reviewed by a supervisor. We also obtained available documentation and interviewed DOD officials to determine DOD’s approach for monitoring the initiatives’ progress, identifying accountable officials, and defining their roles and responsibilities. We compared DOD’s efforts to our prior work on results- oriented management and noted any differences. We did not assess the reliability of any financial data associated with this objective since we used such data for illustrative purposes to provide context of DOD’s efforts and to make broad estimates about potential costs savings from these efforts. We determined that these data did not materially affect the nature of our findings. To determine the extent to which DOD implemented its seven medical governance initiatives approved in 2006, we first identified the governance initiatives approved by the Deputy Secretary of Defense, and then we visited locations where the initiatives were being implemented to review available documentation related to the status of the efforts and interviewed officials concerning any progress made. Specifically: To determine the extent to which command and control structures in the National Capital Region and San Antonio areas had been established, we met with officials from the Joint Task Force National Capital Region Medical and officials from the 59th Medical Wing, Brook Army Medical Center, and the Army Medical Command in San Antonio, Texas. We obtained and reviewed the charter establishing the Joint Task Force and the memorandum of agreement establishing the San Antonio Military Health System. Based on the interviews and the reviews of the charter, memorandum of agreement, and other documents provided by officials, we determined each organization’s staffing, management structure, responsibilities and authorities, and financing. We compared the resulting organization with the guidance contained in the approved governance initiative to determine if the organization complied with the intent of the approved governance initiative. Furthermore, we interviewed officials and obtained any information available to document and determine if any financial savings had been generated from the change in governance structure. To determine the extent to which a command and control structure for the Joint Medical Education and Training Campus had been established, we met with officials from the Medical Education and Training Campus. We obtained and reviewed the memorandum of agreement establishing the Medical Education and Training Campus. Based on this interview and the reviews of the memorandum of agreement and other documents provided by officials, we determined the organization’s staffing, management structure, responsibilities and authorities, and financing. We compared the resulting organization with the guidance contained in the approved governance initiative to determine if the organization complied with the intent of the approved governance initiative. Furthermore, we interviewed officials and obtained any information available to document and determine if any financial savings had been generated from the change in governance structure. To determine the extent to which the MHS’s and services’ medical headquarters staff had been colocated, we interviewed officials from Health Affairs, and we obtained briefings on the status of the colocation as well as the latest Base Realignment and Closure (BRAC) business plan developed for the colocation. Furthermore, we obtained and examined the recommendation from the 2005 BRAC Commission that mandated the colocation. To determine the extent to which DOD consolidated all medical research and development under the Army Medical Research and Material Command, we interviewed Health Affairs officials responsible for medical research and development funded by the Defense Health Program appropriation to learn the extent to which these funds had been consolidated under the Army Medical Research and Material Command. We reviewed the interservice support agreement that documents how Health Affairs and the Army Medical Research and Material Command agreed to interact to manage the research funded by the Defense Health Program appropriation. We reviewed DOD’s 2008 assessment of medical research and development investments conducted for the Guidance for Development of the Force (fiscal years 2010–2015) for background on how DOD handled medical research and development funds in the past and to document the need for additional research and development funds. To determine the extent to which DOD realigned the TRICARE Management Activity to establish a Joint Military Health Services Directorate and establish an agency to focus on health insurance plan management, we interviewed Health Affairs officials to determine what efforts had been made to accomplish these two initiatives and examined the proposed Military Heath System Support Activity organization put forth in the Defense Health Program’s fiscal year 2012 budget request. To assess the extent to which DOD created governance structures that consolidate command and control of the military treatment facilities in locations with more than one DOD component providing health care services, we interviewed officials at Health Affairs to determine what efforts had been made and what future plans they may have in this area. To determine the extent to which DOD employed key management practices while implementing the medical governance initiatives, we compared DOD’s approach to implementing the approved governance initiatives with key management practices that GAO has found to be at the center of successful mergers, acquisitions, and transformations. Although the GAO report on key practices for transformation listed nine practices, we found that six of the nine had the most relevance to our review. The six key practices we used in our analysis were ensure top leadership drives the transformation, establish a coherent mission and integrated strategic goals to guide the transformation, focus on a key set of principles and priorities at the outset of the transformation, set implementation goals and a timeline to build momentum and show progress from day one, dedicate an implementation team to manage the transformation establish a communication strategy to create shared expectations and report related progress. We decided to exclude the following three practices: (1) the use of the performance management system to define responsibility and assure accountability for change, (2) the involvement of employees to obtain their ideas and ownership for the transformation, and (3) the adaptation of leading practices to build a world-class organization. Rather, we assessed DOD’s use of each of the six of the practices because DOD either employed a practice to some degree or the practice was appropriate given DOD’s position in the transformational process. However, this exception on our part does not suggest that DOD should not employ these three practices in the future. As DOD progresses through the change process, DOD should consider employing all of the key practices to help ensure a successful transformation. We determined the extent to which DOD employed the above key management practices in implementing the medical governance initiatives by comparing them to the actions taken by MHS officials. Specifically, we reviewed the November 2006 action memorandum signed by the Deputy Secretary of Defense that laid out the way ahead, provided some initial guidance, and identified the seven next steps. We examined the 2008 Military Health System Strategic Plan, the Under Secretary of Defense for Personnel and Readiness Fiscal Year 2012-2016 Strategic Plan, MHS stakeholders’ reports, the MHS Strategic Imperatives Scorecard, Defense Health Program budget estimates, memorandums of agreement, an interservice support agreement, charters, BRAC business plans, and memorandums providing the status of implementations efforts. To complete our understanding of DOD’s approach in implementing the seven approved governance initiatives, we interviewed officials from the Office of the Under Secretary of Defense for Personnel and Readiness, Health Affairs, the TRICARE Management Activity, the Joint Task Force National Capital Region Medical, the Medical Education and Training Campus, Brook Army Medical Center, Army Medical Command, and Air Force 59th Medical Wing. We compared this information to key management practices for successful mergers, acquisitions, and transformations and examined any differences. Finally, we also interviewed officials who participated in the Office of the Under Secretary of Defense for Personnel and Readiness’ review of military health care and its impacts on the health of the force and the Deputy Secretary of Defense’s review of MHS governance options. We also obtained the final report from the Task Force on MHS Governance, analyzed its methodology and findings, and discussed the results and its recommendations with DOD officials. We conducted this performance audit from March 2011 through February 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 addition to the contact named above, Lori Atkinson, Assistant Director; Rebecca Beale; Stacy Bennett; Grace Coleman; Elizabeth Curda; Kevin Keith; Charles Perdue; Adam Smith; Amie Steele; and Michael Willems made key contributions to this report.

DOD’s health care costs have risen significantly, from $19 billion in fiscal year 2001 to $48.7 billion in its fiscal year 2013 budget request, and are projected to increase to $92 billion by 2030. GAO reviewed DOD’s efforts to slow its rising health care costs by changing selected clinical, business, and management practices. Specifically, GAO determined the extent to which DOD has (1) identified initiatives to reduce health care costs and applied results-oriented management practices in developing plans for implementing and monitoring them and (2) implemented its seven medical governance initiatives approved in 2006 and employed key management practices. For this review, GAO analyzed policies, memorandums, directives, and cost documentation, and interviewed officials from the Office of the Secretary of Defense, from the three services, and at each of the sites where the governance initiatives were under way. The Department of Defense (DOD) has identified 11 initiatives aimed at slowing its rising health care costs, but has not fully applied results-oriented management practices in developing plans to implement and monitor its initiatives. Results-oriented management practices include developing plans that identify goals, activities, and performance measures; resources and investments; organization roles, responsibilities, and coordination; and key external factors that could affect goals, such as a decrease of funding to a program. At the conclusion of GAO’s review, DOD had completed and approved a detailed implementation plan, including a cost savings estimate, for just 1 of its 11 initiatives. Developing cost savings estimates is critical to successful management of the initiatives for achieving the 2010 Quadrennial Defense Review’s call for reduced growth in medical costs. DOD also has not completed the implementation of an overall process for monitoring progress across its portfolio of health care initiatives and has not completed the process of identifying accountable officials and their roles and responsibilities for all of its initiatives. Without comprehensive, results-oriented plans, a monitoring process, and clear leadership accountability, DOD may be hindered in its ability to achieve a more cost-efficient Military Health System, address its medical readiness goals, improve its overall population health, and improve its patients’ experience of care. Additionally, DOD has another set of initiatives, which were approved in 2006 to change aspects of its medical governance structure. GAO found that DOD had implemented some of the initiatives but had not consistently employed several key management practices that would have helped it achieve its stated goals and sustain its efforts. DOD approved the implementation of the seven governance initiatives with the goal of achieving economies of scale and operational efficiencies, sharing common support functions, and eliminating administrative redundancies. Specifically, DOD expected the initiatives to save at least $200 million annually once implemented; however, to date, only one initiative has projected any estimated financial savings. DOD officials stated that the other governance initiatives have resulted in efficiencies and have significant potential for cost savings. Further, the governance initiatives that are further developed were driven primarily by requirements of Base Realignment and Closure Commission recommendations and their associated statutory deadlines for completion. Additionally, GAO found that DOD had not consistently employed several key management practices, which likely hindered the full implementation of the initiatives. For example, the initiatives’ initial timeline was high-level and generally not adhered to, a communication strategy was not prepared, an overall implementation team was never established, and performance measures to monitor the implementation process and achievement of the goals were not established. With more emphasis on the key practices of a successful transformation, DOD will be better positioned in the future to realize efficiencies and achieve its goals as it continues to implement the initiatives. GAO recommends that DOD (1) complete and fully implement comprehensive results-oriented plans for each of its medical initiatives; (2) fully implement an overall monitoring process across the portfolio of initiatives and identify accountable officials and their roles and responsibilities; and (3) complete its governance initiatives and employ key management practices to show financial and nonfinancial outcomes and evaluate interim and long-term progress. In written comments on a draft of this report, DOD concurred with each of these three recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: UAS represent one of many DOD airborne ISR assets available to support ongoing combat operations. Unmanned aircraft are deployed and controlled at different levels of command and can be categorized into three main classes: man-portable, tactical, and theater. Table 1 illustrates examples of UAS in each category. Man-portable UAS are small, self- contained, and portable and are generally used to support the small ground combat teams in the field. Tactical UAS are larger systems that are generally used to support operational units at tactical levels of command such as the battalion or brigade. Tactical UAS are locally operated and controlled by the units. Theater UAS are operated and controlled by the Joint Forces Air Component Commander (JFACC) and are generally used to support combatant commander ISR priorities, although in certain circumstances they can be assigned to support tactical operations, such as when troops are being fired on. Theater UAS traditionally have been more capable than tactical or man-portable systems. For example, theater UAS typically contain characteristics that make them more capable than other categories of UAS, such as their more robust communications architecture and more capable payloads that allow for production of more diverse intelligence data products. However, some tactical systems, such as the Army’s Warrior UAS, are being developed that are capable of performing theater-level requirements and, as currently envisioned, will be embedded in and controlled at the tactical level by units. DOD uses an annual process for allocating or distributing available DOD theater-level airborne ISR assets, including UAS, to the combatant commanders. The allocation process is managed by U.S. Strategic Command’s Joint Functional Component Command for Intelligence, Surveillance and Reconnaissance (JFCC-ISR). In 2003, DOD altered its unified command plan to give U.S. Strategic Command responsibility for planning, integrating, and coordinating ISR in support of strategic and global operations. To execute this responsibility, U.S. Strategic Command established the JFCC-ISR in March 2005. The JFCC-ISR is charged with recommending to the Secretary of Defense how DOD’s theater-level ISR assets should be allocated, or distributed, among combatant commanders and for the integration and synchronization of DOD, national, and allied ISR capabilities and collection efforts. Once DOD’s ISR assets are allocated to the combatant commanders, they are available to be assigned or tasked based on combatant commander priorities against specific missions in support of ongoing operations. Authority for tasking ISR assets, including UAS, is generally determined by the level of the objective the asset is deployed to support and the command level of the unit that controls the asset. Therefore, most theater- level UAS assets that are controlled and tasked by the JFACC are generally used to support theater-level objectives and priorities, as established by the combatant commander. Most tactical UAS assets controlled by the services or the U.S. Special Operations Command are used to support tactical objectives and priorities, which may differ from theater-level priorities. For example, authority to task the Army’s Hunter resides with the commander of the unit in which it is embedded, whereas authority for tasking the Air Force’s Predator resides with the JFACC. In August 2005 DOD issued its current UAS Roadmap which was developed to assist DOD in developing a long-range strategy for UAS development, acquisition, and other planning efforts as well as to guide industry in developing UAS related technology. According to DOD officials, DOD is in the process of developing an update to this Roadmap and expects to issue the updated version in late summer 2007. The UAS Roadmap is intended to guide UAS planning; however, it does address limited operational aspects such as operational issues or challenges that have emerged as a result of operating UAS in support of ongoing operations. For example, the Roadmap acknowledges that the limited number of bandwidth frequencies constrains DOD’s ability to operate multiple unmanned aircraft simultaneously. DOD components have developed guidance—such as a Multi-Service Tactics, Techniques, and Procedures for the Tactical Employment of Unmanned Aircraft Systems and a Joint Concept of Operations for UAS— to facilitate UAS integration. However, DOD continues to face UAS integration challenges, such as the lack of interoperability and limited communications bandwidth. These challenges may be exacerbated because DOD has not established DOD-wide advance coordination procedures for integrating UAS into combat operations. Until DOD takes steps to address the need for DOD-wide advance coordination, it may continue to face challenges in successfully integrating UAS into combat operations and may exacerbate existing integration challenges. DOD components have developed guidance to facilitate the integration of UAS into combat operations. For example, in August 2006 DOD issued its Multi-Service Tactics, Techniques, and Procedures for the Tactical Employment of Unmanned Aircraft Systems. This document was designed to serve as a planning, coordination, and reference guide for the services and provides a framework for warfighters employing UAS. Furthermore, in March 2007 DOD issued its Joint Concept of Operations for Unmanned Aircraft Systems, which provides overarching principles, a discussion of UAS capabilities, operational views, and a discussion of UAS use in various operational scenarios. Each of the above documents represent an important first step for the use of UAS in combat operations, and DOD officials acknowledge these documents will continue to evolve as DOD learns more about the capabilities of UAS and their application in combat operations. DOD continues to face challenges, such as interoperability and communications bandwidth, in integrating UAS into combat operations. In December 2005 we reported that challenges such as the lack of interoperability and limited communications bandwidth have emerged to hamper recent joint operations or prevent timely UAS employment. Specifically, some UAS cannot easily exchange data, sometimes even within a single service, because they were not designed with interoperable communications standards. Additionally, as we previously reported, U.S. forces are unable to interchangeably use some payloads from one type of UAS on another, a capability known as “payload commonality.” Furthermore, electromagnetic spectrum frequencies, often referred to as bandwidth, are congested by a large number of UAS and other weapons or communications systems using the same frequency simultaneously. While some UAS can change to different, less congested, frequency bands, most UAS were built without the ability to change frequency bands. Thus, commanders have had to delay certain missions until frequency congestion cleared. DOD is taking steps to address these challenges such as equipping UAS with the Tactical Common Data Link and, according to DOD officials, it is developing common ground control stations to improve interoperability of its UAS. Existing UAS integration challenges may be exacerbated because DOD has not established DOD-wide advance coordination procedures for integrating UAS and other ISR assets into combat operations. Specifically, DOD officials indicate that assets arriving in theater without advance coordination may exacerbate UAS integration challenges, such as further taxing the limited available bandwidth. As additional ISR assets are rapidly acquired and fielded to meet the increasing demand for ISR support in ongoing operations, CENTCOM has recognized that advance coordination is a critical factor in integrating UAS into combat operations by enabling efficient deployment of assets and effective utilization of them once they are in theater. Furthermore, advance knowledge of system requirements is crucial to allow the combatant commander sufficient time to adequately plan to support incoming assets. DOD officials acknowledge that having to incorporate assets quickly into the theater infrastructure creates additional challenges and further emphasizes the need for advance coordination. In response to this issue, CENTCOM has developed procedures to ensure the services coordinate their plans prior to deploying UAS to CENTCOM’s theater of operations. In May 2005 CENTCOM established the Concept of Operations for Employment of Full Motion Video Assets, which states that when a full-motion video-capable asset or weapons system is scheduled for deployment to CENTCOM’s theater of operations, the controlling unit will notify CENTCOM of the deployment no later than 30 days prior to arrival of the asset in theater. It also states that the controlling unit will provide a system and platform concept of operations to CENTCOM no later than 15 days prior to the asset’s arrival. According to CENTCOM officials, they distributed these procedures to each of CENTCOM’s service components, such as Central Command Air Forces and U.S. Naval Forces Central Command. However, they were unaware if the procedures were distributed further to the services, and service officials we interviewed, including those at the service Headquarters as well as those stationed within units returning from ongoing operations, indicated they were not aware of the requirement. CENTCOM officials indicate that the procedures have not always been followed. The Warrior Alpha, which was fielded by the Joint Improvised Explosive Device Defeat Organization and operated by the Army to aid in the identification and elimination of improvised explosive devices, illustrates why this advance coordination is so critical. As a result of coordinating with CENTCOM, the Army was made aware of limitations such as bandwidth and limited ramp space and decided to deploy the Warrior Alpha to an alternate location. While CENTCOM and Army officials disagree on whether the coordination was completed in a timely manner, all agree it was ultimately completed. While this example is limited to CENTCOM’s area of operations, the potential exists for DOD to have to quickly establish operations in other areas of the world, which makes the need for advance coordination even more critical. CENTCOM officials acknowledge the need for advance coordination for all ISR assets entering CENTCOM’s theater of operations, not just those assets that are capable of full-motion video. To address this need, CENTCOM developed in November 2006 an ISR Systems Concept of Operations Standardization Memo. CENTCOM officials stated that the ISR memo is intended to provide CENTCOM with awareness of what assets are coming into theater and to allow CENTCOM to ensure the asset is able to be incorporated into the existing infrastructure, given operational challenges such as limited communications bandwidth. This memo requires the inclusion of certain elements in all ISR system concepts of operations, including how the asset will be tasked; how intelligence will be processed, exploited, and disseminated; and system bandwidth requirements that must be coordinated with CENTCOM prior to deployment of ISR assets. This ISR memo applies only to CENTCOM’s theater of operations and does not constitute DOD-wide guidance. While the Warrior Alpha example is limited to CENTCOM, the potential exists for DOD to need to establish operations in other areas of the world very quickly. A DOD-wide procedure for advance coordination would be critical for quickly supporting UAS and other ISR assets once deployed. Until DOD takes steps to address the need for DOD-wide advance coordination, it may be unable to successfully integrate UAS and other ISR assets into combat operations and existing integration challenges may be exacerbated. DOD’s current approach to allocating and tasking its ISR assets, including UAS, does not consider the capabilities of all ISR assets because it lacks an awareness or visibility over all ISR capabilities available to support the combatant commanders and how DOD ISR assets are being used, which hinders DOD’s ability to optimize the use of its assets. Although DOD has established a process for allocating available DOD ISR assets, including UAS, to the combatant commanders to meet their needs, it does not have an awareness of all ISR assets, which impairs its ability to distribute or allocate DOD assets while considering the capabilities of all ISR assets. Additionally, DOD’s process for tasking its ISR assets does not currently allow for information at all levels into how DOD’s ISR assets are being used on a daily basis, which hinders its ability to leverage other assets operating in an area and to avoid unnecessary duplicative taskings. Without an approach to its allocation and tasking processes that considers all ISR capabilities, DOD is not in a sound position to fully leverage all the capabilities of available ISR assets and to optimize the use of those assets, and therefore cannot be assured that it is addressing warfighter needs in the most efficient and effective manner. DOD recognizes the opportunity to better plan for and control its ISR assets and has initiated a study to examine the issue. Although DOD has established a process for allocating available DOD ISR assets to the combatant commanders to meet the warfighters’ needs, it does not have an awareness or visibility over the total number and types of ISR assets available to support combatant commanders or the capabilities represented by those assets. DOD uses an annual process for allocating or distributing its available ISR assets, including UAS, to the combatant commanders to meet theater-level needs. That process is managed by U.S. Strategic Command’s JFCC-ISR, which is tasked with making recommendations to the Secretary of Defense on how best to allocate DOD ISR resources for theater use across the combatant commands and ensuring the integration and synchronization of DOD, national, and allied ISR capabilities and collection efforts. DOD officials indicate that annual allocation levels are constrained by the number of ISR assets in DOD’s inventory and believe that JFCC-ISR is, therefore, not able to allocate to the combatant commanders ISR assets in sufficient numbers to meet all requests for ISR support. However, our work suggests that additional information is needed to assess the true demand for ISR assets and the best way to meet this demand. Specifically, JFCC-ISR’s ability to fulfill its mission of integrating DOD, national, and allied partner ISR capabilities and making recommendations on how best to allocate ISR assets to support the warfighter depends, in part, on the extent to which it has awareness and visibility over all ISR assets, including DOD, national, and allied ISR assets. JFCC-ISR