National Mediation Board: Additional Actions Needed to Fully Implement Prior GAO Recommendations and Improve Agency Management and Oversight

NMB was established under the Railway Labor Act to facilitate labor relations for airline and railway carriers by mediating and arbitrating labor disputes and overseeing union elections. The FAA Modernization and Reform Act of 2012 included a provision for GAO to evaluate NMB programs and activities every 2 years. GAO's previous reports, issued in December 2013, February 2016, and March 2018, included 13 recommendations for NMB based on assessments of policies and processes in several management and program areas. NMB had implemented six of those recommendations previously, leaving seven for our review.

This fourth report examines the (1) extent to which NMB has taken actions to fully implement GAO's remaining recommendations, and (2) other challenges NMB faces in key management areas and in overseeing its operations. GAO reviewed relevant federal laws, regulations, and NMB documents, such as its travel and telework policies; examined arbitration caseload data and the results of NMB's 2019 Organizational Climate Assessment; and interviewed NMB officials.

The National Mediation Board (NMB), which facilitates labor relations for airline and railway carriers, has implemented one of GAO's seven recommendations remaining from past reports (see table). Specifically, NMB has developed a policy to prevent violations of ethics rules regarding outside employment and monitors compliance with that policy. NMB has not yet fully implemented the other six recommendations. For example, NMB has developed some strategies to reduce its arbitration case backlog, but lacks a plan with goals and time frames to complete that work. Similarly, NMB has completed an organizational climate assessment, but still must take additional actions to address employee concerns. By not fully implementing these and other recommendations, NMB remains at risk of not fulfilling its mission in several key areas, including information security and organizational climate.

In this review, GAO found that, in addition to the six unimplemented recommendations, NMB lacks internal controls to effectively manage and oversee its appropriations and consistently follow its audit policies. NMB officials said the agency needed its full funding to address various agency priorities, such as hiring information technology specialists, but NMB did not use all of its funding for fiscal years 2016 through 2019, leaving a total of more than $4 million unobligated from those years; those funds are not available to NMB for new obligations. Officials said that hiring challenges and uncertainty concerning the agency's final appropriations made managing its budget resources difficult. NMB has a new process to monitor its budget resources, but has not documented that process. Without documenting that process, NMB may not be certain it uses its funding effectively to achieve its hiring and other goals. Additionally, NMB has not consistently followed its audit policy to address deficiencies identified in financial and other audits. For example, NMB did not create specific corrective action plans to address findings from financial or GAO audits. The NMB Board said it relied on senior managers to follow procedures, but the Board is ultimately responsible for ensuring that its managers implement the internal control system. Without a process to effectively oversee and evaluate its adherence to internal controls and its own audit policies, NMB may miss opportunities to achieve objectives, address audit deficiencies, and improve management oversight.

GAO is making four recommendations, including that NMB document its process for reviewing and monitoring the agency's annual appropriations to ensure effective use of funds, and establish a process for the Board to effectively monitor and evaluate NMB's adherence to audit policies. NMB agreed with GAO's recommendations.

The National Mediation Board’s (NMB) mission is to prevent disruption to  interstate commerce, and NMB provides a variety of services to the airline  and railway industries to help resolve labor disputes and avoid work  stoppages. More than 12 million jobs are directly supported by the rail  and air industry, and millions of jobs are dependent on the ability to travel  and transport goods being uninterrupted, according to NMB’s 2018  Annual Performance and Accountability Report. Created by a 1934  amendment to the Railway Labor Act (RLA), NMB oversees union  elections and provides mediation, arbitration, and other services to  resolve railroad and airline labor disputes, including disputes over issues  such as working conditions, rates of pay, and union representation.

Currently, NMB provides services to management and labor unions for  approximately 150 commercial airline carriers and more than 500 railway  carriers and their unions. NMB has 51 full-time staff positions and had a  fiscal year 2019 appropriation of approximately $14 million.

The FAA Modernization and Reform Act of 2012 further amended the  RLA and included a provision for GAO to evaluate and audit the  programs, operations, and activities of NMB every 2 years. We  conducted three prior reviews of the NMB in which we made 13  recommendations in key management areas. Also in the first of the three  reports, we suggested that Congress consider authorizing an appropriate  federal agency to provide independent audit and investigative oversight at  NMB.

This fourth review of NMB reports on:  1.  the extent to which NMB has taken actions to fully implement GAO’s  2.  other challenges NMB faces in key management areas and  overseeing its operations.

To address both of our objectives, we reviewed relevant federal laws,  regulations, and guidance, along with previous GAO work. Based on prior  GAO recommendations and our current work, we assessed NMB  documents related to key areas such as information privacy, information  security, travel, telework, arbitration, audit policy, and budget. We  evaluated this information using criteria such as NMB’s 2018-2022  Strategic Plan; Standards for Internal Control in the Federal  Government; provisions of the Federal Information Security  Modernization Act of 2014 (FISMA); the Office of Management and  Budget’s (OMB) 2011 memorandum on Security Authorization of  Information Systems in Cloud Computing Environments; OMB Circular  A-11 on Preparation, Submission, and Execution of the Budget; and OMB  Circular A-123 on Management’s Responsibility for Enterprise Risk  Management and Internal Control, and Agency Guide for Federal Risk  and Authorization Management Program (FedRAMP) Authorizations.  Appendix I provides a list of key NMB documents we reviewed, and the  associated criteria we used to evaluate NMB’s efforts in several  management areas. These areas included ones in which we had  previously made recommendations and those in which NMB faces  challenges in managing its operations.

Likewise, for both objectives, we reviewed data from NMB’s 2019  Organizational Climate Assessment and, for our first objective, we  reviewed data from NMB’s Arbitrator Workspace System. In 2019, NMB  worked with the Office of Personnel Management (OPM) to conduct an  organizational climate assessment, during which it sent survey  questionnaires to all eligible NMB employees (95 percent of eligible  employees responded). The survey provided data on several dimensions  of NMB employee perceptions, such as ethics, resources, rewards, and  supervision. After reviewing the survey data collection and analysis  methods, we determined data from this survey were sufficiently reliable  for our purposes. In addition, NMB provided us its Arbitrator Workspace  System, which tracks the number of pending, open, and closed arbitration  cases at NMB by fiscal year, for 2016 through 2019. After reviewing the  methods NMB uses to collect and record this data, we determined that  data from this system were sufficiently reliable for our purposes.

We interviewed NMB officials and NMB Board members to determine  what NMB has done to address each of our open recommendations  (objective 1), as well as to determine any additional management  challenges (objective 2). We describe the status of NMB’s actions to  address our open recommendations as either “fully implemented” or “not  fully implemented.” We use the term “fully implemented” to describe those  recommendations where NMB has taken all of the required actions to  address the recommendation. Conversely, we use the term “not fully  implemented” to describe recommendations where additional actions are  needed to address the recommendation. The term “not fully implemented”  ranged from recommendations where NMB