does not have complete visibility into all assets that could be used to support combatant commanders’ needs, which hinders its ability to optimally distribute or allocate DOD ISR assets. JFCC- ISR officials estimate it has 80–90 percent visibility into DOD ISR assets but does not have the same level of visibility into other national and allied ISR assets available to support theater-level requirements, such as assets that are owned and controlled by U.S. national intelligence agencies such as the National Security Agency or by our allies supporting ongoing operations. According to JFCC-ISR officials, although they are working to gain better visibility over all ISR assets, they currently do not have this level of visibility because DOD does not currently have a mechanism for obtaining information on all ISR assets—including all DOD, national, and allied assets—operating in each of the combatant commanders’ area of operations. Absent such a mechanism, JFCC-ISR has been trying to learn more about the capabilities of non-DOD ISR assets by building relationships with other national and allied intelligence agencies and addressing limitations related to intelligence agency system access. Without an approach to its allocation process that considers all available ISR capabilities, JFCC-ISR does not have all the information it needs to leverage the capabilities of all available ISR assets and to optimize the allocation of DOD’s ISR assets. DOD’s process for tasking its airborne ISR assets, including UAS, does not provide for visibility at all levels into how DOD airborne ISR assets are being used on a daily basis. Once DOD ISR assets have been allocated, those assets are available to the combatant commanders to be assigned, or tasked, against specific requests for ISR support in ongoing operations. The JFACC is responsible for planning, coordinating, and monitoring joint air operations to focus the effect of air capabilities and for assuring their effective and efficient use in achieving the combatant commanders’ objectives. However, while the JFACC has visibility into how all theater- level ISR assets, like the Air Force’s Predator, are being used, he or she does not have visibility into how tactical ISR assets, such as the Army’s Hunter, are being used on a daily basis or what missions they are supporting. The JFACC generally tasks assets that support theater-level objectives, while assets that support tactical-level objectives are tasked and controlled by the services or by the U.S. Special Operations Command. Tactical units utilize their embedded, or tactical, assets first to satisfy unit intelligence needs. However, when tactical assets are not available or capable of satisfying a unit’s need for ISR support, the unit requests theater-level ISR support. Requests for most theater-level assets are entered into a central DOD database, but there is no similar database that captures requests for tactical-level assets. While there are procedures, such as the Air Tasking Order and Airspace Control Order, for tracking where theater- and tactical-level assets are operating for airspace control and deconfliction purposes, a comparable mechanism for tracking the missions these assets are supporting or how they are being used on a daily basis does not exist. For example, the Air Tasking Order would track the time, date, and location where a UAS was operating, but there is no mechanism that would track what intelligence the UAS was supposed to gather on a mission or why the UAS was being used on a mission. Without a database or similar mechanism providing visibility into how tactical-level assets are being tasked, the JFACC is limited in his or her awareness of how those assets are being used on a daily basis, which hinders the JFACC’s ability to optimize the use of those assets. This lack of visibility limits the JFACC’s ability to leverage those assets using techniques such as cross-cueing, which is the collaborative effort of using capabilities offered by multiple ISR platforms to fulfill a mission. By using techniques such as cross-cueing, the JFACC has been able to use the different types of capabilities brought by different theater-level manned and unmanned ISR assets to maximize the intelligence collected. For example, a manned Joint Surveillance Target Attack Radar System was tasked to monitor an area. When this system sensed movement in the area, a Predator was then tasked to collect imagery to confirm suspected activity. Without visibility into how tactical assets are being utilized, the JFACC is limited in his or her ability to optimize the use of all available DOD ISR assets and to focus the effect of these assets to ensure their efficient and effective use. Such visibility will become even more important given that services such as the Army are acquiring, and planning to embed in units, ISR assets capable of satisfying theater-level requirements, such as the Extended Range/Multi-Purpose or Warrior UAS, which could otherwise be leveraged to support JFACC requirements. Duplicative taskings that occur are often driven by a lack of visibility into where ISR assets at all levels are operating and what they are tasked to do. For example, a DOD official shared with us an example of unnecessary duplication where an Army unit requested a full-motion video-capable asset to support a high-priority requirement. When the asset, a Predator UAS, arrived to support the requirement, its operator realized the Army unit had also tasked one of its tactical assets, a Hunter UAS, against the requirement. As a result of the lack of visibility over all assets, the potential exists for multiple ISR aircraft to be tasked to operate in the same area and against the same requirement. However, some level of duplication may be necessary when driven by mission requirements and system capabilities. Certain missions, such as special operations, often need a certain amount of duplication in order to achieve the desired result. For example, a mission intended to track activity of suspected terrorists may require multiple systems to follow identified individuals who flee the scene in different directions. Furthermore, assets such as the Predator UAS experience system limitations when equipped with a full-motion- video sensor in that they are only able to provide surveillance of a narrow or “soda straw” view. A certain level of duplication of UAS may be necessary to support a mission to obtain a complete view of the area under surveillance. Greater visibility at the tactical level could provide units with a greater awareness of where other ISR assets, including both theater-level and those assets embedded in other units, are operating and what they are being used to do. A mechanism that provides this visibility would allow tactical units, when appropriate, to leverage other assets operating in their area to optimize the information captured and avoid unnecessary duplicative taskings. DOD recognizes the opportunity to better plan for and control its ISR assets and has initiated a Persistent ISR Capabilities Based Assessment Study. The study, sponsored by the Battlespace Awareness Functional Capabilities Board, focuses on what other actions such as better planning, direction, command and control, and better fusion and exploitation of information can provide the warfighter with more persistent surveillance capability. The study is expected to be completed in the August– September 2007 time frame. DOD is unable to fully evaluate the performance of its ISR assets because it lacks a complete set of metrics and does not consistently receive feedback from operators and intelligence personnel to ensure the warfighter’s needs are met. Specifically, although JFCC-ISR is tasked with developing metrics and standards of performance to measure the success of DOD ISR missions, existing metrics are limited and no DOD-wide milestones have been established. Furthermore, DOD officials acknowledged that they do not consistently receive feedback from operators and intelligence analysts to ensure the warfighter’s needs are met. Without feedback and a complete set of metrics for evaluating its ISR assets, DOD may not be in the best position to validate how well the warfighter needs are being met, the true demand for ISR assets, and whether it is optimizing the use of existing assets, or to acquire new systems that best support warfighting needs. DOD is working to develop additional quantitative ISR metrics as well as qualitative metrics to measure the success of its ISR assets, but existing quantitative metrics are limited and no milestones have been established. The JFCC-ISR is tasked with developing metrics and standards of performance to assess DOD ISR mission accomplishment. Moreover, we recommended in a December 2005 report that DOD ensure its performance measurement systems measure how effectively UAS perform their missions, identify performance indicator information that needs to be collected, and systematically collect identified performance information. We continue to believe this recommendation has merit, and DOD officials agree that metrics are needed not only for UAS, but for all ISR missions. However, DOD currently assesses its ISR missions with limited quantitative metrics such as the number of targets planned versus the number collected against. While these metrics are a good start, DOD officials acknowledge that the current metrics do not take into account all of the qualitative considerations associated with measuring ISR asset effectiveness such as the cumulative knowledge provided by numerous ISR missions, whether the ISR asset did what it was intended to do, whether it had the intended effect, and whether the intelligence captured contributed towards accomplishment of the mission. The JFCC-ISR is working with the combatant commands to develop additional quantitative ISR metrics as well as qualitative metrics to assess the effectiveness of ISR assets, although DOD officials acknowledge the progress in developing metrics has been limited. In developing these metrics, the JFCC-ISR is leveraging national intelligence attributes, which include characteristics such as whether the intelligence is comprehensive to perform all missions anywhere and at anytime in any weather; credible to allow users to make sound decisions and take appropriate action; persistent to collect often and long enough to get the job done; and timely to meet user needs. Furthermore, the JFCC-ISR has not made any progress in establishing DOD-wide milestones for the development of these metrics. Milestones are the required steps and planned dates for completion of those steps leading up to metrics development. DOD officials indicate that determining the success of ISR missions is difficult given the nature of intelligence collection. Specifically, hundreds of hours of ISR missions and target tracking could culminate in the capture of a high value target; however, it may be difficult to measure the effectiveness of each individual ISR mission that led to the ultimate capture and mission success. This cumulative knowledge provided by ISR assets is difficult to quantify. An official from the Office of the Undersecretary of Defense for Acquisition, Technology, and Logistics also acknowledged that it may be more difficult to evaluate the success of ongoing operations due to the dynamic and subjective nature of requirements. The official noted, however, that DOD is better equipped to measure the success of its more mature and traditional ISR missions, such as sensitive reconnaissance operations, because the objectives are better defined allowing more direct determination of success. In addition to metrics, DOD also relies on feedback for evaluating how successful its ISR assets are in meeting the warfighter’s needs. However, DOD lacks consistent feedback on whether ISR assets meet the needs of the warfighters. Joint Publication 2-01 calls for intelligence personnel and consumers to evaluate and provide immediate feedback on how well intelligence operations perform to meet commander’s intelligence requirements. This information could be used to inform DOD’s acquisition, allocation, and tasking of ISR assets. While DOD officials indicate they occasionally receive feedback on ISR asset performance, they acknowledge that feedback specific to how ISR assets performed in individual ISR missions is not consistently occurring. While there is real- time communication among unmanned aircraft system operators, requesters, and intelligence personnel during an operation, and agency officials indicate this communication is beneficial to providing real-time feedback, there is little to no feedback after the operation to determine whether the warfighters’ needs were met. Officials indicate that the fast pace of operations in theater affects the ability of end users to provide feedback on every ISR mission. For example, according to Marine Corps officials, there is a mechanism for Marine Corps units to provide feedback, but the feedback is not consistently provided because there is no systematic process in place to ensure that this feedback is captured. Without developing metrics and systematically gathering feedback that enables it to assess the extent to which ISR assets are successful in supporting warfighter needs, DOD is not in a position to validate the true demand for ISR assets, determine whether it is allocating and tasking its ISR assets in the most effective manner, or acquire new systems that best support warfighting needs. DOD has achieved operational success with UAS in ongoing operations, but it continues to face operational challenges that limit its ability to fully optimize the use of these assets. These operational challenges have been exacerbated by the lack of advance coordination when new assets are being deployed in theater. While operations in Iraq and Afghanistan have been ongoing for some time, the potential exists for DOD to need to establish operations in other areas of the world very quickly. A DOD-wide procedure for advance coordination is critical to enable DOD to quickly support ISR assets once deployed to ongoing operations. Until DOD takes steps to address the need for DOD-wide advance coordination, it may be limited in its ability to efficiently deploy and utilize UAS assets and may not allow the combatant commander time to plan to support incoming assets. With the operational successes that have been realized with UAS, commanders are requesting them in greater numbers. In spite of a dramatic increase in UAS funding, DOD officials indicate that annual allocation levels are constrained by the number of ISR assets in the inventory and JFCC-ISR is, therefore, not able to allocate to the combatant commanders DOD ISR assets in sufficient numbers to meet all requests for ISR support. However, our work indicates that DOD’s approach to UAS may not leverage all of the DOD ISR assets currently available and DOD may not be in the best position to determine if perceived demand is well- founded. Given the substantial investment DOD is making in UAS and the increasing demand for them, it is critical that DOD’s approach to managing its ISR assets, including UAS, allow it to optimize the use of these assets. Without an approach to its allocation and tasking processes that considers all ISR capabilities, DOD may not be in a position to leverage all available ISR assets and to optimize the use of those assets. Moreover, DOD lacks visibility over the true demand for and use of ISR assets, which could hinder its ability to make informed decisions about the need to purchase additional UAS assets and what quantities should be purchased. Furthermore, without developing metrics and systematically gathering feedback that enables DOD to assess the extent to which ISR missions are successful in supporting warfighter needs, decision makers may not be in a position to determine which UAS systems would best support the warfighters’ needs. To mitigate challenges in integrating UAS, and other ISR assets, into combat operations, we recommend that the Secretary of Defense, in conjunction with the service secretaries and combatant commanders, take the following three actions: establish DOD-wide requirements for coordinating with the combatant commanders in advance of bringing UAS into the theater of operations; develop a plan for communicating those requirements throughout DOD; establish a mechanism to ensure the services comply with these requirements. To ensure DOD has the information needed to consider all ISR assets when allocating and tasking these assets, we recommend that the Secretary of Defense develop a mechanism for obtaining information on all ISR assets, including all DOD, national, and allied assets, operating in each of the combatant commanders’ area of operations; and allowing users at all levels within DOD to gain real-time situational awareness on where DOD ISR assets are operating and, where not prohibited by the mission, what they are being used to do. To improve DOD’s ability to evaluate the performance of its ISR missions, we recommend the Secretary of Defense establish DOD-wide milestones for development of qualitative and develop a process for systematically capturing feedback from intelligence and operations communities to assess how effective ISR assets are in meeting warfighters’ requirements; and create a mechanism to ensure this information is used to inform DOD’s acquisition, allocation, and tasking of its ISR assets. In written comments on a draft of this report, DOD generally concurred with all of our recommendations. DOD generally agreed with our recommendation that the Secretary of Defense, in conjunction with the service secretaries and combatant commanders, establish DOD-wide requirements for coordinating with the combatant commanders in advance of bringing UAS into the theater of operations; develop a plan for communicating those requirements throughout DOD; and establish a mechanism to ensure the services comply with these requirements. DOD noted that it currently has a well-defined process to coordinate with the combatant commanders on the introduction of UAS into theater and cited several examples including the annual process for allocating theater-level UAS, and actions between stateside units and units in theater to plan for deployment of ISR capabilities. DOD, however, acknowledged that a more standardized method could improve efficiency of the coordination process and stated that the Joint Chiefs of Staff would be tasked to look at standardizing the coordination process and evaluate and provide direction for an improved coordination process. Further, DOD noted that, based on this evaluation, if direction is required, it will be issued via a Chairman’s directive which is mandatory and therefore establishes the mechanism that ensures compliance. We recognize that DOD has various processes related to UAS but note that none, including the examples cited by DOD, represent a standardized, DOD-wide approach that the services and combatant commanders can follow in coordinating the specific details of deploying UAS assets, regardless of geographic area. Furthermore, we believe that a directive requiring coordination, by itself, does not ensure compliance, and would encourage DOD to include provisions detailing how implementation of the directive will be monitored. DOD also generally concurred with our recommendation that the Secretary of Defense develop a mechanism for obtaining information on all ISR assets—including all DOD, national, and allied assets—operating in each of the combatant commanders’ area of operations; and allowing users at all levels within DOD to gain real-time situational awareness on where DOD ISR assets are operating and, where not prohibited by the mission, what they are being used to do. Specifically, DOD agrees that a mechanism for obtaining information on all ISR assets is needed and commented that work is underway within the JFCC-ISR to develop such a mechanism. DOD commented that it is not currently practical to provide situational awareness on some UAS such as the small, hand-launched UAS at the lowest operational level because these systems do not have the capacity or capability to communicate their position to a common point. DOD noted that it will determine the UAS operational levels that will provide widespread situational awareness, including operational details and timelines of data reporting. We recognize that situational awareness may not currently be practical for some UAS but would encourage the department to seek to maximize coverage in exploring options for improved situational awareness. DOD concurred with our recommendation that the Secretary of Defense establish DOD-wide milestones for development of qualitative and quantitative metrics and stated that JFCC-ISR is standing up an Assessments Division that will be responsible for the development of metrics. We recognize the Assessment Division has been tasked with development of ISR metrics and reemphasize the need to develop milestones for metrics development. DOD partially concurred with our recommendations that it develop a process for systematically capturing feedback from intelligence and operations communities to assess how effective ISR assets are in meeting warfighters’ requirements and create a mechanism to ensure this information is used to inform DOD’s acquisition, allocation, and tasking of its ISR assets. DOD agreed that an improved and standardized process for collection and reporting of feedback would enhance visibility and provide more effective warfighter support, but pointed out that organizations within the department collect feedback or conduct lessons learned studies. We acknowledge that DOD has organizations such as the Army’s Center for Lessons Learned that are responsible for capturing feedback and developing lessons learned based on that feedback. However, these organizations are charged with capturing lessons learned on a number of issues and are not focused on ISR effectiveness. Furthermore, our recommendation pertains to DOD’s guidance which states it is imperative that intelligence personnel and consumers to evaluate and provide immediate feedback on how well individual intelligence operations perform to meet commanders’ intelligence requirements. While the feedback that may be captured by those lessons learned organizations is noteworthy, it is often not immediate and specific to individual missions. As we noted in our report, DOD officials acknowledged that feedback specific to how ISR assets performed in individual ISR missions is not consistently occurring. DOD further commented that it has mechanisms in place to inform its decision making processes on the acquisition, allocation, and tasking of its ISR assets such as the Joint Capabilities Integration and Development System which assesses, among other things, capability gaps and solutions. We agree that the mechanisms mentioned in DOD’s response exist; however, DOD currently does not have sufficient qualitative and quantitative metrics needed to collect data on UAS performance nor does it have a means for incorporating such data into the processes currently used to make decisions on ISR assets. The full text of DOD’s written comments is reprinted in appendix II. DOD also provided technical comments separately and we have made adjustments where appropriate. In particular, the Army provided additional information on the coordination of the Warrior Alpha UAS in its technical comments, including a timeline for introduction of the asset into theater. We are sending copies of this report to the Secretary of Defense. We will 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. If you or your staff have any questions regarding 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. Staff members who made key contributions to this report are listed in appendix III. To assess the extent to which the Department of Defense (DOD) has taken steps to facilitate the integration of unmanned aircraft systems (UAS) into combat operations, we examined DOD and military service publications and documentation on UAS such as the 2005–2030 UAS Roadmap, the Multi-Service Tactics, Techniques, and Procedures for the Tactical Employment of Unmanned Aircraft Systems, the Joint Concept of Operations for Unmanned Aircraft Systems, the Concept of Operations for Employment of Full Motion Video Assets, and the ISR Systems Concept of Operations Standardization Memo. Additionally, we met with key DOD and service officials, including those from the Joint UAS Center of Excellence and the Unmanned Aircraft Systems Planning Task Force within the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, and the Air Land Sea Application Center. We also met with officials from U.S. Central Command and the services, including units that had returned from deployment to the theater, or that were currently supporting ongoing operations, to discuss the integration of UAS into U.S. Central Command’s area of responsibility and to better understand integration challenges. To determine the extent to which DOD’s approach to allocating and tasking its intelligence, surveillance, and reconnaissance (ISR) assets, including UAS, considers all available ISR assets to optimize their capabilities, we met with key DOD and service officials, including those from U.S. Central Command and associated Army and Air Force component commands, the Combined Air Operations Center at Al Udeid Air Base in Qatar, the Joint Functional Component Command for Intelligence, Surveillance, and Reconnaissance and other organizations. We interviewed and obtained documentation including the fiscal year 2007 ISR allocation briefing from officials of the Joint Functional Component Command for Intelligence, Surveillance, and Reconnaissance to better understand the allocation process. We also reviewed documentation such as joint publications and briefings that explain the process for tasking ISR assets and interviewed officials at U.S. Central Command, Central Command Air Forces, and the Combined Air Operations Center in Qatar to better understand how ISR assets are assigned to specific missions. To understand how requests for ISR support are generated and satisfied at the tactical level, we spoke with units that recently returned from, or are currently supporting, ongoing operations in Iraq as well as units within the services such as the Marine Corps’ Tactical Fusion Center that are involved in determining if tactical assets are available to satisfy those requests or if the requests need to be forwarded for theater-level support. To understand how manned and unmanned assets are being leveraged to optimize the intelligence captured, we met with manned and unmanned units stationed at the Al Dhafra Air Base in the United Arab Emirates. To understand DOD’s ongoing efforts to study its process for tasking ISR assets, we reviewed documentation and interviewed an official from the Battlespace Awareness Functional Capabilities Board. To assess whether DOD evaluates the performance of its ISR assets, including UAS, to ensure that warfighters’ needs are met, we interviewed DOD and service officials to discuss the metrics for evaluating the performance of its ISR assets. We discussed with the Joint Functional Component Command for Intelligence, Surveillance, and Reconnaissance its efforts to establish metrics for evaluating ISR assets performance. We reviewed metrics routinely captured to assess the success of DOD’s ISR missions. We also met with service officials and service units recently returned from Iraq to determine the extent to which feedback is received on how effective ISR support is in meeting the warfighters’ needs. We performed our work from June 2006 to June 2007 in accordance with generally accepted government auditing standards. In addition to the individual named above, Patty Lentini, Assistant Director; Renee Brown; Jamie Khanna; Kate Lenane; LaShawnda Lindsey; Elisha Matvay; and Susan Tindall made key contributions to this report. Defense Acquisitions: Greater Synergies Possible for DOD’s Intelligence, Surveillance, and Reconnaissance Systems. GAO-07-578. Washington, D.C.: May 17, 2007. Intelligence, Surveillance, and Reconnaissance: Preliminary Observations on DOD’s Approach to Managing Requirements for New Systems, Existing Assets, and Systems Development. GAO-07-596T. Washington, D.C.: April 19, 2007. Unmanned Aircraft Systems: Improved Planning and Acquisition Strategies Can Help Address Operational Challenges. GAO-06-610T. Washington, D.C.: April 6, 2006. Unmanned Aircraft Systems: DOD Needs to More Effectively Promote Interoperability and Improve Performance Assessments. GAO-06-49. Washington, D.C.: December 13, 2005. Unmanned Aerial Vehicles: Improved Strategic and Acquisition Planning Can Help Address Emerging Challenges. GAO-05-395T. Washington, D.C.: March 9, 2005.

Combatant commanders carrying out ongoing operations rank the need for intelligence, surveillance, and reconnaissance (ISR) capabilities as high on their priority lists. The Department of Defense (DOD) is investing in many ISR systems, including unmanned aircraft systems (UAS), to meet the growing demand for ISR assets to support the warfighter. GAO was asked to evaluate DOD's efforts to integrate UAS into ongoing operations while optimizing the use of all DOD ISR assets. Specifically, this report addresses the extent that (1) DOD has taken steps to facilitate the integration of UAS into combat operations, and (2) DOD's approach to allocating and tasking its ISR assets considers all available ISR capabilities, including those provided by UAS. GAO also reviewed the extent that DOD evaluates the performance of its ISR assets, including UAS, in meeting warfighters' needs. To perform this work, GAO analyzed data and guidance on the use of ISR assets, and interviewed DOD officials, including those supporting ongoing operations in Iraq and Afghanistan. DOD components have developed guidance to facilitate the integration of UAS into combat operations; however, further steps are needed to coordinate the deployment of these assets. For example, DOD developed guidance for the tactical employment of UAS and a Joint UAS Concept of Operations. This guidance is an important first step but does not address coordinating UAS and other ISR assets prior to deploying them to ongoing operations, which U.S. Central Command recognized is a critical factor in integrating UAS into combat operations. Until DOD addresses the need for DOD-wide advance coordination, it may continue to face challenges in successfully integrating UAS and other ISR assets into combat operations and may exacerbate integration challenges such as limited bandwidth. DOD's approach to allocating and tasking its ISR assets, including UAS, hinders its ability to optimize the use of these assets because it does not consider the capabilities of all available ISR assets. The command charged with recommending how theater-level DOD ISR assets should be allocated to support operational requirements does not have awareness of all available ISR assets because DOD does not have a mechanism for obtaining this information. Similarly, the commander responsible for coordinating ongoing joint air operations does not have information on how assets controlled by tactical units are being used or what missions they've been tasked to support. Nor do tactical units have information on how theater-level assets and ISR assets embedded in other units are being tasked, which results in problems such as duplicative taskings. This lack of visibility occurs because DOD does not have a mechanism for tracking the missions both theater- and tactical-level ISR assets are supporting or how they are being used. Without an approach to allocation and tasking that includes a mechanism for considering all ISR capabilities, DOD may be unable to fully leverage all available ISR assets and optimize their use. DOD is unable to fully evaluate the performance of its ISR assets because it lacks a complete set of metrics and does not consistently receive feedback to ensure the warfighter's needs were met. Although the Joint Functional Component Command for ISR has been tasked with developing ISR metrics, DOD currently assesses its ISR missions with limited quantitative metrics such as the number of targets planned versus captured. While these metrics are a good start, DOD officials acknowledge that the current metrics do not capture all of the qualitative considerations associated with measuring ISR asset effectiveness such as the cumulative knowledge provided by numerous ISR missions. There is an ongoing effort within DOD to develop additional quantitative as well as qualitative ISR metrics, but no DOD-wide milestones have been established. Furthermore, DOD guidance calls for an evaluation of the results of joint operations; however, DOD officials acknowledge that this feedback is not consistently occurring due to the fast pace of operations in theater. Without metrics and feedback, DOD may not be able to validate how well the warfighters' needs are being met, whether it is optimizing the use of existing assets, or which new systems would best support warfighting needs.

You are an expert at summarizing long articles. Proceed to summarize the following text: DOD is a massive and complex organization. To illustrate, the department reported that its fiscal year 2006 operations involved approximately $1.4 trillion in assets and $2.0 trillion in liabilities; more than 2.9 million in military and civilian personnel; and $581 billion in net cost of operations. Organizationally, the department includes the Office of the Secretary of Defense, the Chairman of the Joint Chiefs of Staff, the military departments, numerous defense agencies and field activities, and various unified combatant commands that are responsible for either specific geographic regions or specific functions. In support of its military operations, the department performs an assortment of interrelated and interdependent business functions, including logistics management, procurement, health care management, and financial management. As we have previously reported, the DOD systems environment that supports these business functions is overly complex and error-prone, and is characterized by (1) little standardization across the department, (2) multiple systems performing the same tasks, (3) the same data stored in multiple systems, and (4) the need for data to be entered manually into multiple systems. Moreover, DOD recently reported that this systems environment is comprised of approximately 3,100 separate business systems. For fiscal year 2006, Congress appropriated approximately $15.5 billion to DOD, and for fiscal year 2007, DOD has requested about $16 billion in appropriated funds to operate, maintain, and modernize these business systems and associated infrastructure. As we have previously reported, the department’s nonintegrated and duplicative systems contribute to fraud, waste, and abuse. In fact, DOD currently bears responsibility, in whole or in part, for 15 of our 27 high-risk areas. Eight of these areas are specific to DOD and the department shares responsibility for 7 other governmentwide high-risk areas. DOD’s business systems modernization is one of the high-risk areas, and it is an essential enabler to addressing many of the department’s other high-risk areas. For example, modernized business systems are integral to the department’s efforts to address its financial, supply chain, and information security management high-risk areas. Effective use of an enterprise architecture—a modernization blueprint—is a hallmark of successful public and private organizations. For more than a decade, we have promoted the use of architectures to guide and constrain systems modernization, recognizing them as a crucial means to this challenging goal: optimally defined operational and technological environments. Congress, the Office of Management and Budget (OMB), and the federal Chief Information Officer’s (CIO) Council have also recognized the importance of an architecture-centric approach to modernization. The Clinger-Cohen Act of 1996 mandates that an agency’s CIO develop, maintain, and facilitate the implementation of an information technology (IT) architecture. Furthermore, the E-Government Act of 2002 requires OMB to oversee the development of enterprise architectures within and across agencies. In addition, we, OMB, and the CIO Council have issued guidance that emphasizes the need for system investments to be consistent with these architectures. An enterprise architecture provides a clear and comprehensive picture of an entity, whether it is an organization (e.g., a federal department) or a functional or mission area that cuts across more than one organization (e.g., financial management). This picture consists of snapshots of both the enterprise’s current (“As Is”) environment and its target (“To Be”) environment. These snapshots consist of “views,” which are one or more interdependent and interrelated architecture products (e.g., models, diagrams, matrices, and text) that provide logical or technical representations of the enterprise. The architecture also includes a transition or sequencing plan, which is based on an analysis of the gaps between the “As Is” and “To Be” environments. This plan provides a temporal road map for moving between the two environments and incorporates such considerations as technology opportunities, marketplace trends, fiscal and budgetary constraints, institutional system development and acquisition capabilities, legacy and new system dependencies and life expectancies, and the projected value of competing investments. The suite of products produced for a given entity’s enterprise architecture, including its structure and content, is largely governed by the framework used to develop the architecture. Since the 1980s, various architecture frameworks have been developed, such as John A. Zachman’s “A Framework for Information Systems Architecture” and the DOD Architecture Framework. The importance of developing, implementing, and maintaining an enterprise architecture is a basic tenet of both organizational transformation and systems modernization. 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. Moreover, when an enterprise architecture is employed in concert with other important management controls, such as portfolio-based capital planning and investment control practices, architectures can greatly increase the chances that an organization’s operational and IT environments will be configured to optimize mission performance. Our experience with federal agencies has shown that investing in IT without defining these investments in the context of an architecture often results in systems that are duplicative, not well integrated, and unnecessarily costly to maintain and interface. One approach to structuring an enterprise architecture is referred to as a federated enterprise architecture. Such a structure treats the architecture as a family of coherent but distinct member architectures that conform to an overarching architectural view and rule set. This approach recognizes that each member of the federation has unique goals and needs as well as common roles and responsibilities with the levels above and below it. Under a federated approach, member architectures are substantially autonomous, although they also inherit certain rules, policies, procedures, and services from higher-level architectures. As such, a federated architecture enables component organization autonomy, while ensuring enterprisewide linkages and alignment where appropriate. Where commonality among components exists, there are also opportunities for identifying and leveraging shared services. A service-oriented architecture (SOA) is an approach for sharing business capabilities across the enterprise by designing functions and applications as discrete, reusable, and business-oriented services. As such, service orientation permits sharing capabilities that may be under the control of different component organizations. As we have previously reported, such capabilities or services need to be, among other things, (1) self-contained, meaning that they do not depend on any other functions or applications to execute a discrete unit of work; (2) published and exposed as self- describing business capabilities that can be accessed and used; and (3) subscribed to via well-defined and standardized interfaces. A SOA approach is thus not only intended to reduce redundancy and increase integration, but also to provide the kind of flexibility needed to support a quicker response to changing and evolving business requirements and emerging conditions. The Office of the Assistant Secretary of Defense (Networks and Information Integration)/Chief Information Officer (ASD(NII)/CIO), reports that it is developing a strategy for federating the many and varied architectures across the department’s four mission areas—Warfighting, Business, DOD Intelligence, and Enterprise Information Environment. According to ASD(NII)/CIO officials, they are drafting a yet-to-be-released strategy for evolving DOD’s Global Information Grid architecture, so that it provides a comprehensive architectural description of the entire DOD enterprise, including all mission areas and the relationships between and among all levels of the enterprise (e.g., mission areas, components, and programs). Figure 1 provides a simplified depiction of DOD’s EA federation strategy. ASD(NII)/CIO officials stated that the goal of this strategy is to improve the ability of DOD’s mission areas, components, and programs to share architectural information. In this regard, officials stated that the DOD EA federation strategy will define (1) federation and integration concepts, (2) alignment (i.e., linking and mapping) processes, and (3) shared services. The BMA federation strategy, according to these officials, is the first mission area federation strategy, and it is their expectation that the other mission areas will develop their own respective federation strategies. In 2005, the department reassigned responsibility for directing, overseeing, and executing its business transformation and systems modernization efforts to the Defense Business Systems Management Committee (DBSMC) and the Business Transformation Agency (BTA). At that time, it also adopted a tiered accountability approach to business transformation. Under tiered accountability, responsibility and accountability for business architectures and systems investment management was allocated among the DOD enterprise, component, and program levels, depending on such factors as the scope, size, and complexity of each investment. The DBSMC is chaired by the Deputy Secretary of Defense and serves as the highest-ranking governance body for business systems modernization activities. According to its charter, the DBSMC provides strategic direction and plans for the BMA in coordination with the Warfighting and Enterprise Information Environment Mission Areas. The DBSMC is also responsible for reviewing and approving the BEA and the ETP. In addition, the DBSMC recommends policies and procedures required to integrate DOD business transformation and attain cross-department, end-to-end interoperability of business systems and processes. The BTA operates under the authority, direction, and control of the DBSMC and reports to the Under Secretary of Defense for Acquisition, Technology, and Logistics in the incumbent’s capacity as the vice chair of the DBSMC. Oversight for this agency is provided by the Deputy Under Secretary of Defense for Business Transformation, and day-to-day management is provided by the director. The BTA’s primary responsibility is to lead and coordinate business transformation efforts across the department. Regarding the BEA, the BTA is responsible for (1) maintaining and updating the department’s architecture; (2) ensuring that functional priorities and requirements of various defense components, such as the Department of the Army and Defense Logistics Agency (DLA), are reflected in the architecture; and (3) ensuring the adoption of DOD- wide information and process standards as defined in the architecture. Under DOD’s tiered accountability approach to systems modernization, components are responsible for defining their respective component architectures and transition plans while complying with BEA and ETP policy and requirements. Similarly, program managers are responsible for developing program-level architectures and transition plans and ensuring integration with the architectures and transition plans developed and executed at the DOD enterprise and component levels. Between May 2001 and July 2005, we reported on DOD’s efforts to develop an architecture and identified serious problems and concerns with the department’s architecture program, including the lack of specific plans outlining how DOD plans to extend and evolve the architecture to include the missing scope and detail. To address these concerns, in September 2003 we recommended that DOD develop a well-defined near-term plan for extending and evolving the architecture and ensure that this plan includes addressing our recommendations, defining roles and responsibilities of all stakeholders involved in extending and evolving the architecture, explaining dependencies among planned activities, and defining measures of progress for the activities. In response to our recommendations, in 2005, DOD adopted a 6-month incremental approach to developing its enterprise architecture and released version 3.0 of the BEA and the ETP in September 2005, describing them as the initial baselines. DOD further released version 3.1 on March 15, 2006, and version 4.0 on September 28, 2006. As we have previously reported, these incremental versions have provided additional content and clarity and resolved limitations that we identified in the prior versions. For example, DOD reports that version 4.0 begins to define a key business process area missing from prior versions—the planning, programming, and budgeting process area. In this regard, according to DOD, the architecture includes departmental and other federal planning, programming, and budgeting guidance (e.g., OMB Circular A-11) and some high-level activities associated with this area. In addition, DOD reports that version 4.0 included restructured business process models to reduce data redundancy and ensure adherence to process modeling standards (e.g., eliminated numerous process modeling standards violations and stand-alone process steps with no linkages). We concluded, however, that these incremental versions were still not sufficiently complete to effectively and efficiently guide and constrain business system investments across the department. In particular, we reported that the BEA was not yet adequately linked to the component architectures and transition plans, which is important given that the department (1) had previously announced that it had adopted a federated approach to developing and implementing the architecture and (2) had yet to address our recommendation from September 2003 for developing an architecture development management plan that defined how it intended to extend and evolve its BEA. Accordingly, in May 2006 we recommended that DOD submit an enterprise architecture development management plan to defense congressional committees. We stated that at a minimum, the plan should define what the department’s incremental improvements to the architecture and transition plan would be and how and when they would be accomplished, including what (and when) architecture and transition plan scope and content and architecture compliance criteria would be added into which versions. In addition, we stated that the plan should include an explicit purpose and scope for each version of the architecture, along with milestones, resource needs, and performance measures for each planned version, with particular focus and clarity on the near-term versions. In response, DOD stated that, in the future, the ETP and annual report to Congress would provide additional high-level milestones for BTA activities, including the additional detail for the capability improvements to be addressed by the BEA. Our August 2006 report on the maturity of federal agency enterprise architecture programs, including those of the military departments, reemphasized the importance of DOD having an effective plan for federating its BEA. Specifically, the August report showed that the Departments of the Air Force, Army, and Navy had not satisfied about 30, 55, and 30 percent, respectively, of the 31 core elements in our Enterprise Architecture Management Maturity Framework, which is a five-stage model for effectively managing architecture governance, content, use, and measurement. In addition, the Army had only fully satisfied 1 of the 31 core elements. (See table 1 for the number of elements that were fully, partially, and not satisfied by each of the military departments.) By comparison, the other major federal departments and agencies that we reviewed had as a whole fully satisfied about 67 percent of the framework’s core elements. Among the key elements that all three military departments had not fully satisfied were developing architecture products that describe their respective target architectural environments and developing transition plans for migrating to a target environment. Furthermore, while the military departments had partially satisfied between 8 and 13 core elements in our framework, we reported that partially satisfied elements are not necessarily easy to satisfy fully, such as those that address architecture content and thus have important implications for the quality and usability of an architecture. To assist the military departments in addressing enterprise architecture challenges and managing their architecture programs, we recommended that the military departments develop and implement plans for fully satisfying each of the conditions in our framework. The department generally agreed with our findings and recommendations. DOD’s BMA federation strategy provides a foundation on which to build and align DOD’s parent business architecture (the BEA) with its subordinate architectures (i.e., component- and program-level architectures). In particular, this strategy (1) states the department’s federated architecture goals; (2) describes federation concepts that are to be applied; and (3) includes high-level activities, capabilities, products, and services that are intended to facilitate implementation of the concepts. However, DOD has yet to define the details needed to execute the strategy, such as how the architecture federation will be governed; how alignment with the DOD EA federation strategy and other potential mission area federation strategies will be achieved; how component architectures’ alignment with incremental versions of the BEA will be achieved; how shared services will be identified, exposed, and subscribed to; and what milestones will be used to measure progress and results. According to BTA program officials, including the chief technical officer, the department is in the early stages of defining and implementing its strategy and intends to develop more detailed plans. As a result, much remains to be decided and accomplished before DOD will have in place the means to create a federated architecture and thus be able to satisfy both our prior recommendations and legislative requirements aimed at adopting an architecture-centric approach to departmentwide business systems investment management. BTA released the BMA federation strategy in September 2006. According to the strategy, its purpose is to expand on the DOD EA federation strategy and provide details on how various aspects of the federation will be applied within the department’s BMA. In this regard, the BMA strategy cites the following four goals: establish a capability to search for data in member architectures that may be relevant for analysis, reference, or reuse; develop a consistent set of standards for architecture configuration management that will enable users to determine the development status and quality of data in various architectures; establish a standard methodology for specifying linkages among existing component architectures that were developed using different tools and that are maintained in independent repositories; and develop a standard methodology to reuse capabilities described by various architectures. To assist in accomplishing these goals, the strategy describes three concepts that are to be applied. 1. Tiered accountability, which provides for architecture development at each of the department’s organizational levels. Under this concept, each level or tier—enterprise, component, and program—has its own unique goals as well as responsibilities to the tiers above and below it. More specifically, the BTA has responsibility for the enterprise tier, including common, DOD-wide requirements and standards, while components and programs are responsible for defining component- and program-level architecture requirements and standards for their respective tiers of responsibility that are aligned with the departmentwide requirements and standards. As such, this concept introduces the need for autonomy, while also seeking to ensure linkages and alignment from the program level through the component level to the enterprise level. 2. Net-centricity, which provides for seamless and timely accessibility to information where and when needed via the department’s interconnected network environment. This concept includes infrastructure, systems, processes, and people and is intended to ensure that users (i.e., people, applications, and platforms) of information at any level can both take what they need and contribute what they know. 3. Federating DOD architectures, which provides for linking or aligning different architectures via the mapping of common architectural information. This concept advocates subordinate architecture alignment to the parent architecture(s). Figure 2 shows a simplified version of DOD’s BMA federated architecture. To support the achievement of its goals and implementation of its concepts, the strategy also describes three categories of high-level activities, capabilities, products, and services—governance, federating architecture operational views, and federating architecture systems views. Table 2 shows the strategy’s operational and systems view related activities, capabilities, products, and services. Relevant architecture management guidance states that organizations should develop executable architecture development management plans and that these plans should specify, among other things, tasks to be performed, resources needed to perform these tasks (e.g., funding, staffing, tools, and training), roles and responsibilities, time frames for completing tasks, and performance measures. As previously stated, we have recommended that DOD develop such an architecture development plan to govern the evolution and extension of the BEA. We also have previously reported that a SOA approach needs to ensure that shared systems and applications (i.e., services) are, among other things, defined, developed, exposed, and subscribed to. The high-level construct of DOD’s BMA federation strategy and the yet-to- be-issued DOD EA federation strategy reinforces the need to implement our recommendation. In particular, the strategy defines the department’s federated architecture goals; describes federation concepts that are to be applied; and explains high-level activities, capabilities, products, and services intended to facilitate implementation of the concepts. However, it does not adequately define the tasks needed to achieve the strategy’s goals, including those associated with executing high-level activities and providing related capabilities, products, and services. Specifically, the strategy does not adequately address how strategy execution will be governed, including assignment of roles and responsibilities, measurement of progress and results, and provision of resources. In addition, while the BMA strategy refers to several activities that are to be provided by the yet- to-be-issued DOD EA federation strategy, it does not clearly describe the relationships, dependencies, and touch points between the two strategies. Also, the strategy does not address, among other things, how the architectures of the military departments will align with the latest version of the BEA and how DOD will identify and provide for sharing of common applications and systems across the department. Moreover, the strategy does not include milestones for executing the activities and related capabilities, products, and services. According to ASD(NII)/CIO officials, each mission area will be responsible for establishing its own governance structures, to include defined roles and responsibilities of its members (i.e., components and programs), and such governance disciplines as measurement of progress and results and provision of resources. Moreover, officials from DOD components, such as the DLA and the Defense Information Systems Agency (DISA), told us that clearly defined and understood federation roles and responsibilities are critical to successfully executing the BMA strategy. However, the BMA strategy does not clearly define the respective roles and responsibilities of each member of the federation (i.e., enterprise, component, and program). It also does not identify the resource commitments (e.g., funding, staffing, tools, and training) needed to execute the strategy’s activities and deliver capabilities, products, and services, or identify how fundamental governance disciplines will be performed, including performance and progress measurement. For example: The strategy states that the DBSMC, which is currently responsible for the approval and maintenance of the BEA, will receive updates on how component (e.g., the military departments) architectures are aligning to the BEA. However, it does not describe which organizational entities are to be responsible for providing these updates or for aligning component and program architectures to the BEA. The strategy states that in conjunction with the DOD investment review boards, the DBSMC will set the business priorities at the enterprise level through the identification of gaps in business capabilities. By establishing these priorities, the DBSMC is to determine where and when specific capabilities are addressed within the different architectures (i.e., from BEA to program-level architectures) and is to approve recommended solutions to business capability needs. However, the strategy does not provide information on who is responsible for ensuring that component priorities fit with the overall enterprise priorities, or how the DBSMC will otherwise be provided the information it needs to fulfill its stated decision- making role. The strategy states that BMA stakeholders will need to be trained to understand the concepts presented in the strategy and begins to identify topics, such as SOA and the overall federation strategy. However, the strategy does not identify time frames and the entity responsible for providing and overseeing such training. In addition, the strategy does not address how it will be funded and staffed. The strategy identifies categories of high-level activities, capabilities, products, and services intended to facilitate implementation of the concepts, but it does not provide for metrics that can be used to gauge the progress and ensure that expected results are realized. According to the BMA federation strategy, the DOD EA federation strategy outlines an approach for linking the repositories of all of the department’s various architectures and enabling search and navigation across them. In addition, it states that the DOD EA federation strategy outlines a series of pilot efforts that will demonstrate this approach. However, the BMA federation strategy does not clearly define how its various activities will integrate with the activities and concepts described in the yet-to-be-issued DOD EA federation strategy, or other potential mission area federation strategies, nor does it discuss how these activities will be carried out or who will be responsible for accomplishing them. For example: ASD(NII)/CIO officials told us that the DOD EA federation strategy will establish new responsibilities for components and programs for making architecture information understandable and accessible across the department. However, these responsibilities are not explicitly discussed in the BMA federation strategy. Therefore, it is unclear how these new responsibilities are relevant to federating the BEA. Moreover, it is unclear how the BMA roles and responsibilities relate to the yet-to-be-released EA federation strategy roles and responsibilities. The BMA federation strategy does not define how linkages among the BEA and the various component and program architectures will be established, including whether program architectures will be linked to component architectures as well as the BEA, or if program architectures will be linked to the BEA, as is currently the case. Moreover, it is not clear if establishing these linkages will be the responsibility of the programs, components, the BTA, or ASD(NII)/CIO. According to the BMA federation strategy, it builds on the DOD EA federation strategy by proposing new tools and procedures to both identify overlaps and gaps in capabilities and ensure the compliance of all component and program architectures with the BEA. In this regard, it describes the following two tools: the Investment Management Framework, which is a spreadsheet that aligns program architectures’ capabilities (and activities) with the BEA, and the Architecture Compliance and Requirements Traceability tool, which is an automated tool that provides programs with an interface to the BEA so that they can assess their alignment with the BEA’s operational view content (e.g., business capabilities, activities, processes, rules, and standards). However, the strategy does not address how alignment of component architectures with the BEA is to be achieved, including what, if any, component architecture alignment guidance, criteria, and tools are to be developed and who will develop them. Specifically, while the strategy states that it provides for demonstration of operational view linkages (e.g., activities, process, and capabilities) between the BEA and both component and program architectures, the tools cited do not provide the capability to either align program architectures to component architectures or to align component architectures to the BEA. According to officials from the Air Force, Navy, and DLA, they are using the traceability tool to assess compliance of their programs with the BEA. However, this tool does not allow them to assess their programs’ compliance with their component architectures. In contrast, Army and U.S. Transportation Command officials told us that they do not require the use of the traceability tool to assess compliance of their programs to the BEA or their component architectures. According to BTA officials, they are currently working with the Air Force and Navy to expand this tool to include component architecture alignment capabilities. According to the BMA strategy, the systems view federation is the application of principles, standards, services, and infrastructure to create interoperable and reusable applications and systems. The strategy states that this will be accomplished through the delivery of services within a SOA construct, including an IT infrastructure that will expose reusable functionality to federation members and enable interoperation and interconnection of the business systems and applications that provide this functionality. The strategy notes that this operating environment will be comprised of applications, systems, metadata, and a unifying portal. According to the strategy, this environment will build on existing Enterprise Information Environment Mission Area capabilities and provide the standards, policies, and technology needed to permit BMA services to be shared with the other DOD mission areas. However, the strategy does not describe how this will be accomplished, including respective roles and responsibilities of those involved, the range of services to be shared and developed, and the standards to be used. Moreover, component officials told us that the details behind the strategy’s SOA concepts need to be defined before a systems view federation can be achieved. More specifically: The strategy does not clearly describe how interoperable services will be defined, developed, exposed, and subscribed to. For example, it does not delineate the specific roles and responsibilities of the military departments and defense agencies relative to defining, providing, and employing shared systems and applications. As a result, the military departments and defense agencies may pursue duplicative efforts. This is of particular concern due to the various service orientation activities already under way in the military departments and defense agencies. For example, the Air Force has chartered a Transparency Integrated Product Team to guide their SOA initiatives, and the Navy has established a Transformation Group to support its service orientation activities. This is important because a key aspect of the BMA federation strategy is reusing and leveraging both enterprise-level and component-level systems and applications. The strategy does not relate system federation activities and capabilities to its existing ETP. In particular, while the strategy describes a number of “leave-in-place” pilots (systems and applications) that will be implemented during the next year to demonstrate the use of shared services, it does not describe how these relate to programs in the ETP. This is important because the chief technical officer told us that many of the enterprise-level programs being managed by the BTA and included in the ETP are to evolve into shared services. The strategy does not describe how interface standards will be established and used for obtaining and delivering shared services. Defining and enforcing such standards are important aspects of having services that are interoperable and reusable. According to the BTA chief technical officer, these standards will need to align with the yet-to-be-issued Enterprise Information Environment Mission Area standards. Officials from the Air Force and DISA agreed that more needs to be done to define the infrastructure standards that will enable user subscription to reusable systems and applications, particularly since the military departments and DOD are moving ahead with their own SOA initiatives. The strategy outlines what it refers to as a high-level road map by listing activities, capabilities, products, and services that are to be produced. (See table 2 for this high-level road map.) However, the strategy does not specify the milestones or provide specific completion dates for the activities and related capabilities, products, and services listed in its high-level road map. Instead, the strategy states that the road map began in October 2006 and that milestones will occur at approximately 3-month increments, without identifying, for example, which steps have begun and what is to be accomplished over 3 months for each of the steps. DOD is in the early, formative stage of federating its BEA, with much remaining to be decided and accomplished before it achieves its goals. While the goals, concepts, and related activities; capabilities; products; and services discussed in the strategy have merit and hold promise, the strategy lacks sufficient specificity for it to be executed and, therefore, must be viewed as a beginning. To the department’s credit, it recognizes the need for greater detail surrounding how it will extend (federate) its BEA. One key to making this happen is for the department to implement our prior recommendation for having a BEA development management plan. However, the department has yet to address this recommendation. Until it does, the likelihood of effectively extending the BEA to include the military departments and defense agencies is greatly reduced. To further assist the department in evolving its BEA, we are reiterating our prior recommendation for a BEA development management plan, and augmenting it by recommending that the Secretary of Defense direct the Deputy Secretary of Defense, as the chair of the DBSMC, to task the appropriate DOD organizations, to ensure that this plan describes, at a minimum, how the BMA architecture federation will be governed; how the BMA federation strategy alignment with the DOD EA federation strategy will be achieved; how component business architectures’ alignment with incremental versions of the BEA will be achieved; how shared services will be identified, exposed, and subscribed to; and what milestones will be used to measure progress and results. In written comments on a draft of this report, signed by the DOD Deputy Chief Information Officer and the Deputy Under Secretary of Defense (Business Transformation) and reprinted in appendix II, the department stated that it largely disagrees with our recommendation and added that while the BMA played a leading role in defining the department’s approach to architecture federation and a service-oriented architecture, the impact of the issues discussed in this report goes beyond the scope of the business systems modernization. DOD also stated that any analysis of architecture federation should begin with the department’s approach and not the BMA, since the BMA federation strategy was written as an addendum to an enterprise approach. However, DOD added that it recognizes that our analysis was complicated by the fact that many of the enterprise-level strategy and governance documents, to which the BMA must comply, have yet to be issued. The department also made the following specific comments on the five elements in our recommendation. First, DOD stated that it partially concurs with the element relating to architecture federation. According to DOD, responsibility for developing the policy and guidance regarding how architectures are to be managed within its federated environment lies with the ASD(NII)/CIO; officials acknowledge the current lack of such guidance and stated that this will be addressed with the issuance of the DOD EA federation strategy. As such, the department recommends that we address our recommendation to ASD(NII)/CIO. We agree on the current lack of and the need to develop policies and guidance describing how the federation will be governed; however, our recommendation is not intended to dictate who should develop the policies or guidance for managing architectures within a federated environment. Rather, it is focused on developing plans that describe how the BMA will adopt and implement the policies and guidance relating to federation governance. Second, the department stated that it nonconcurs with the element relating to ensuring alignment with other federation strategies. According to DOD, there is a single architecture federation strategy for the department—the DOD EA federation strategy—and other architecture federation strategies supplement this overarching strategy. As such, it stated that this element of our recommendation is not needed. We disagree. While we do not question the department’s comment about the relationships among the strategies, we believe that this element of our recommendation is needed because its intent is to recognize these relationships by promoting collaboration and ensuring linkages among the various strategies. Third, DOD stated that it nonconcurs with the element relating to component architecture alignment with incremental versions of the BEA. According to DOD, this element has been implemented both in policy and execution to comply with legislative requirements, to include DOD’s development and use of the Architecture Compliance and Requirements Traceability tool. It also added that the Departments of the Air Force, Army, and Navy have mandated the use of this tool to assess compliance of their systems and architectures with the BEA. We disagree. The National Defense Authorization Act for Fiscal Year 2005 includes a requirement for ensuring that all business systems in excess of $1 million be certified as being in compliance with the BEA; the architecture traceability tool provides a mechanism for asserting only system compliance and not component architecture compliance. In addition, according to officials from the Air Force and Army, while they are encouraging the use of the tool for assessing compliance of their systems with the BEA, they have not mandated its use and are not using it to assess compliance of their architectures with the BEA. Moreover, officials from the Air Force further stated that they have not mandated the use of this tool because it does not provide the capability to map the Air Force architecture with the BEA. While we recognize DOD’s efforts to align programs to the BEA, our recommendation focuses on the lack of a discussion in the BMA federation strategy on how component architectures (military departments and defense agencies) will be linked to the BEA, including the lack of component architecture alignment guidance, criteria, and tools. Fourth, the department stated that it partially concurs with the element relating to the identification and management of shared services. According to DOD, each mission area or component is responsible for identifying its own services requirements, and the ASD(NII)/CIO is responsible for defining the overall approach to how these services will be managed. As such, the department recommends that our recommendation be directed to the ASD(NII)/CIO. We agree on the need for guidance describing how shared services will be identified and managed; however, our recommendation is not intended to dictate who should develop the policies or guidance for managing shared services within a federated environment. Rather, it is focused on developing plans that describe how the BMA will adopt and implement the policies and guidance relating to service orientation. As stated in the report, this is important because a key aspect of the BMA federation strategy is to reuse and leverage both enterprise-level and component-level systems and applications. Fifth, DOD stated that it nonconcurs with the element relating to milestones. According to DOD, milestones for gauging progress are and will continue to be monitored in the department’s enterprise transition plan. As such, it stated that it is unclear how the need to describe what milestones will be used relates to the topics in the report. While we have previously recognized that the transition plan provides information on progress on major investments over the last 6 months—including key accomplishments and milestones attained, this element of our recommendation is intended to address the lack of measures (e.g., return on investment of service-oriented architecture service reuse) or specific completion dates for the activities and related capabilities, products, and services that are to be produced for federating the Business Mission Area. To further ensure that our recommendation is properly interpreted and implemented, and to address DOD’s comments about directing the recommendation to the appropriate parties, we have slightly modified our recommendation. We are sending copies of this report to interested congressional committees; the Director, Office of Management and Budget; the Secretary of Defense; the Deputy Secretary of Defense; the Under Secretary of Defense for Acquisition, Technology, and Logistics; the Under Secretary of Defense (Comptroller); the Assistant Secretary of Defense (Networks and Information Integration)/Chief Information Officer; the Under Secretary of Defense (Personnel and Readiness); and the Director, Defense Finance and Accounting Service. We will also make copies available to others on request. In addition, this report will also be available at no charge on our Web site at http://www.gao.gov. If you have any questions concerning this information, please contact me at (202) 512-3439 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 III. Our objective was to determine what progress the Department of Defense (DOD) has made in defining its Business Mission Area federation strategy. To accomplish our objective, we reviewed DOD’s Business Mission Area Federation Strategy and Road Map released in September 2006, comparing the strategy and any associated implementation plans with prior findings and recommendations relative to the content of the strategy. In particular, we compared the strategy with our prior recommendations for developing an architecture development management plan to define how the department intends to extend and evolve its business enterprise architecture. In addition, we compared the strategy with our prior findings and the need to ensure that shared systems and applications (i.e., services) are, among other things, defined, developed, exposed, and subscribed to via well-defined and standardized interfaces. Furthermore, we reviewed available information on activities, capabilities, products, and services associated with the federation strategy, such as the Investment Management Framework and the Architecture Compliance and Requirements Traceability User’s Guide. In addition, we interviewed key program officials, including the director of the Business Transformation Agency’s Investment Management Directorate and the chief technical officer and representatives from the Office of the Assistant Secretary of Defense (Networks and Information Integration)/Chief Information Officer, and the Departments of the Air Force, Army, and Navy; the Defense Logistics Agency and Defense Information Systems Agency; and the United States Transportation Command, to obtain an understanding of the steps taken and required to develop and execute the federation strategy. We conducted our work at DOD headquarters offices in Arlington, Virginia, from August 2006 through March 2007 in accordance with generally accepted government auditing standards. In addition to the contact person named above, key contributors to this report were Neil Doherty, Nancy Glover, Michael Holland, Neelaxi Lakhmani (Assistant Director), Anh Le, Jacqueline Mai, and Jennifer Stavros-Turner.

In 1995, we first designated the Department of Defense's (DOD) business systems modernization program as "high risk," and we continue to designate it as such today. To assist in addressing this high-risk area, Congress passed legislation consistent with prior GAO recommendations for Defense to develop a business enterprise architecture (BEA). In September 2006, DOD released version 4.0 of its BEA, which despite improvements over prior versions, was not aligned with component architectures. Subsequently, Defense issued a strategy for extending its BEA to the component military services and defense agencies. To support GAO's legislative mandate to review DOD's BEA, GAO assessed DOD's progress in defining this strategy by comparing it with prior findings and recommendations relevant to the strategy's content. DOD's Business Mission Area federation strategy for extending its BEA to the military departments and defense agencies provides a foundation on which to build and align the department's parent business architecture (the BEA) with its subordinate architectures (i.e., component- and program-level architectures). In particular, the strategy, which was released in September 2006, states the department's federated architecture goals; describes federation concepts that are to be applied; and explains high-level activities, capabilities, products, and services that are intended to facilitate implementation of the concepts. However, the strategy does not adequately define the tasks needed to achieve the strategy's goals, including those associated with executing high-level activities and providing related capabilities, products, and services. Specifically, it does not adequately address how strategy execution will be governed, including assignment of roles and responsibilities, measurement of progress and results, and provision of resources. Also, the strategy does not address, among other things, how the component architectures will be aligned with the latest version of the BEA and how it will identify and provide for reuse of common applications and systems across the department. According to program officials, the department intends to develop more detailed plans to execute the strategy. This means that much remains to be decided and accomplished before DOD will have the means in place to create a federated BEA that satisfies GAO's prior recommendations and legislative requirements. Without one, the department will remain challenged in its ability to minimize duplication and maximize interoperability among its thousands of business systems.

You are an expert at summarizing long articles. Proceed to summarize the following text: U.S. international broadcasting efforts support the three key objectives of U.S. public diplomacy, which are to engage, inform, and influence overseas audiences. As a news organization, the BBG must maintain its journalistic independence while also serving U.S. strategic interests as a member of the public diplomacy apparatus. To fulfill this latter role, the BBG seeks input from the Department of State and the larger public diplomacy community in formulating its broadcast plans and making annual decisions on the deletion and addition of language services. The Secretary of State serves as a member of the Board, further strengthening coordination efforts. Within the BBG, VOA, Radio/TV Marti, and WorldNet Television, are organized as federal entities, while Radio Free Europe/Radio Liberty and Radio Free Asia operate as independent, nonprofit corporations and are funded by Board grants. Radio Free Europe/Radio Liberty, Radio Free Asia, and Radio/TV Marti function as “surrogate” broadcasters where a local free press does not exist. Congress created the International Broadcasting Bureau (IBB) in 1994 in an effort to streamline and consolidate certain broadcast operations. Figure 1 illustrates the Board’s placement in the U.S. public diplomacy hierarchy and its current organizational structure. Each U.S. broadcast entity is organized around a collection of language services that produce program content. In some instances, both VOA and a surrogate broadcaster run “overlapping” services due to the different missions pursued by VOA and the surrogates. For example, both VOA and Radio Free Europe/Radio Liberty have their own Russian language service. The BBG currently has a collection of 97 language services—with a 55 percent overlap between VOA and the surrogates broadcasting in the same language. Each broadcast entity has its own legislated mandate. VOA’s mandate is to (1) serve as a consistently reliable and authoritative, accurate, objective, and comprehensive source of news; (2) represent America, not any single segment of American society, and therefore present a balanced and comprehensive projection of significant American thought and institutions; and (3) present the policies of the United States clearly and effectively and also present responsible discussions and opinion on these policies. In contrast, the role of the surrogate broadcasters (Radio Free Europe/Radio Liberty, Radio Free Asia, and Radio/TV Marti) is to temporarily replace the local media of countries where a free and open press does not exist. WorldNet Television and Film Service provides production and distribution support for television broadcasts developed by VOA and the Department of State. The Board’s public diplomacy mandate also includes helping to develop independent media and raising journalistic standards where possible. The Board’s new approach to broadcasting represents an ambitious attempt to reach larger audiences in key markets. To do this, it seeks creative solutions that prioritize the use of limited resources and marry the mission of U.S. international broadcasting to the needs and wants of target audiences. The Board’s new strategic plan was issued in December 2002; however, development of its new approach to broadcasting began in July 2001. The plan was developed to address declining audience share in key markets such as Russia and historically static performance in key strategic regions such as the Middle East. For example, the BBG had a 21 percent market share in Russia in the early 1990s that has declined to about 4 percent of the adult listening audience in recent years. In the Middle East, the VOA’s Arabic service has for decades reached less than 2 percent of potential listeners. The Board’s new plan outlines a strategic vision for U.S. international broadcasting that is designed to move the organization toward a market- based approach that will generate the large listening audiences in priority markets that the Board believes it must reach to effectively meet its mission. Early implementation of the plan has focused on markets relevant to the war on terrorism; however, the Board intends that many elements of its new approach will be applied to many of its language services over time. The Board’s vision is to create a flexible, multimedia, research-driven U.S. international broadcasting system. This system will incorporate regional networks and single-country operations to reach large audiences by programming the distinct content of VOA and the surrogate services through state-of-the-art formats and distribution channels controlled by the Board. Figure 2 provides an overview of the Board’s new strategic plan and shows the links among the Board’s mission statement, vision statement, broadcast priorities, strategic goals, and program objectives. Appendix I provides a complete list of the goals and objectives. Strategic plans play a critical role in the management of agency operations. Guidance from the Office of Management and Budget (OMB) makes clear that agency strategic plans, annual performance plans, and annual performance reports form the basis for a comprehensive and integrated approach to performance management. In the Board’s case, its performance management is augmented by an ongoing series of program reviews of individual language services conducted each year and an annual comparative review of all language services. Program reviews are in-depth assessments of performance conducted by a team of management, audience research experts, technical staff, and language service staff. The comparative review of language services represents an intensive 4-month review by the Board designed to evaluate the need for adding or deleting language services and strategically reallocating funds to the language services on the basis of priority and impact. This year, the Board asked eight language services to prepare individual performance plans that capture key elements of the Board’s new strategic approach to broadcasting, including the need to identify a target audience and establish specific audience goals. These performance plans will become the focus of future program reviews and form the final link in a planned performance management system that will integrate the Board’s strategic plan, performance plan, annual language service review, budget preparation process, and program reviews into a unified whole. The strategic plan forms the heart of this system since it should provide the performance goals and measures that drive the Board’s entire operations. Consistent with the plan’s theme of “marrying the mission to the market,” the Board has applied its new audience-focused broadcasting approach to recent initiatives supporting the war on terrorism. The first project under the new approach, Radio Sawa in the Middle East, was launched in March 2002 using many of the modern, market-tested broadcasting techniques and practices prescribed in the plan, in an effort to attract a larger, younger population. Follow-on program initiatives also adhere to the Board’s modern approach to broadcasting, though application is tailored to the specific circumstances of each target market. These initiatives include the Afghanistan Radio Network (ARN) and the new Radio Farda service to Iran. Estimated start-up and recurring costs for these three projects through fiscal year 2003 total about $116 million. As funds become available, there are plans to extend application of the Board’s new approach to other high-priority markets, such as Indonesia. In addition, the Board hopes to further expand its presence in the Middle East through the launch of a Middle East Television Network. Future initiatives are expected to require additional reallocation of funds and possible supplemental spending by Congress. The Board has tailored the use of its modern, audience-focused approach to broadcasting, taking target audiences and market circumstances into consideration when developing and implementing new program initiatives. Table 1 provides a brief description of recently implemented projects supporting the war on terrorism. The first program under the Board’s new approach, Radio Sawa in the Middle East, was launched using modern, market-tested broadcasting techniques and practices, such as the extensive use of music formats, to improve performance in this priority market and lend support to the war on terrorism by targeting youth audiences. Although music remains a large part of the programming on Radio Sawa, the proportion of news and information to music is steadily increasing, peaking at 5-hours a day during Operation Iraqi Freedom. Radio Sawa replaced the poorly performing VOA Arabic service, which had listening rates at around 2 percent of the population. The Board has survey research indicating that Radio Sawa is reaching 51 percent of its target audience and is ranked highest for news and news trustworthiness in Amman, Jordan. Despite such results, it remains unclear how many people Radio Sawa is actually reaching throughout the Middle East because audience research has been performed only in select markets and has not yet included audiences in key markets like Saudi Arabia. The Afghanistan Radio Network was launched in August 2002 to more effectively use and strengthen the impact of BBG broadcasting resources targeted to Afghanistan, a key market for the war on terrorism. ARN utilizes broadcasting concepts outlined in the Board’s new strategic approach, such as tailoring content to the target audience and integrating programming streams across entities. Unlike Radio Sawa, ARN is not primarily designed to reach a youth audience but a broader Afghani audience. Programs are designed to be locally focused and are high in educational, news, and information content. BBG service to Afghanistan has in the past yielded some of the Board’s highest listening rates (in 1999 around 80 percent of adult male heads-of-household). Recent BBG research indicates that the Board is reaching about 45 percent of all male and female adults in the listening regions of Kabul and Mazar-e-Sharif. Radio Farda was launched to strengthen the impact of BBG broadcasting resources targeted to Iran, another key market for the war on terrorism. Based on audience research and an analysis of specific market factors in Iran, the Board tailored the plan’s elements to Radio Farda. Radio Farda uses modern broadcast techniques to attract a youth target audience. Although it uses music formats, Radio Farda also strives to provide substantial news and information. The Board claims that increases in the volume of e-mail and phone calls from the region indicate that the service is gaining popularity among the target audience in Iran. The Board is planning other program initiatives in support of the war on terrorism, and plans indicate that the Board will selectively apply its new broadcasting approach to these projects. Future initiatives include enhancements to the VOA Indonesian and Urdu services and creation of a Middle East Television Network, which represents the single largest enhancement to the Board’s operations in the coming year. Still in the planning stages, the Middle East Television Network will be an 18- to 24- hour-a-day, seven-days-a-week, U.S.-controlled satellite TV service presenting what the Board sees as American-style news and information programs in the Arabic language to counter the lack of depth and balance in the Middle Eastern media. As television is the most important medium in the region for news and information, the Board expects to significantly increase its audience size with this initiative. Certain elements of the Board’s new plan will require substantial levels of investments. Such elements include broadcasting round-the-clock, using audience research and music formats extensively, and reaching audiences on Board-controlled AM and FM frequencies. Other elements do not require as substantial capital investments, such as identifying target audiences and redesigning program content to appeal to these audiences. Just as Radio Sawa, ARN, and Radio Farda incorporate the Board’s new broadcasting approach to varying degrees, the Board has stated in its strategic plan that it will apply certain high-cost elements of its new approach on a case-by-case basis. It cannot afford to broadly apply all elements to all language services, and some markets do not require such changes for U.S. international broadcasting to remain competitive. Table 2 provides a cost summary of recently implemented high-priority projects. The estimated price tags for other priority initiatives, such as the Middle East Television Network and the expansion of the VOA Indonesian service, are also significant. For example, the Board estimates that it will cost about $62 million to initiate the Middle East Television Network and an additional $37 million annually for recurring operational costs. Expanding VOA Indonesian radio and TV programming is estimated to cost an additional $3.4 million. Cost estimates for the VOA Urdu service program expansion are not yet available because the Board has not finalized its plans for this project. Some of the Board’s recent priority projects have been funded in part by reallocation of program funds under the Board’s annual language service review process. For example, the Board funded Radio Farda by reprogramming more than $5.6 million in fiscal year 2003 funds and also helped pay for Radio Sawa by reprogramming approximately $4.1 million in fiscal year 2001 funds from other language services. The Board’s new approach to broadcasting is based on the need to reach large audiences in priority markets, but its strategic plan does not include a single goal or related program objective designed to gauge progress toward increasing audience size. In addition, the plan’s seven existing strategic goals (for example, to employ modern communication techniques or to revitalize efforts to tell America’s story) are not supported by measurable program objectives that would allow the Board and others to gauge the agency’s progress in implementing its strategic goals. While the plan lacks a range of measurable program objectives, key effectiveness measures that could be incorporated in future versions of the Board’s strategic plan include audience awareness of U.S. broadcast efforts, audience perceptions of the credibility of U.S. broadcasts, and whether VOA effectively presents information about the United States and its policies to target audiences. Efforts to assess the effectiveness of the Board’s new approach to broadcasting may also be hampered by the lack of details on how the Board intends to implement each of its program objectives. Missing from the plan are specifics on implementation strategies, resource requirements, and project time frames. The Board has acknowledged that its strategic plan needs to be significantly improved, and major changes are planned for the next iteration. The absence of “audience size” as a strategic goal and related measurable program objectives represents one of the most significant oversights in the Board’s strategic plan. The strategic plan references the importance of reaching a large audience in priority markets as the key driver behind the Board’s new approach to broadcasting and notes that audience size is the most readily available and accurate impact measure it has. Despite the central importance of audience size to the Board’s new approach to broadcasting, the plan is silent on how these data should be incorporated as a measurable program objective or series of program objectives to gauge the Board’s effectiveness in this key area. The Board has traditionally reported audience size in its annual performance plan; however, this reporting lacks any contextual meaning since it is not tied to a program objective(s) defining the Board’s multiyear vision for what it would like to accomplish in this area. In addition, the Board’s practice of reporting audience size goals and accomplishments at the entity level in its annual performance plan obscured important performance data at the regional and language service level. We also found that the plan’s existing strategic goals are not supported by measurable program objectives. The strategic plan has 17 program objectives, any of which can be used to illustrate the lack of performance goals and expectations. For example, under the goal of employing modern communication techniques and technologies, one objective is to accelerate multimedia development and infuse more television and Internet into the mix. The Board’s plan only makes broad assertions about the need to “do more with TV where market realities demand and resources permit” and that the Board “will ensure that all entities have world-class Internet presences.” Under the goal of progressively building out the U.S. international broadcasting system, the Board lists the successful launch of Radio Sawa as a program objective. Again, the plan makes broad statements about the need to attract and build a significant audience in the Middle East and present news that is objective, comprehensive, fresh, and relevant. However, it does not provide details on expected performance levels. Specifically, the plan does not establish short- or long-range target audience figures for the Gaza strip, West Bank, and 17 countries in the Middle East and Africa to which Radio Sawa will eventually broadcast. Our survey of senior program managers across all broadcast entities and discussions with other program staff and outside parties, suggested a number of other effectiveness measures the Board could incorporate when developing measurable program objectives designed to support the plan’s strategic goals. These measures include audience awareness; broadcast entity credibility; and a measure of VOA’s ability to communicate a balanced and comprehensive projection of American thought, institutions, and policies so that audiences receive, understand, and retain this information. The strategic plan does not include a measure of audience awareness to answer a second key question of effectiveness: whether target audiences are even aware of U.S. international broadcasting programming available in their area. Board officials have stated that such measures would help the Board understand a key factor in audience share rates and what could be done to address audience share deficiencies. The Board could develop this measure since it already collects information on language service awareness levels in its audience research and in national surveys for internal use. The strategic plan does not include a measure of broadcaster credibility, which can identify whether target audiences believe what they hear. Reaching a large listening or viewing audience is of little use if audiences largely discount the news and information portions of broadcasts. Our survey of senior program managers and discussions with BBG staff and outside groups all point to the possibility that U.S. broadcasters (VOA in particular) suffer from a credibility problem with foreign audiences, who may view VOA and other broadcasters as biased sources of information. InterMedia, the Board’s audience research contractor, told the Board that it is working on a credibility index for another customer that could be adapted to meet the Board’s needs which, when segmented by language service, would reveal whether there are significant perception problems among key target audiences. However, to develop this measure, the Board would need to add several questions to its national survey instruments. Finally, the strategic plan does not include a measure of whether target audiences hear, understand, and retain information broadcast by VOA on American thought, institutions, and policies. The unique value-added component of VOA’s broadcasting mission is its focus on issues and information concerning the United States, our system of government, and the rationale behind U.S. policy decisions. Tracking and reporting these data are important to determining whether VOA is accomplishing its mission. InterMedia officials noted that developing a measure of this sort is feasible and requires developing appropriate quantitative and qualitative questions to include in the Board’s ongoing research activities. We found that each of the plan’s program objectives lacked a detailed description of implementation strategies, resource needs, and project time frames. Typically, each program objective consists of an overview of the problem followed by a general assertion that operations must be improved. For example, the “action plan” for the accelerated use of television and the Internet is limited to the following statements: “Appropriate Television – VOA has seen significant audience impact in several key markets through television broadcasts—the Balkans, Iran, and Indonesia. We can and will do more with TV where market realities demand this and where resources permit. The first step is to cement the establishment of VOA-TV from the former Worldnet. Higher Quality Web Presence – We have seen spotty progress towards the goal of having all language services create high quality news- oriented websites. Some are outstanding. The content of others is thin and visually uninteresting. Bottom line: We will ensure that all entities have world-class Internet presences.” This level of planning begs key questions such as: What is the overall strategy for implementing the enhanced use of television and the Internet? Who will be responsible for implementing the component parts of the strategy? How much will it cost? How long will it take to implement? How will the Board manage workforce planning issues such as transitioning staff from radio-based skills to the skill set required to significantly augment the Board’s multimedia operations? How will the long-planned merger of VOA Television and WorldNet impact the Board’s strategic approach to television? How will the Middle East Television Network factor into the Board’s plans and what are the resource, staffing, and training implications of this proposed network? Answers to such questions will provide the Board, BBG managers, OMB, and the Congress with specific information needed to manage ongoing program implementation and assess progress against meaningful short- and long-term criteria. This level of planning also will reveal any potential gaps or inconsistencies in planned implementation steps across the Board’s many program objectives. The key strategic challenge the Board faces is how to achieve large audiences in priority markets while dealing with (1) a collection of outdated and noncompetitive language services, (2) a disparate organizational structure consisting of seven separate broadcast entities and a mix of federal agency and grantee organizations that are managed by a part-time Board of Governors, and (3) the resource challenge of broadcasting in 97 language services to more than 125 broadcast markets worldwide. The plan does address the challenge of revamping its current broadcast operations by identifying a number of solutions to the competitive challenges the Board faces. It also provides a new organizational model for U.S. international broadcasting that stresses the need to view the broadcast efforts of the separate entities as part of a “single system” under the Board’s direct control and authority. The Board has stated that it cannot sustain all its current broadcast operations and have the desired impact in high priority markets at the same time. Despite a clear articulation of U.S. international broadcasting’s resource challenges, the Board and Congress have not been able to substantially reduce the total number of language services or a reported 55 percent overlap in VOA and surrogate language services. The Board’s strategic plan does an adequate job of identifying the market challenges for U.S. international broadcasters and potential solutions to these challenges. The task of reaching a significant audience today is a far different proposition than reaching an audience a decade ago. Priority markets have multiplied and media environments have advanced virtually everywhere with an explosion of local radio and television outlets that compete aggressively for audience share. Broadcast and computer technologies have made quantum leaps, with satellite television and the Internet becoming preferred information modes for millions. The Board has concluded that because many people can now pick and choose their information sources, U.S. international broadcast operations must be improved to remain competitive in a new media environment. The Board’s strategic plan includes a frank assessment of the market challenges that must be addressed to make U.S. international broadcasting more competitive. These challenges include: Branding and positioning. Language services lack a distinctive contemporary identity and a unique reason for listeners or viewers to tune in. Target audiences. Few language services have identified their target audience—a key first step in developing a broadcast strategy. Formats and programs. Many language services have outmoded formats and programs with an antiquated, even Cold War, sound and style. Delivery and placement. Three-quarters of transmitted hours have poor or fair signal quality, and affiliate broadcaster strategies have stressed quantity over quality. Marketing and promotion. Audience awareness levels are low across the world and audiences often do not know where to tune in or what to expect once they do. Technology. The Board is not maximizing the use of multimedia to reach audiences, stimulate real-time interaction, and cross-promote broadcast products. These challenges are addressed by a number of proposed solutions in the form of strategic goals and program objectives listed in the plan. With regards to the marketing challenges, 12 of the 17 program objectives are designed to directly or indirectly overcome these challenges. For example, the Board’s strategic goal of employing modern communication techniques and technologies is supported by the following program objectives: accelerate multimedia development and infuse more television and Internet into the mix; adopt modern radio principles and practices including the matching of program formats to target audiences; control the distribution channels that audiences use; go local in content and presence; tailor content to audiences; and drive innovation and performance with research. Full implementation of these and other solutions to market challenges in high priority markets will depend on available resources, which in turn will be driven in part by the Board’s effectiveness in addressing its organizational and resource challenges. The plan identifies a number of internal challenges or obstacles which, if not addressed and corrected, will hamper the Board’s ability to effectively implement its new strategic approach to broadcasting. First, the Board believes that it needs to do more to consolidate and rationalize its organizational structure to better leverage existing resources and generate greater program impact in priority markets. As the strategic plan notes, “the diversity of the BBG—diverse organizations with different missions, different frameworks, and different constituencies—makes it a challenge to bring all the separate parts together in a more effective whole.” Second, the Board believes that it must clarify the respective roles and responsibilities of the Board, the IBB, and the broadcast entities to ensure that a rational management process is in place and that internal communications flow in a logical manner. The Board’s response to these internal challenges is largely contained in the two program objectives listed under the strategic goal of designing a broadcast architecture for the 21st century. The first program objective is to create a unified broadcasting system by treating the component parts of U.S. international broadcasting as a single system. This is an important distinction since it places the Board in the position of actively managing resources across broadcast entities to achieve common broadcast goals. A good example of this strategy in action is Radio Farda, which draws on the unique content of VOA’s Persian service and Radio Free Europe/Radio Liberty’s Persian service to create a new broadcast product for the Iranian market. Board officials acknowledge that the new single system approach will take years to implement throughout the BBG and require hands-on management by the entire Board to ensure that resources are adequately managed across entities. Also, the Board’s experience with implementing Radio Sawa suggests that it can be difficult to make disparate broadcast entities work toward a common purpose. For example, Board members and senior planners said they encountered significant difficulties attempting to work with VOA officials to launch Radio Sawa and there are now plans to constitute Radio Sawa as a separate grantee organization. While this move is understandable under the circumstances, it also contributes to the further “balkanization” of U.S. international broadcasting. The second program objective consists of realigning the BBG’s organizational structure. This objective highlights the need to reinforce the Board’s role as CEO and to reaffirm the IBB’s role as central provider of transmission and local placement services. The plan notes that by law the Board is the head of the agency with a host of nondelegable responsibilities including taking the lead role in shaping the BBG’s overall strategic direction, setting expectations and standards, and creating the context for innovation and change. As it consolidates its role as the collective CEO for U.S. international broadcasting, the Board will seek to create better and stronger linkages among entities, uniting them in a common purpose and program. At the same time, the Board plans to assume the role of helping the broadcasting organizations develop radio formats to package and better present the broadcasters’ content. According to the plan, this becomes a major responsibility, as professional formatting is vital to the BBG’s competitiveness and effectiveness. We found significant support among BBG staff and outside experts we interviewed and surveyed for a select number of solutions not included in the Board’s plan. However, these are complex issues that deserve detailed review and careful weighing of the pros and cons. Implementing these solutions is largely beyond the Board’s control. However, the Board can play a key role in identifying and endorsing creative solutions for Congress to consider if the Board’s planned solutions to organizational and leadership challenges falter and are ineffective. A list of these options is offered for informational purposes and as a reference point for the Board, OMB, and Congress in pursuing solutions to acknowledged operating challenges. (See app. II for relevant survey responses we received from senior program managers.) Table 3 summarizes the Board’s planned action compared with these potential alternatives. The Board has concluded that if U.S. international broadcasting is to become a vital component of U.S. foreign policy, it must focus on a clear set of broadcast priorities. Trying to do too much at the same time fractures this focus, extends the span of control beyond management capabilities, and siphons off precious resources. The Board has determined that current efforts to support its broadcast languages are “unsustainable” with current resources given its desire to increase impact in high priority markets. Currently, the Board broadcasts in 66 languages, through 97 language services (resulting from a 55 percent overlap between VOA and surrogate language services) to more than 125 markets worldwide. The plan notes, “it is a daunting challenge to obtain the impact the Board desires across all its language services given what is essential to spend in high priority services.” Despite this recognition, the plan fails to answer such questions as, when is it appropriate to broadcast VOA and surrogate programming in the same language, and what level of duplication in roles and target audiences should be allowed between VOA and surrogate broadcasters. These types of questions have been raised before. For example, in our September 1996 review of options for addressing possible budget reductions at the U.S. Information Agency, we concluded that any substantial reduction in funding for U.S. international broadcasting would require major changes in the number of language services and broadcast hours. Our report noted that the BBG planned to extensively review its language services to determine their continued need and effectiveness. Our September 2000 report on U.S. international broadcasting noted that the Board concluded it was essential to revisit the issue of broadcast overlap between VOA and the surrogate services in light of evolving foreign policy, geopolitical, and budget realities in the new century. Finally, the Board considered the issue of role and target audience duplication among VOA and surrogate broadcasts in a July 2000 language service analysis, which sought to identify where broadcast services shared similar roles (that is, to supply international/regional news, local news, information on American policies and perspectives, etc.) and the same target audiences (that is, elites, mass, youth, women, and diaspora). This analysis confirmed that surrogate broadcasters, consistent with their mission, carry substantially more local content than VOA. Likewise, the analysis confirmed that VOA alone provides news and information on what the Board labeled the “American political perspective.” However, the Board’s analysis also revealed that a significant degree of overlap existed in other content areas (such as “political/democracy building”) and in target audiences between VOA and the surrogates. Our survey of senior program managers revealed that the majority supported significantly reducing the total number of language services and the overlap in services between VOA and the surrogate broadcasters. Eighteen of 24 respondents said that too many language services are offered, and when asked how many countries should have more than one U.S. international broadcaster providing service in the same language, 23 of 28 respondents said this should occur in only a few countries or no countries at all. Finally, when we asked respondents what impact a significant reduction in language services (for the purpose of reprogramming funds to higher priority services) would have, 18 of 28 respondents said that this would have a generally positive to highly positive impact. The BBG’s annual language service review process addresses the need to delete or add languages. The process prioritizes individual language services based on such factors as U.S. strategic interests, political freedom, and press freedom data. Such assessments have been used in an attempt to shift the focus of U.S. international broadcasting away from central and eastern Europe to allow greater emphasis on Russia and Eurasia; central and South Asia; China and east Asia; Africa; and selected countries in our hemisphere such as Colombia, Cuba, and Haiti. This system has been used to re-deploy resources within the BBG. For example, the Board has reallocated more than $9 million through the elimination or reduction of language services since its first language service review in January 2000. In total, the Board has eliminated 3 language services and reduced the scope-of-operations of another 25 services since January 2000. In terms of the total number of language services, the Board had 91 language services when it concluded its first language service review and 97 language services at the conclusion of this year’s review. Congress has contributed to this situation by authorizing additional language services over the years. However, the Board, through its required annual language service review and strategic plan, is responsible for analyzing, recommending, and implementing a more efficient and economical scope of operations for U.S. international broadcasting. The Broadcasting Board of Governors’ strategic plan embodies, defines, and guides the Board’s new approach to U.S. international broadcasting, which aims to dramatically increase the size of listening and viewing audiences in markets of U.S. strategic interest while focusing on the war on terrorism. Early initiatives such as Radio Sawa, Radio Free Afghanistan, and Radio Farda represent the first wave of projects incorporating, to varying degrees, the market-driven techniques on which the Board’s new approach to broadcasting are based. Effective implementation of the Board’s new approach to broadcasting rests, in part, on a rigorous plan that reflects the Board’s best strategic thinking on a host of critical issues. However, the Board’s plan lacks measurable program objectives, detailed implementation strategies, resource needs, and project time frames. We identified a number of key areas that could provide a starting point for developing multiyear program objectives that focus on the Board’s actual effectiveness. These measures include audience size by language service, audience awareness, broadcaster credibility, and whether VOA effectively presents information about U.S. thought, institutions, and policies to target audiences. Implementation of these and other program objectives could be tracked through a related set of performance goals and indicators in the Board’s annual performance plan. The Board has identified a number of market and internal challenges and proposed solutions to address them. If the Board falters in its efforts to correct some significant organizational challenges, a number of alternative solutions do exist. Finally, the Board needs to evaluate how many language services it can effectively carry and what level of overlap and duplication in VOA and surrogate broadcast services is appropriate. Resolving these key questions will have significant resource implications for the Board and its ability to reach large audiences in markets of priority interest to the United States. To improve overall management of U.S. international broadcast operations and maximize their impact on U.S. public diplomacy efforts, we recommend that the Chairman of the Broadcasting Board of Governors: revise the BBG’s 5-year strategic plan to include measurable program objectives, implementation strategies, resource requirements, and project time frames; include audience size, audience awareness, broadcaster credibility, and VOA mission effectiveness as measurable program objectives in the strategic plan; revise the BBG’s annual performance plan to include performance goals and indicators that track the Board’s progress in implementing the multiyear program objectives established in the Board’s revised strategic plan; and revise the Board’s strategic plan to include a clear vision of the Board’s intended scope-of-operations and the appropriate level of overlap and duplication between VOA and surrogate language services. The Broadcasting Board of Governors provided written comments on a draft of this report. The Board stated that overall our report is fair and accurate and it largely concurred with our report recommendations. The Board noted that it intends to create a new strategic goal (that is, maximizing impact in priority areas) and recast the plan’s seven existing strategic goals as operational goals that would support the Board’s single strategic goal. These operational goals would be descriptive in nature and generally not measured directly. However, the Board intends to develop measurable multiyear program objectives and related performance indicators under its new strategic goal that will be tracked on an annual basis through the BBG’s performance plan. The Board’s response notes that possible performance indicators include audience reach, share, awareness, credibility, programming quality, mission, added-value, and delivery. Finally, the Board noted that it is currently undertaking an in-depth assessment of the utility and practicality of integrating overlapping language services and expects to include this assessment in its fiscal year 2005 budget submission. We believe these planned actions are significant and if fully implemented should materially improve the Board's performance management process and provide OMB and Congress with more meaningful data on the actual impact of Board activities. The comments provided by the Board are reprinted in appendix IV. The Board also provided technical comments which we have incorporated in the report as appropriate. To obtain comparative information on all our objectives, we conducted fieldwork in the United Kingdom and Germany. We met with foreign ministry officials in London and Berlin to discuss their approaches to public diplomacy. We also met with broadcasting officials from the British Broadcasting Corporation in London and Deutsche Welle officials in Cologne and Berlin to discuss their respective approaches to international broadcasting. To examine the status of the BBG’s new strategic approach, we conducted interviews with Board members and senior managers from the broadcast entities including Radio Free Europe/Radio Liberty officials in Prague. We also reviewed the Board’s new 5-year strategic plan titled “Marrying the Mission to the Market” as well as other agency documentation, including entity mission statements and budget requests. To identify how the Board plans to measure the effectiveness of its new strategic approach, we reviewed current performance management documentation, such as language service and program review documents, audience research summaries, and annual performance plans and reports. We also met with Board officials and with several private sector audience research firms to discuss a range of performance management and measurement issues. To obtain information on various challenges the Board faces in executing its new strategy, and to identify program options for overcoming key challenges, we administered a survey to 34 senior program managers across the 5 broadcast entities in existence at the time our survey was implemented. We also conducted interviews with Board members and the Undersecretary for Public Diplomacy and Public Affairs at the Department of State. We conducted our work from May 2002 through April 2003 in accordance with generally accepted government auditing standards. We are sending copies of this report to other interested members of Congress, the Chairman of the Broadcasting Board of Governors, and the Secretary of State. We will also make copies available to other parties upon request. 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 on (202) 512-4128. Other GAO contacts and staff acknowledgments are listed in appendix V. The Board’s strategic plan provides both a candid assessment of the challenges facing U.S. international broadcasting and a series of proposed solutions to address these challenges in the form of strategic goals and related program objectives. Table 4 is an overview of each challenge described in the Board’s strategic plan. Table 5 is a list of the proposed solutions the Board identified. To determine senior managers’ views of current operations, obtain information on the challenges associated with U.S. international broadcasting, and obtain information on the expected impacts of the BBG’s new “Marrying the Mission to the Market” initiative, we conducted a survey of these managers. Our survey questionnaire was administered from January 15 to March 11, 2003, to the directors, program-related managers, and regional language chiefs at the five BBG broadcasting entities in existence at the time our survey was implemented. The questionnaire was developed between September 2002 and January 2003 by social science survey specialists and other individuals who were knowledgeable about international broadcasting issues. In late October, we obtained an external expert review of the questionnaire from InterMedia, a private consulting group that conducts research into international broadcasting issues. We also obtained a series of comments and feedback from key Board planners and staff in November and December 2002. We pretested the questionnaire in December 2002 with four senior managers of BBG broadcasting entities to ensure that the questionnaire was clear, unambiguous, and unbiased. Initially, we had considered surveying a broader section of managers of BBG broadcasting entities, such as language service chiefs and managers of support services. However, after conducting the pretests, we concluded that our questions were appropriate only for directors, program-related managers, and regional language chiefs. In addition, we decided that it would be inappropriate to survey members of the Board of Governors because many of the questions asked about decisions and strategies for which they were directly responsible. We developed our study population of top managers, program-related managers, and regional language chiefs based on information that the BBG provided and input from BBG management. In those instances where managers had taken office during or after the time period to be evaluated in our survey (Oct. 1, 2001, through Sept. 30, 2002), we also surveyed their predecessors. In all, we sent the survey to the 34 individuals we identified as our study population and received 30 responses, resulting in an 88 percent response rate. All data from the completed surveys were double- keyed and verified during data entry. The results of our closed-ended questions to our survey are provided in appendix III. Finally, the questionnaire asks about current (GAO), an agency of Congress, has been asked operations, recent changes in programming, and by the Chairman of the House International program options. Relations Committee to study the activities of the Broadcasting Board of Governors (BBG). This request was prompted by the terrorist contribution to our study of U.S. international attacks of September 11, 2001 and the question broadcasting, and ask that you respond to this of what can be done to improve our image and questionnaire so that we may provide the most audience understanding of U.S. foreign policy. As part of this work, we are surveying entity questionnaire should take between 30 to 45 heads, senior program managers, and regional minutes to complete, depending upon the length language chiefs in the International Broadcasting of your answers to the open-ended questions. Free Asia (RFA). This questionnaire asks you to assess various unless compelled by law or requested by a program elements during fiscal year 2002 for the member of Congress. Please complete this questionnaire as soon as whether any external factors impeded the ability possible and fax it to Melissa Pickworth at (202) Melissa Pickworth at (202) 512-3158. BBG’s new strategic planning initiative “Marrying the Mission to the Market” that was introduced in November and December 2002. Section 1: Assessment of Program Elements in Fiscal Year 2002 (October 1, 2001, through September 30, 2002) Mission of All U.S. International Broadcasting Language Services “To promote and sustain freedom and democracy by broadcasting accurate and objective news and information about the United States and the world to audiences overseas.” technology (e.g., digital phones). 12) Use of audience and media/format preferences. Comments, if any. (Please provide highlights of what worked well, areas needing improvement, and suggestions on how operations can be improved.) Q.2) During fiscal year 2002, what impact did the following strategic planning elements have on your language services’ ability to achieve their mission? (Please check one box in each row.) planning. planning. planning. Comments, if any. (Please provide highlights of what worked well, areas needing improvement, and suggestions on how operations can be improved.) Q.3) During fiscal year 2002, how effective or ineffective were the following performance management system elements in terms of how they helped your language services to achieve their mission? (Please check one box in each row.) 1) BBG’s Annual Service Review process. 2) Your entity’s annual service. 3) Quantity of research for your entity’s annual program reviews. 4) Quality of research for your entity’s annual program reviews. 5) Timeliness of research support for your entity’s annual program reviews . Comments, if any. (Please provide highlights of what worked well, areas needing improvement, and suggestions on how operations can be improved.) Q.4) During fiscal year 2002, did the following organizational structures have a positive or negative impact on your language services’ ability to achieve their mission? (Please check one box in each row.) 1) Management oversight by the board of governors. 2) Use of multiple broadcast entities (VOA and surrogates model). of the IBB and its support services role. 4) New regional network streams on one frequency). -ship (the board, entity managers, and the IBB). 6) Firewall to protect journalistic independence. 7) VOA and Radio/TV Marti’s status as federal entities. 8) RFE/RL and RFA’s status as grantees. Comments, if any. (Please provide highlights of what worked well, areas needing improvement, and suggestions on how operations can be improved.) Q.5) During fiscal year 2002, how satisfied or dissatisfied were you with the allocation of resources and organizational capacities with regards to your language services? (Please check one box in each row.) Allocation of Resources and Organizational Capacities 1) Program funding levels. 2) Staffing levels. 3) Level of staff skills and knowledge. 4) Level of staff training. equipment. 6) Ability to compete in such as the BBC. 7) Ability to compete in BBC. 8) Ability for crisis capability. 9) Managerial flexibility: resources. Comments, if any. (Please provide highlights of what worked well, areas needing improvement, and suggestions on how operations can be improved.) item) 1) A perception of U.S. international broadcasting as a propaganda tool of the United States. 2) Impact of U.S. foreign policy on foreign perceptions. 3) A generally negative image of the United States. 4) Fear of listening because of repressive regimes. 5) The jamming of U.S. governments. 6) Potential audience’s lack of technology (no SW radios, satellite dishes, etc.). Comments, if any. Section 3: Assessment of External Conditions in Fiscal Year 2002 Q.7) Think back over the main categories of factors and elements you were asked to address in questions 1 through 6 of this survey. The following table summarizes the categories and issues within the Number of hours of transmission, transmission strength and quality, use of affiliates, use of technology, use of audience and marketing research. BBG and IBB strategic, technology, and workforce planning. Language Service Review process, entity annual program reviews, and research for annual program reviews. Management oversight by the Board of Governors, use of multiple broadcast entities, organizational placement of the IBB, new regional network approach, intra-agency coordination/guidance/leadership, firewall issues, status of some entities. E) Resource Issues and Organizational Capacities Current program funding and staff levels, staff skills, knowledge and training, technology and equipment, ability to compete and respond to crises, managerial flexibility. Perceived credibility of U.S. international broadcasting, image of the United States, lack of free media and civil liberties, jamming of U.S. broadcasts, potential audience’s lack of technology to hear broadcasts. 7a) During fiscal year 2002, what factor made the greatest contribution to your broadcasting entity’s ability to meet its mission? (Please enter the letter corresponding to the factor from the list above.) A 13 Comments, if any. 7b) During fiscal year 2002, what factor represented the greatest impediment to your broadcasting entity’s ability to meet its mission? (Please enter the letter corresponding to the factor from the list above.) E 13 Comments, if any. Section 4: New Strategic Planning Initiatives Q.8) How familiar or unfamiliar are you with the BBG’s new strategic planning initiative, “Marrying the Mission to the Market,” which was introduced in November and December 2002? (Check one box.) Not familiar (Skip to Question12) No basis to judge (Skip to Question 12) Q.9) To what extent, if any, do you believe the new strategic planning initiative, “Marrying the Mission to the Market”: (Please check one box in each row.) 1) Is well structured? 2) Addresses issues of critical importance to U.S. international broadcasting? 3) Is likely to succeed in most aspects? 4) Will be embraced by middle management? 5) Will be embraced by the rank and file? Comments, if any. Q.10) In your opinion, what impact will the BBG’s new strategic planning initiative, “Marrying the Mission to the Market,” likely have on the following aspects of U.S. international broadcasting? (Please check one box in each row.) strength and quality, use of affiliates, use of technology, use of audience and marketing research. BBG and IBB strategic, planning. process, entity annual program reviews, and research for annual program reviews. Board of Governors, use of the IBB, new regional network ship, firewall issues, status of some entities. 5) Resource Issues and staff levels, staff skills, ability to compete and respond flexibility. Perceived credibility of U.S. image of the United States, lack of free media and civil liberties, jamming of U.S. audience’s lack of technology to hear broadcasts. Comments, if any. Q.11) Overall, do you think that the BBG’s new strategic planning initiative, “Marrying the Mission to the Market,” will likely have a positive or a negative impact on U.S. international broadcasting’s ability to achieve its mission? U.S International Broadcasting entities, actually reaching significant audiences? which of the following best describes the (Check one box.) number of language services offered by U.S. international broadcasting entities? (Check one box.) Broadcasting Board of Governors (BBG) should be more than one U.S. international has made shifts in resources. Do you broadcaster providing service in any believe that the BBG: particular language? (Check one box.) (Check all that apply.) Other (please explain in the comments) Q.17) One current model of service delivery uses the same program stream, coordinates coverage, and has common production values. To what extent do you believe this model might be applicable to the countries served by your broadcasting entity? (Check one box.) Q.15) Based on your experience in broadcasting, how would you assess the current level of funding for U.S. international broadcasting relative to its mission: (Check one box.) U.S. international broadcasting? U.S. foreign policy interests? Section 6: Program Options Q.20) In your opinion, what impact would the following program options (identified by various contacts in our review) likely have on the ability of U.S. international broadcasting to achieve its mission? (Please check one box in each row.) 1) Consolidate VOA, the IBB, and the surrogates into one broadcasting entity headed by the Board of Governors. 2) Appoint a single individual as CEO for U.S. international broadcasting, and give that individual direct reporting responsibilities to the board. 3) Significantly reduce the overall number of language services in order to reprogram funds to higher priority services. 4) Use language service audience goals tailored to local circumstances (e.g., 5 percent audience share in one market versus a 10 percent share in another market). 5) Set language service audience goals by target audience (e.g., mass versus elites, under 30 versus over 30, men versus women, etc.). 6) Eliminate VOA editorials. 7) Revamp/re-invent VOA editorials. 8) Defederalize VOA (e.g., give VOA grantee status). 9) Defederalize IBB (e.g., give IBB grantee status). 10) Establish closer strategic coordination between the BBG and the State Dept. 11) Establish closer strategic coordination between the BBG and the White House. 12) Establish closer cooperation with other international broadcasters. 13) Establish a national strategic guidance to all agencies involved in public diplomacy. Comments, if any. Q.21) Which organization do you work for? Q.22) Which of the following categories (Please check one box.) most closely matches your level within your organization? (VOA, IBB, RFA, etc.) Q.23) Please briefly describe the language services for which you are responsible: Q.24) Other comments (Please continue on additional sheets, if necessary. Also, please feel free to attach any relevant documents you wish.) Contact information: If you would like us to contact you directly about an issue related to this survey, please provide your name and telephone number below. Any contacts we have with you will be strictly confidential. Thanks for your assistance! Diana Glod (202) 512-8945. In addition to the person named above, Michael ten Kate, Melissa Pickworth, and Janey Cohen made key contributions to this report. Martin De Alteriis and Ernie Jackson also provided technical assistance. 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Prompted by a desire to reverse declining audience trends and to support the war on terrorism, the Broadcasting Board of Governors (BBG), the agency responsible for U.S. international broadcasting, began developing its new strategic approach to international broadcasting in July 2001. This approach emphasizes the need to reach mass audiences by applying modern broadcast techniques and strategically allocating resources to focus on high-priority markets. GAO was asked to examine (1) whether recent program initiatives have adhered to the Board's new strategic approach to broadcasting, (2) how the approach's effectiveness will be assessed, and (3) what critical challenges the Board faces in executing its strategy and how these challenges will be addressed. Consistent with its new plan to dramatically increase the size of U.S. international broadcasting listening and viewing audiences in markets of U.S. strategic interest, the Broadcasting Board of Governors has launched several new projects, including Radio Sawa in the Middle East, Radio Farda in Iran, and the Afghanistan Radio Network. These projects adhere to the Board's core strategy of identifying a target audience and tailoring each broadcast product to market circumstances and audience needs. The Board's plan lacks measurable program objectives designed to gauge the success of its new approach to broadcasting, detailed implementation strategies, resource needs, and project time frames. A number of key effectiveness measures could provide a starting point for developing measurable program objectives and related performance goals and indicators under the Board's annual performance plan. These measures include audience size in specific markets, audience awareness, broadcaster credibility, and whether the Voice of America (VOA) effectively presents information about U.S. thought, institutions, and policies to target audiences. The Board has identified a number of market and internal challenges--such as technological innovation and better coordination of its seven separate broadcast entities--that must be addressed to make U.S. international broadcasting more competitive. It has also developed a number of solutions to address these challenges. However, the Board has not addressed how many language services it can carry effectively (with the number rising nearly 20 percent over the past 10 years) and what level of overlap and duplication in VOA and surrogate broadcast services would be appropriate under its new approach to broadcasting. Resolving these questions will have significant resource implications for the Board and its ability to reach larger audiences in high-priority markets.

You are an expert at summarizing long articles. Proceed to summarize the following text: USPS’s financial condition has deteriorated significantly since fiscal year 2006, and its financial outlook is grim in both the short- and long-term. In July 2009, we added USPS’s financial condition and outlook to our high- risk list because USPS was incurring billion-dollar deficits and its debt was increasing as mail volumes and revenues declined and costs rose. USPS experienced a net loss of $329 million in the first quarter of fiscal year 2011 and is projecting a $6.4 billion total net loss for fiscal year 2011. In February 2011, we retained USPS on our updated high-risk list and reported that USPS finds itself without sufficient revenues to cover its expenses and financial obligations (see table 1). Mail volumes have generally been decreasing as customers have increasingly shifted to electronic communications and payment alternatives (see fig. 1), a trend that is expected to continue. USPS’s two major products are First-Class Mail and Standard Mail. These accounted for nearly 94 percent of all mail volume and 77 percent of USPS revenues in fiscal year 2010. One piece of First-Class Mail generated about three times the profitability of the average piece of Standard Mail. USPS expects First-Class Mail volumes to continue declining in both the short- and long- term, as customers increasingly rely on electronic alternatives. In the first quarter of fiscal year 2011, First-Class Mail decreased by about 6 percent compared to the same period last year, while Standard Mail volumes grew by about 9 percent. Figure 2 depicts actual and projected mail volume trends—which show that by fiscal year 2020 mail volume is projected to decline to a level not seen since fiscal year 1986. Additionally, USPS expects the gap between First-Class and Standard Mail to expand— Standard Mail volumes first exceeded those in First-Class Mail in fiscal year 2005. In 2010, USPS delivered mail to over 150 million addresses nationwide. USPS has about 670,000 full-and part-time employees, and reports that, when benchmarked against other large posts, it has the highest percentage of full-time employees—about 79 percent. USPS has reported achieving cost savings close to $13 billion in the last 5 years. For example, USPS eliminated 125,000 full- and part-time positions (about 16 percent). Despite these achievements, USPS has had difficulty significantly reducing its compensation and benefits costs and has struggled to optimize its workforce and retail, mail processing, and delivery networks. For example, during the first quarter of fiscal year 2011 despite a reduction of 6.4 million work hours when compared with the same period last year, savings from this reduction were partially offset by wage increases and increase in total retirement and health benefits expenses. Further, some USPS savings during these years came as a result of congressional action—Congress deferred $4 billion of USPS’s $5.4 billion scheduled payment to its retiree health benefit fund that was due at the end of fiscal year 2009. Table 2 provides an overview of key components of USPS’s operational network. USPS has relied increasingly on debt to fund its operations and has increased its net borrowing by nearly $12 billion over the last 5 years. USPS also ended fiscal year 2010 with about $1.2 billion in cash and unfunded obligations and liabilities of roughly $105 billion (see table 3). For fiscal year 2011, USPS has not updated its financial projections based on its first quarter results and it still plans to borrow an additional $3 billion—an increase that would place USPS at its $15 billion statutory limit and prevent it from further borrowing in fiscal year 2012 absent congressional action. USPS also projects a $2.7 billion cash shortfall at the end of fiscal year 2011. The President’s Fiscal Year 2012 Budget Request also proposes changes that, if enacted, would provide USPS with over $4.5 billion in short-term financial relief for fiscal year 2011. The majority of this relief—$4 billion— would come as a result of USPS paying $1.5 billion into the Postal Service Retiree Health Benefit Fund instead of the $5.5 billion required under current law. The remaining relief would come from reducing USPS’s obligation for future funding of retirement payments to the Federal Employees Retirement System (FERS). This relief, however, would be somewhat offset by terminating $29 million in annual appropriations in fiscal year 2012, that reimburses USPS for revenue foregone from reduced rate mail. USPS’s financial problems will not be fixed easily or quickly. USPS projects future mail volume declines, stagnant revenues, large financial losses and continued significant financial obligations. Considering USPS’s important role, action is urgently needed to facilitate its financial viability as USPS cannot support its current level of service and operations. Congress, USPS, the administration, and stakeholders need to reach agreement on a package of actions to restore USPS’s financial viability and take steps to modernize and restructure it. USPS needs to become a leaner, more flexible organization so that it can operate more efficiently, control costs, keep rates affordable, and meet customers’ changing needs. In considering proposed legislation, incentives and oversight mechanisms would help to ensure an appropriate balance between providing USPS with more flexibility and assuring sufficient transparency, oversight, and accountability. We have previously identified five key areas where action is needed to facilitate progress toward meeting USPS’s growing fiscal challenges: Realign postal service with customers’ changing use of mail: As mail use by businesses and consumers continues to change, USPS has stated that it cannot afford to sustain its current level of delivery and retail services. For example, it has estimated that it could reduce its costs by about $3 billion annually if it reduced delivery frequency from 6 days to 5 days per week, but congressional action would be needed for this change. USPS filed its proposal to eliminate Saturday delivery with the Postal Regulatory Commission (PRC) on March 30, 2010, and the PRC’s advisory opinion is expected to be released in 2011. Key questions to consider when evaluating this proposal include: What aspects of universal postal service, including 6-day delivery, are appropriate in light of fundamental changes in customers’ use of the mail? What, if any, changes are needed to other elements of universal service (e.g., delivery standards)? How can USPS improve customers’ access to postal services while modernizing its retail network to maximize costs savings? Should USPS implement its proposal to reduce delivery frequency to 5 days a week? How would such a change affect its operations, costs, workforce mix, employees, service, competition, value of mail, mail volume, and revenue? How would shifting to 5-day delivery affect business mailers and the public? Realign operations, networks, and workforce: USPS’s operations, networks, and workforce need to be realigned with the changes in mail usage and customer behavior, as USPS now has costly excess capacity. Key questions to consider when evaluating proposed actions in this area include: How should USPS optimize its operations, networks, and workforce to support changes in services? How quickly can this happen? How can it work with its employees and customers to minimize potential disruptions? Should USPS have greater flexibility to realign its retail networks and workforce, which may involve closing post offices and moving retail services to alternative commercial locations that are often open 7 days a week and keep longer hours than postal facilities? What process is appropriate to assure sufficient transparency, oversight, and accountability? Reduce compensation and benefit costs: Wages and benefits represent 80 percent of USPS’s costs (about $60 billion in fiscal year 2010). One of the most difficult yet critical challenges is making changes to USPS’s compensation systems. These systems have been set in law and also negotiated during collective bargaining with its four largest employee unions. USPS also consulted with its three management associations. We suggested that Congress should consider revisiting the statutory framework for USPS’s collective bargaining to ensure that binding arbitration takes USPS’s financial condition into account. We also reported other possible options for reducing compensation and benefit costs, including implementing a two-tier pay system, outsourcing if it results in cost savings, or revising employees’ share of health and life insurance premiums. Key questions to consider when evaluating proposals in this area include: What changes, if any, should be made to USPS’s compensation and benefits? Is it appropriate that USPS pays a larger share of its employees’ health and life insurance premiums than do most other federal agencies? What impact would changes to these premiums have on USPS and its employees? Generating revenue through new or enhanced products and services: A key issue is whether USPS can generate sufficient new revenues using the pricing and product flexibility provided in the Postal Accountability and Enhancement Act of 2006 or if changes are needed. In 2009, USPS asked Congress to change the law to permit it to diversify into nonpostal areas to find new opportunities for revenue growth. USPS also asked for additional pricing flexibility in a 2010 action plan. However, it is unclear what the potential impact of such changes would be and what statutory or regulatory changes would be needed. Key questions to consider when evaluating proposals in this area include: New products and services: What opportunities are there to introduce profitable new postal products and enhancements to existing ones? Should USPS engage in nonpostal areas where there are private sector providers? If so, under what terms? Funding postal retiree health benefits: USPS has said that it cannot afford its required annual prefunding payments ($5.5 billion in fiscal year 2011 and gradually increasing to $5.8 billion by 2016), and it has requested that Congress reduce these payments. Several proposals have been put forth to revise the current statutory requirements and reduce or defer some of these costs, thereby providing USPS with financial relief. Changes to this structure, however, could affect the federal budget, and the Congressional Budget Office has raised concerns about how aggressive USPS’s cost- cutting measures would be if these payments were reduced. As we reported in 2010, Congress should consider modifying USPS’s retiree health benefit payments in a fiscally responsible manner. However, we also believe that it is important that USPS fund its retiree health benefit financial obligations—including prefunding these obligations—to the maximum extent that its finances permit. Key questions to consider when evaluating proposals in this area include: What changes, if any, should be made to USPS pension and retiree health benefit obligations and payment schedules? What would be the impact on the federal budget? The President’s Fiscal Year 2012 Budget Request proposed specific short- term financial relief measures, that it stated are grounded in principles of fiscal responsibility and sound financial management. The budget request states that these steps are to provide USPS with the “breathing room” necessary to continue restructuring its operations without severe disruptions and notes that they must be coupled with meaningful business model reforms to make USPS viable for the medium- and long-term. To that end, the budget request outlines three principles to guide these reforms: (1) realigning postal infrastructure, including processing and delivery facilities; (2) adapting the postal workforce to the 21st century; and (3) enhancing service and accelerating the value of USPS services while respecting fair competition in the marketplace. However, while promoting realignment and modernization, the budget request would also continue to restrict USPS from reducing delivery from 6 days a week and closing small rural and other small post offices. Much attention has been focused on ways postal services may be reduced—such as USPS’s proposals to move to 5-day-a week delivery or to close post offices. Less attention has been given to more positive aspects of USPS’s plans to modernize its retail services, which it believes will improve customer access and convenience while reducing costs and improving efficiency. In a recently issued report on strategies and initiatives foreign posts have used to modernize their delivery and retail networks, we discussed some lessons learned that could inform USPS’s modernization efforts. Although the foreign posts we reviewed reported that changing how postal services were provided was challenging, they also found that outreach and communication strategies helped to inform public officials and customers of increased access to products and services and to gain acceptance for retail network changes. For example, when realigning their respective retail networks, Australia Post developed a labor outreach strategy, and the Swedish postal operator, Posten AB, created a communications strategy to inform customers of its retail network transformation. Additionally, foreign posts modernized their retail networks by forming partnerships with private sector businesses such as grocery stores to sell postal services. According to the foreign posts we reviewed, retail modernization improved customer service, in some cases because the private sector partners stayed open longer, reduced operating and labor costs through closures of post-owned and -operated facilities, or both. When modernizing, foreign posts also transitioned their workforce to have a greater percentage of part-time employees, which they reported afforded flexibility to adjust work to decreased mail volumes. A few foreign posts developed labor transition plans or strategies under which they provided training, relocation and job search services, and financial incentives to support employees who were negatively affected by the modernizations. The foreign posts we reviewed did not plan or implement changes or realize improvements to their networks overnight. Modernization took several posts 10 to 20 years to implement and was often met with stakeholder resistance. Among the key principles that foreign posts used to help modernize and restructure their organizations are the following: Strategic outreach and coordination with governments, the public, mailers, small businesses, and retail customers can address political resistance. For example, foreign posts communicated with and reached out to customers to increase acceptance of changes and to better meet customers’ needs, including providing alternatives before implementing major retail network changes. A labor relations strategy can assist employees in making the necessary transition to modernization changes. For example, a few foreign posts provided training, relocation and job search services, and financial incentives to support employees who were negatively affected by the modernizations. The lesson from these experiences is that USPS needs to clarify what its modernization plans are, how and over what period it will implement them, and what improvements in customer service and cost savings it expects to achieve. In its efforts to modernize its retail network, USPS needs to assure customers that they will have alternative access to postal services, such as through self-service retail kiosks or retail partners. While USPS has taken steps in the past year to generate ideas for modernizing its retail and delivery networks, the experiences of foreign posts suggest that it will be critically important for USPS to fully develop and implement similar outreach, communication, and labor transition strategies. In summary, modernizing and restructuring USPS so that it can be viable in the future is imperative given its financial condition. While we recognize that this will not be easy, changes—some difficult—are needed to ensure that postal services remain available to all U.S. residents and businesses. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions that you or other Members of the Subcommittee may have. For further information about this statement, please contact Phillip Herr at (202) 512-2834 or [email protected]. Individuals who made key contributions to this statement include Susan Ragland, Director, Financial Management and Assurance; Teresa Anderson, Joshua Bartzen, Heather Frevert, Margaret McDavid, Robert Owens, and Crystal Wesco. U.S. Postal Service: Foreign Posts’ Strategies Could Inform U.S. Postal Service’s Efforts to Modernize. GAO-11-282. Washington, D.C.: February 16, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 2011. U.S. Postal Service: Legislation Needed to Address Key Challenges. GAO-11-244T. Washington, D.C.: December 2, 2010. U.S. Postal Service: Mail Processing Network Initiatives Progressing, and Guidance for Consolidating Area Mail Processing Operations Being Followed. GAO-10-731. Washington, D.C.: June 16, 2010. U.S. Postal Service: Action Needed to Facilitate Financial Viability. GAO-10-601T. Washington, D.C.: April 22, 2010. U.S. Postal Service: Action Needed to Facilitate Financial Viability. GAO-10-624T. Washington, D.C.: April 15, 2010. U.S. Postal Service: Strategies and Options to Facilitate Progress toward Financial Viability. GAO-10-455. Washington, D.C.: April 12, 2010. U.S. Postal Service: Financial Crisis Demands Aggressive Action. GAO-10-538T. Washington, D.C.: March 18, 2010. High-Risk Series: Restructuring the U.S. Postal Service to Achieve Sustainable Financial Viability. GAO-09-937SP. Washington, D.C.: July 28, 2009. U.S. Postal Service: Network Rightsizing Needed to Help Keep USPS Financially Viable. GAO-09-674T. Washington, D.C.: May 20, 2009. U.S. Postal Service: Deteriorating Postal Finances Require Aggressive Actions to Reduce Costs. GAO-09-332T. Washington, D.C.: January 28, 2009. U.S. Postal Service Facilities: Improvements in Data Would Strengthen Maintenance and Alignment of Access to Retail Services. GAO-08-41. Washington, D.C.: December 10, 2007. 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. Postal Service's (USPS) financial condition and outlook are deteriorating because revenues are not sufficient to cover its expenses and financial obligations. These challenges continue to threaten USPS's financial viability and GAO has therefore retained USPS on its high risk list issued in February 2011. USPS also faces cost pressures from maintaining a national network of processing, retail, and delivery operations. This testimony discusses (1) updated information on USPS's financial condition and outlook and (2) actions needed to modernize and restructure USPS. It is based primarily on GAO's past and ongoing work, as well as GAO's review of USPS's recent financial results and the President's proposed budget for fiscal year 2012. USPS experienced a net loss of $329 million in the first quarter of fiscal year 2011 and is projecting a $6.4 billion total net loss for fiscal year 2011. Mail volumes, USPS's main revenue source, have generally been decreasing as customers have shifted to electronic alternatives. This trend exposes weaknesses in USPS's business model, which has relied on mail volume growth to help cover costs. While USPS continues to reduce employees' work hours, its cost reduction efforts have not been sufficient to offset lost revenue. Since fiscal year 2006, USPS has relied on debt to help cover its obligations. If it borrows $3 billion in fiscal year 2011 as its plans indicate, USPS will reach its $15 billion statutory debt limit. The President's Fiscal Year 2012 Budget Request proposes providing USPS with over $4.5 billion in short-term financial relief in fiscal year 2011 by reducing its retiree health benefit payment by $4 billion and reimbursing it for approximately $550 million in Federal Employee Retirement System payments. While useful, these actions would not sufficiently address USPS's structural problems. USPS's financial condition has reached a tipping point. Given USPS's role in facilitating key aspects of the U.S. economy, Congress, the administration, USPS, and stakeholders need to reach agreement on a package of actions to restore USPS's financial viability, facilitate progress toward modernizing its services to meet changing customer needs, and remove barriers restricting USPS actions. This would allow USPS to optimize its networks and workforce so that it can become more efficient and reduce costs. GAO recently reported on lessons learned from foreign posts' modernization efforts, including using outreach and communication strategies to inform public officials and customers of increased access to products and services to help gain acceptance for retail network changes. Some posts also developed labor transition strategies that included training, relocation, job search services, and financial incentives to support employees who were negatively affected. While USPS has taken steps to generate ideas for modernizing its retail and delivery networks, the experiences of foreign posts suggest that it will be critically important for USPS to fully develop and implement similar outreach, communication, and labor transition strategies. While this testimony contains no new recommendations, GAO has reported that Congress, the administration, and USPS urgently need to reach agreement on a package of actions to restore USPS's financial viability by modernizing its operations, networks, and workforce. GAO has also recommended that Congress consider providing USPS with financial relief, and in doing so, consider all options available to reduce costs. In commenting on this statement, USPS generally agreed with its accuracy and provided technical comments that were incorporated as appropriate.

You are an expert at summarizing long articles. Proceed to summarize the following text: As part of its mission to defend the interests of the United States, DOJ controls all criminal prosecutions in which the United States has an interest, including those against corporations. Prosecutors’ decisions on investigating, charging, and negotiating a plea or other agreement with respect to corporate crimes are guided by DOJ’s Principles of Federal Prosecution of Business Organizations, which instruct prosecutors to consider nine factors when determining how to treat a corporation suspected of criminal misconduct and provide guidance on when the nine factors most appropriately apply. The principles also provide a number of actions prosecutors may take regarding a corporation, including declining to prosecute, entering into a DPA or NPA, or criminally prosecuting the corporation. According to the principles, DPAs and NPAs are an important alternative to declining prosecution against a corporation and obtaining the conviction of a company through prosecution. The nine factors, and examples of the manner in which they influence the prosecutors’ choices of action, are shown in figure 1 below. As part of DPAs and NPAs, companies are generally required to comply with a set of terms for a specified duration in exchange for prosecutors deferring the decision to prosecute or deciding not to prosecute. These terms have included: monetary payments—such as restitution to victims of the crime, forfeiture of the proceeds of the crime, and monetary penalties imposed by DOJ; requirements that the company improve or enhance its compliance program; requirements that the company hire, at its own expense, an independent monitor to assist the company in establishing a compliance program, review the effectiveness of a company’s internal control measures, and determine whether the company has otherwise met the terms of the agreements (The agreements typically require monitors to periodically submit written reports to track the company’s progress in complying with the terms of the DPA or NPA.); and extraordinary restitution provisions, which are payments or services to organizations or individuals not directly affected by the crime. (DOJ issued guidance in May 2008—which was incorporated into the United States Attorneys’ Manual—prohibiting the use of terms requiring payments to charitable, educational, community, or other organizations or individuals that are not the victims of the criminal activity or are not providing services to redress the harm caused by the criminal conduct. According to DOJ, the use of such terms could create actual or perceived conflicts of interest or other ethical issues.) NPAs typically are not filed with the court, but instead are maintained by DOJ and the corporation. On the other hand, DPAs are typically filed with the court, along with a document that identifies the charges that the prosecution has brought against the corporation. The Speedy Trial Act sets time limits for the various phases of the criminal justice process—for example, a defendant’s trial must begin within 70 days of charges being filed or the date when the defendant appeared before the court —and violations of these time limits may result in the dismissal of the case. However, the Speedy Trial Act also includes provisions that allow for certain delays that do not count towards the act’s time limits. Under one of these provisions, courts have the authority to approve the deferral of a prosecution pursuant to a written agreement between the government and the defendant. DOJ has made more frequent use of DPAs and NPAs in recent years, entering into four agreements in fiscal year 2003 compared to a high of 38 agreements in fiscal year 2007, although use declined in fiscal years 2008 and 2009 when DOJ entered into 24 and 23 agreements, respectively. According to DOJ officials, the decrease in the use of DPAs and NPAs cannot be attributed to any specific reason because DOJ is a reactive agency and experiences fluctuations in the types of cases that occur each year. However, the officials noted that fiscal year 2007 appeared to be an aberration because the use of DPAs and NPAs in fiscal year 2007 was significantly higher than in any other fiscal year. Figure 2 below depicts the number of DPAs and NPAs by fiscal year. From 1993—when the first DPA or NPA was reached—to September 2009, 38 of the 94 USAOs have entered into at least one DPA or NPA, with the total number of agreements per office ranging from 1 agreement entered into by 21 of these USAOs, to 23 agreements entered into by the USAO for the Southern District of New York. In addition, during this same time period, of the seven litigating components based in DOJ headquarters, five have entered into DPAs or NPAs, with the total number of agreements per division ranging from one agreement entered into by the National Security Division to 49 entered into by the Criminal Division. See appendix II for the number of DPAs and NPAs entered into by the USAOs and Divisions. As shown in table 1, the number of DPAs and NPAs entered into by the USAOs is small compared to the number of corporate prosecutions they pursued, but the number of DPAs and NPAs entered into by the Criminal Division is similar to—and in some fiscal years, more than—the number of corporate prosecutions it pursued. For example, USAOs pursued almost 18 times more corporate prosecutions than DPAs and NPAs from fiscal years 2004 to 2009. For the same time period, the Criminal Division pursued 0.9 times more prosecutions than DPAs and NPAs, or rather 1.2 times more DPAs and NPAs than prosecutions. According to Criminal Division officials, unlike the USAOs, the number of DPAs and NPAs the division has entered into was similar to the number of corporate prosecutions it carried out for two reasons. First, the Criminal Division more often handles cases against larger multinational corporations—many of which may have federal contracts—than the USAOs do. Prosecution of such companies may have significant collateral consequences, such as the inability to contract with the federal government—a factor prosecutors are to consider based on the Principles of Federal Prosecution of Business Organizations when determining whether to enter into a DPA or NPA versus prosecute. Second, the Criminal Division handles all cases involving violations of the Foreign Corrupt Practices Act, for which cases have increased since fiscal year 2007 and for which the Criminal Division has entered into DPAs to improve companies’ compliance. Prior to 2009, DOJ did not have a mechanism to centrally track its use of DPAs and NPAs, which inhibited its ability to accurately report the number and terms of the agreements to the Congress and the public. However, in response to our requests for information, DOJ has recently taken steps to better track its use of DPAs and NPAs, steps that will allow it to more accurately report on the number and terms of DPAs and NPAs to Congress and the public, and identify best practices and ensure consistency across agreements. In January 2008, as part of its oversight of DOJ’s efforts to combat corporate crime, the House Judiciary Committee requested that DOJ disclose all of the DPAs and NPAs that DOJ had entered into since January 20, 2003. On May 15, 2008, DOJ submitted a total of 76 agreements entered into during this 5-year time frame, but acknowledged that the DPAs and NPAs it provided to the committee did not represent all agreements entered into during the requested time period. According to DOJ, to respond to the committee’s request, it had to ask the USAOs and litigating divisions to submit all DPAs and NPAs entered into by their respective offices. However, it appears that the USAOs and divisions did not provide all the DPAs and NPAs they had entered into because, in conducting our audit work, we found that DOJ had actually entered into 99 agreements during that time period. According to standards for internal control in the federal government, information—which could include entering into a DPA or NPA—should be recorded and communicated to management in a form and within a time frame that enables it to carry out its internal control and other responsibilities. Subsequently, in response to our inquiries, DOJ has taken several steps to better track its use of DPAs and NPAs, steps that will better position DOJ to more accurately report to Congress and the public on the number of existing DPAs and NPAs, the outcome of the cases, and the terms of the agreements. According to the Senior Counsel to the ODAG, DOJ wants to track the agreements internally to help identify best practices and ensure consistency across agreements, with the recognition that the agreements will need to vary based on the facts of each case. The new tracking efforts include: In April 2009, EOUSA—which provides administrative and operational support to the USAOs—updated the case management system USAOs use to maintain workload information, the Legal Information Office Network System (LIONS), and issued guidance to prosecutors on the procedure for tracking their use of DPAs and NPAs in LIONS. According to an EOUSA data official, instructing all USAOs to enter data on DPAs and NPAs in LIONS will provide EOUSA with the capability to centrally track the use of these agreements across the USAOs. Similarly, in May 2009, the Criminal Division updated its case management system, the Automated Case Tracking System (ACTS), and issued guidance to prosecutors on the procedure for tracking DPAs and NPAs in this system. According to a Criminal Division data official, prosecutors were already tracking their use of DPAs and NPAs largely in the manner described in the guidance, but the updates to the system allowed the Criminal Division to centrally track DPAs and NPAs separately, a process that it could not do previously. Doing so will provide the Criminal Division with the capability to centrally maintain data on the use and characteristics of both types of agreements. DOJ is currently in the process of developing a new case management system—the Litigation Case Management System (LCMS)—that seven of DOJ’s litigating components are to eventually use, including the USAOs and four of the five headquarters-based components that have entered into DPAs and NPAs. According to officials from DOJ’s Justice Management Division (JMD) responsible for the implementation of LCMS, the system is to enable prosecutors to centrally track their use of DPAs and NPAs as it is implemented throughout the USAOs and litigating components. This in turn will provide DOJ with the ability to centrally collect data on its use of DPAs and NPAs across all DOJ components. According to the Senior Counsel to the ODAG, centrally tracking its use of DPAs and NPAs will provide DOJ with the capability to internally monitor the circumstances in which the agreements are being used by prosecutors, including whether the agreement requires a monitor. Further, centrally tracking DPAs and NPAs in these databases will allow DOJ to assure itself that it has a reliable count of the universe of DPAs and NPAs in order to be responsive to requests from Congress. In addition to tracking DPAs and NPAs in DOJ data systems, the March 2008 Morford Memo required, among other things, that prosecutors submit copies of DPAs and NPAs involving the use of a monitor to the Assistant Attorney General for the Criminal Division in order for DOJ to capture data on agreements that required monitors. As such, on January 15, 2009, DOJ issued guidance outlining the process by which prosecutors were to submit DPAs and NPAs to the Criminal Division, and requiring that all DPAs and NPAs—not only those involving the use of monitors—be submitted, along with a reporting form detailing certain information about the agreement, including whether it required a monitor and whether it was filed in court. Since the issuance of the January 2009 guidance, DOJ has entered into 13 agreements, and the Criminal Division has received copies of the agreements and the associated reporting forms for all of these agreements. As a result, according to the Senior Counsel, DOJ is in a position to review and analyze the characteristics of these agreements— for instance, DOJ can determine whether there is variation among the DPAs and NPAs and whether any such variation is appropriate given the facts and circumstances of the case. According to DOJ, along with prosecution, DPAs and NPAs are invaluable tools in achieving its strategic objective to combat public and corporate corruption, fraud, economic crime, and cybercrime, although the public, as well as the Congress, have called into question the effectiveness of these agreements. However, DOJ cannot evaluate and demonstrate the extent to which DPAs and NPAs—in addition to other tools, such as prosecution—contribute to the department’s efforts to combat corporate crime because it has no measures to assess their effectiveness. Specifically, DOJ intends for these agreements to promote corporate reform; however, DOJ does not have performance measures in place to assess whether this goal has been met. Therefore, it could be difficult for DOJ to justify its increasing use of these tools. The Government Performance and Results Act of 1993 requires that federal agencies prepare annual performance plans that articulate performance goals and indicators that are aligned with their long-term strategic goals in order to generate information congressional and executive branch decision-makers need in considering measures to improve government performance and reduce costs. In addition, standards for internal controls in the federal government state that activities need to be established to monitor performance measures and indicators, and that controls aimed at both organizational and individual performance need to be implemented. Performance measures are established in order to assess whether a program has achieved its objectives and are expressed as measurable, quantifiable indicators. Outcome-oriented performance measures, in particular, assess a program activity by comparing it to its intended purpose or targets. Although DOJ has a strategic objective to combat public and corporate corruption, fraud, economic crime, and cybercrime, which includes the use of DPAs and NPAs, it has not determined how it will measure the extent to which these agreements have helped it to achieve this strategic objective to demonstrate the effectiveness of these tools, despite its increased use of these tools in recent years. DOJ has mechanisms to assess how litigating divisions achieve favorable results in criminal cases in general, but not for corporate criminal cases in particular, including the use of DPAs and NPAs to resolve these cases. Specifically, DOJ measures the performance of its litigating divisions in meeting the strategic goal of preventing crime, enforcing federal laws, and representing the rights and interests of the American people by measuring the percent of cases in which prosecutors achieve a favorable resolution. DOJ’s fiscal year 2009 Performance and Accountability Report stated that 92 percent of criminal cases were favorably resolved. However, this performance measure does not specifically address corporate criminal cases or litigating division efforts to achieve the strategic objective of combating public and corporate corruption, fraud, economic crime, and cybercrime. Further, while one of the measures the Fraud Section uses to report its annual accomplishments is counting and reporting on the number of DPAs or NPA it initiates, among other things, this measure does not provide an evaluation of the effectiveness of DPAs or NPAs. DOJ officials acknowledged that one of DOJ’s goals in using DPAs and NPAs is to help reform the company. In our discussions with the Senior Counsel to the ODAG as well as the five monitors and seven companies that provided opinions on how DOJ could measure the effectiveness of DPAs and NPAs, these officials suggested two possible models for measuring effectiveness by considering (1) a company’s recidivist behavior—or the extent to which the company re-engages in criminal misconduct—after the agreement is complete or during the term of the DPA or NPA, or (2) whether the company successfully met the terms of the agreement, which often include requirements to establish or enhance compliance programs as a means to reform the company. While half of the company officials and monitors with whom we spoke who discussed the use of recidivism as a measure did not have concerns with using such a metric, an equal number did express concerns about using this as the sole metric. One consideration is that DOJ would have to define the types of criminal misconduct engaged in by the company and the organizational level of employees engaging in the misconduct that would constitute recidivism. For example, according to the Senior Counsel to the Assistant Attorney General for the Criminal Division, DPAs and NPAs are tailored to address the violations of a specific law based on specific misconduct. Therefore, if the company entered into a DPA or NPA because it violated the Commodity Exchange Act, for example, it could be problematic to consider subsequent violations of the Foreign Corrupt Practices Act as recidivism. In addition, DOJ may have to consider whether criminal misconduct committed by an individual employee should be considered recidivism—for instance, one company official said that, at a large international company, it is possible that individual employees may engage in misconduct in violation of the company’s compliance program, but this should not constitute recidivism on the part of the entire company. Another consideration regarding measuring recidivism after the completion of the DPA or NPA, according to DOJ officials with whom we spoke, is that DOJ does not have the resources to monitor a company’s activities after the agreement has been completed over the long term, nor is it the mission of DOJ to do so. DOJ officials further stated that criminal misconduct committed after completion of the agreement is not reasonably within DOJ’s control because, once the agreement has ended, DOJ is not monitoring the company’s behavior, and any further misconduct may be influenced by other factors—such as the characteristics of the corporation—and not the effectiveness of the agreement. Finally, according to the Senior Counsel to the Assistant Attorney General for the Criminal Division, if the company re-engaged in criminal misconduct, and the misconduct was reported to federal law enforcement officials, the Principles of Federal Prosecution of Business Organizations instruct prosecutors to consider the company’s recidivist behavior in determining how to treat the company. However, the Senior Counsel said that, because one of DOJ’s goals in entering into the DPA or NPA is to reform the company, DOJ takes responsibility for monitoring any recidivist behavior on the part of the company during the term of the DPA or NPA. In addition to recidivism—both after and during the agreement—whether the company successfully met the terms of the DPA or NPA could be a proxy measure—or indirect indicator—for whether the agreement was effective at successfully reforming the company. As part of the DPA or NPA, companies are often required to establish or enhance internal controls or company compliance programs, or engage in training to detect and prevent further wrongdoing. According to DOJ officials, if a company meets all of these requirements, it is likely that the company has reformed. Overall, five of the seven companies and three of the five monitors with whom we discussed this issue reported that such a performance measure would be a useful way to measure the effectiveness of DPAs and NPAs. For instance, to show whether companies meet the objectives of their agreements, DOJ could report the percentage of companies that successfully meet the terms of their agreements, the percentage of companies that violate the terms of their agreements and face prosecution, and the percentage of agreements DOJ extends because the company has not yet complied with the terms of the agreement. Of the 152 DPAs and NPAs that DOJ had entered into as of October 2009, we are aware of at least one company that was prosecuted because it violated the terms of its DPA while the agreement was still ongoing and two companies for which DOJ extended the agreement because the company had not yet complied with the terms of the agreement. However, it may be difficult to determine the extent to which the agreement itself, rather than other factors, was responsible for corporate reform. For example, according to one company official, companies can commit to making necessary compliance changes even before entering into a DPA or NPA, so the agreement did not cause the reforms. Yet, because the Principles of Federal Prosecution of Business Organizations instruct prosecutors to consider a company’s remedial actions—such as its efforts to implement or enhance an effective compliance program— when determining how to treat the corporation, this factor may motivate a company to institute reforms in order to influence DOJ’s decision as to whether to use a DPA or NPA. The Senior Counsel to the ODAG also believed that measuring whether companies successfully meet the terms of their agreements would be valuable, and that the fact that companies do not often violate their agreements and subsequently face prosecution was an indicator that agreements have helped companies to successfully reform. Several factors would have to be considered in developing these—or any other—measures, such as clearly defining what is meant by recidivism and assessing the feasibility of tracking recidivism. However, by developing measures to evaluate DPAs and NPAs, DOJ will be able to gauge whether the agreements are effective tools in achieving its strategic objective and reassure those with concerns about the appropriate use of these tools that they are effective in deterring and combating corporate crime. The Speedy Trial Act allows judges to approve the deferral of prosecution pursuant to a written agreement between the government and the defendant, for the purpose of allowing the defendant to demonstrate his good conduct; however, the law does not otherwise specify judicial involvement in the DPA process. We obtained responses from 12 U.S. district and magistrate judges who handled cases involving a DPA, and these judges reported they were generally not involved in the DPA process. Specifically: Nine of the 12 judges stated that they did not hold a hearing to review the DPA or its terms, while the 3 remaining judges held hearings. One of these judges did so in the context of a plea hearing. Another judge held a hearing to arraign the company; at which time, the company and DOJ informed the judge that they intended to enter into a DPA. The judge then had a second hearing to approve the DPA. The third judge conducted a hearing to arraign the company and verify that the company’s decision to enter into the DPA was informed and voluntary. Ten of the 12 judges reported that they relayed their decision approving the DPA through a written order. One judge relayed the decisions orally at a hearing, and one judge did both. Ten of the 12 judges reported that they did not have a role in the selection of a monitor required under the DPA, while the remaining 2 judges did. In one of the 2 cases, the company identified the names of five monitor candidates, the DOJ prosecutors in the case determined three of the five candidates were acceptable, and the judge extensively interviewed the three candidates before selecting one of the candidates to serve as monitor. In the other case, the DOJ prosecutors interviewed and identified monitor candidates, and the judge made a final selection from this group. Ten of the 12 judges stated that the monitors did not report any information to the court during the DPA, and the remaining 2 judges stated they received information from the monitor. In one of these two cases, the monitor filed quarterly reports with DOJ and the company’s board of directors, and the court received a copy of the monitor’s final report. In the other case, the court received a copy of the reports the monitor was required to prepare as part of the DPA and also spoke with the monitor occasionally. Similarly, 11 of the 12 judges did not receive any information from DOJ regarding the monitor’s compliance with monitoring obligations under the DPA. The remaining judge received calls from DOJ after the monitor submitted bills to the court in order for DOJ to confirm to the court that the monitor was in compliance with the monitoring obligations in the DPA. Eleven of the 12 judges reported that they played no role in determining the terms of the monitor’s contract or setting the monitor’s fees. The remaining judge set, reviewed, and approved the monitor’s fees. Ten of the 12 judges did not receive copies of the monitoring contracts, while 1 judge received a copy and another judge was uncertain. Ten of the 12 judges said that they dismissed the charges against the company after receiving information or a court filing from DOJ or the monitor reflecting compliance, but did not report taking actions to independently assess the company’s compliance with the DPA. One additional judge stated that he ensured the company understood the agreement before dismissing the charges, and the final judge reported that the court would review DOJ’s submission to determine whether dismissal of the charges against the company was warranted. Prosecutors from 7 of the 13 DOJ offices, officials from 9 of the 20 companies, and 6 of the 11 monitors with whom we spoke reported disadvantages to a greater court role, while no prosecutors, 7 of 20 company officials, and 3 of 11 monitors described advantages to a greater court role. Two company officials did not believe there were advantages or disadvantages to greater court involvement, and another company official said that the advantages and disadvantages would depend on the judge involved in the case. We also spoke with 2 judges, and 1 cited disadvantages to greater court involvement, while the other cited both advantages and disadvantages. The advantages cited most often included: the court’s ability to act as an independent arbiter of disputes that companies and DOJ identify, or to handle significant events in the DPA process, such as the determination of a breach; court involvement in monitor selection could decrease the appearance of favoritism and add to the perception of fairness in the monitor’s selection; and court involvement could increase transparency in the DPA process by, for example, making monitor reports filed in the case publicly available. The disadvantages most frequently cited were: the lack of time and resources available to judges to become more involved in the DPA process or their willingness to do so. For instance, three prosecutors, one monitor, one company official, and one judge noted that, because of already high caseloads, judges may not have the time or resources to thoroughly review the terms of a DPA, interview and select appropriate monitor candidates, review monitor reports, or determine whether a company is in compliance with the DPA; concerns over the appropriateness of judges playing a larger role in the DPA process. For example, two officials noted that judges are prohibited from participating in plea bargaining between two parties in a case and believed that negotiations over DPAs were similar to plea bargaining. Others believed that decisions in the DPA process—such as whether to enter into a DPA instead of prosecute, set the terms of the agreement, or determine whether a company has complied with or breached an agreement—were functions of the executive rather than the judicial branch. For example, one judge noted that if a judge disagreed with the prosecutor’s determination that a company had complied with the DPA, the judge’s authority to refuse the prosecutor’s request to dismiss the indictment and proceed with prosecution is unclear. Thus, greater court involvement might create a problem related to the separation of powers under the Constitution, as well as inhibit prosecutors’ discretion in their cases. According to DOJ officials, DOJ does not have a position on whether greater judicial involvement in the DPA process creates separation of powers issues; however, DOJ believes that judicial involvement in the NPA process would create concerns related to the separation of powers because no judicial review is involved for NPAs, as they typically do not involve court filings. the additional time and processes associated with court involvement, such as hearings, which may slow down the DPA process; and judges’ lack of knowledge and expertise about the case or its subject matter, such as the operation of an environmental management system at a wastewater treatment plant, which prosecutors in the case may have spent years developing. According to DOJ, DPAs and NPAs can be invaluable tools for fighting corporate corruption and helping to rehabilitate a company, although use of these agreements has not been without controversy, including questions about the effectiveness of these tools. DOJ has taken several steps to better track its use of DPAs and NPAs, steps that will better position DOJ to more accurately report to Congress and the public on the number of existing DPAs and NPAs, the outcome of the cases, and the terms of the agreements. However, while DOJ has stated that DPAs and NPAs are useful tools for combating and deterring corporate crime, without performance measures, it will be difficult for DOJ to demonstrate that these agreements are effective at helping the department achieve this goal. Models exist that would allow DOJ to create such measures, including measuring whether a company reengages in misconduct over the long- term or during the course of the agreement or whether a company successfully meets the terms of its DPA or NPA. By developing performance measures to evaluate DPAs and NPAs, DOJ will be better positioned to gauge whether they are effective tools in deterring and combating corporate crime. To assess its progress toward meeting its strategic objective of combating public and corporate corruption, the Attorney General should develop performance measures to evaluate the contribution of DPAs and NPAs towards achieving this objective. On December 15, 2009, DOJ provided written comments on a draft of this report, which we discussed with the Associate Deputy General Counsel for ODAG and the White Collar Crime Coordinator for EOUSA on December 17, 2009. DOJ agreed with our recommendation. The full text of DOJ’s written comments is included in appendix III. In its letter, DOJ stated that the department uses a variety of tools to achieve its mission of protecting the public from corporate corruption, and in some cases, DPAs and NPAs are appropriate tools and offer a number of benefits, such as the avoidance of negative collateral consequences of prosecution and conviction to companies and innocent third parties. DOJ agreed with our recommendation that the Attorney General develop performance measures to evaluate the contribution of DPAs and NPAs toward achieving its strategic objective of combating public and corporate corruption, and recognizes the value of appropriate performance measures in this area. DOJ did not think that the Government Performance and Results Act of 1993 (GPRA) was a relevant a criterion for the development of performance measures for DPAs and NPAs, stating that it requires agencies to develop performance measures for broader program activities, such as those set forth in agency budgets, and not for tools such as DPAs and NPAs, which are used less frequently and are narrowly defined to rectify specific wrongdoing. While we acknowledge that GPRA does not require the department to develop performance measures at levels below the program activities set forth in the agency’s budget, we also note that a practice among leading organizations when implementing results-oriented management practices consistent with GPRA has been to develop performance measures for each organizational level, which could help managers and staff understand how their daily activities contribute to attaining organizationwide strategic goals. Also, there are other criteria in addition to GPRA that we cited in our draft report—specifically, the standards for internal control in the federal government—which state that agencies should establish activities to monitor performance measures and indicators and implement controls aimed at organizational performance. Additionally, with regard to DOJ’s comment that DPAs and NPAs are relatively few in number, while that may be the case for the U.S. Attorneys’ Offices, as we stated in our report, the Criminal Division has entered into about the same number of DPAs and NPAs as the number of prosecutions it has pursued. As to the specific types of performance measures DOJ could adopt, we proposed in our draft report that DOJ might measure whether the company successfully met the terms of the agreement or whether the company re-offended, as two potential measures of the effectiveness of DPAs and NPAs. In its comments, DOJ identified some of the same limitations as we did in our report regarding the use of recidivism as a performance measure. Specifically, DOJ stated that it would be difficult to determine whether a company recidivated if the company’s subsequent violation was different than the original violation that resulted in the DPA or NPA. However, DOJ stated that the recent efforts under way by EOUSA and the Criminal Division to track the department’s use of DPAs and NPAs and monitor the disposition of these agreements will help DOJ know whether the corporation has fulfilled all of the terms of the agreement, knowledge that could be useful information for the department as it develops its performance measures for DPAs and NPAs. We also received written comments from the Administrative Office of the U.S. Courts (AOUSC) on December 17, 2009, and the full text of the Office’s written comments is included in appendix IV. AOUSC in its comments emphasized concerns about greater judicial involvement in the use of DPAs and NPAs, including concerns about constitutional and other separation of powers issues contained in the report, and suggested these be given greater emphasis. We maintain that we have accurately and objectively represented the views of prosecutors, company officials, monitors, and judges as presented to us in the course of our review and have reflected these issues in the report. As agreed with your offices, we plan no further distribution of this report until 24 days from its date, unless you publicly announce its contents earlier. At that time, we will send copies of this report to the Attorney General, the Director of AOUSC, selected congressional committees, and other interested parties. The 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 further 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. Key contributors to this report are listed in app. V. The terms of the 57 DPAs and NPAs we previously reviewed for our June 2009 testimony included: durations ranging from 3 months to 5 years (One of the 57 agreements we reviewed did not specify the duration.); monetary payments ranging from $30,000 to $615 million (Forty-five of the 57 DPAs and NPAs we reviewed required monetary payments, while 12 did not.); requirements that the company improve or enhance its compliance program (Forty-five of the 57 DPAs and NPAs we reviewed included compliance program requirements, while 12 did not.); requirements that the company hire, at its own expense, an independent monitor to assist the company in establishing a compliance program, review the effectiveness of a company’s internal control measures, and determine whether the company has otherwise met the terms of the agreements (Twenty-six of the 57 DPAs and NPAs required companies to hire independent monitors.); and extraordinary restitution provisions, which are payments or services to organizations or individuals not directly affected by the crime. (Four of the 57 DPAs and NPAs we reviewed included such terms. However, DOJ issued guidance in May 2008 prohibiting the use of terms requiring payments to charitable, educational, community, or other organizations or individuals that are not the victims of the criminal activity or are not providing services to redress the harm caused by the criminal conduct.) Eileen R. Larence, (202) 512-8777 or [email protected]. In addition to the contact named above, Kristy N. Brown, Assistant Director; Jill Evancho; Tom Jessor; Danielle Pakdaman; Sarah Kaczmarek; Janet Temko; Amanda Miller; Katherine Davis; and Mandana Yousefi made significant contributions to this report.

Recent cases of corporate fraud and mismanagement heighten the Department of Justice's (DOJ) need to appropriately punish and deter corporate crime. Recently, DOJ has made more use of deferred prosecution and non-prosecution agreements (DPAs and NPAs), in which prosecutors may require company reform, among other things, in exchange for deferring prosecution. In June and November 2009, GAO testified on DOJ's use and oversight of DPAs and NPAs, and this report discusses additional findings, including (1) the extent to which DOJ has used DPAs and NPAs to address corporate misconduct and tracks use of these agreements, (2) the extent to which DOJ measures the effectiveness of DPAs and NPAs, and (3) the role of the court in the DPA and NPA process. GAO examined 152 DPAs and NPAs negotiated from 1993 through September 2009 and analyzed DOJ data on corporate prosecutions in fiscal years 2004 through 2009. GAO also interviewed DOJ officials, prosecutors from 13 DOJ offices, 20 company representatives, 11 monitors who oversee company compliance, and 12 federal judges. While not generalizable, these results provide insight into decisions about DPAs and NPAs. Since fiscal year 2004, the number of DPAs and NPAs has generally been less than the number of corporate prosecutions, and in 2009, DOJ began tracking its use of these agreements. DOJ has made more frequent use of DPAs and NPAs in recent years, entering into four agreements in fiscal year 2003 compared to a high of 38 agreements in fiscal year 2007, although use declined in fiscal years 2008 and 2009 when DOJ entered into 24 and 23 agreements, respectively. The U.S. Attorneys Offices (USAO) and DOJ's Criminal Division entered into the vast majority of agreements. From fiscal years 2004 to 2009, for USAOs, the number of DPAs and NPAs was less than the number of corporate prosecutions, whereas for the Criminal Division, the number of DPAs and NPAs was comparable to the number of corporate prosecutions. Prior to 2009, DOJ did not have a mechanism to centrally track its use of DPAs and NPAs, which inhibited its ability to accurately report the number and terms of the agreements to the Congress and the public. However, in response to GAO's requests for information, DOJ has recently taken steps to better track its use of DPAs and NPAs, steps that will allow it to more accurately report on the number and terms of DPAs and NPAs to Congress and the public and identify best practices and ensure consistency across agreements. DOJ lacks performance measures to assess how DPAs and NPAs contribute to its efforts to combat corporate crime. Two possible measures of DPA and NPA effectiveness could be (1) whether the company repeats the criminal behavior either during or after its agreement; or (2) whether the company successfully implements the terms of the agreement; implementation could be a proxy measure for whether the company reformed because DPAs and NPAs often require companies to make improvements in internal controls, compliance programs, or training to detect and prevent future wrongdoing. By developing performance measures to evaluate DPAs and NPAs, DOJ will be better positioned to gauge whether they are effective tools in deterring and combating corporate crime. The Speedy Trial Act allows judges to approve the deferral of prosecution pursuant to a written agreement between the government and the defendant, for the purpose of allowing the defendant to demonstrate its good conduct; however, the law does not otherwise specify judicial involvement in the DPA process. GAO obtained responses from 12 U.S. district and magistrate judges who handled cases involving a DPA, and these judges reported they were generally not involved in the DPA process. Prosecutors, company representatives, monitors, and judges with whom GAO spoke more frequently cited disadvantages to greater judicial involvement--such as the lack of time and resources available to judges and concerns about the separation of powers and constitutionality of increased judicial involvement--than advantages to such involvement--such as the court's ability to act as an independent arbiter of disputes, increased transparency in the DPA process, and decreased perceptions of favoritism in selecting the monitor.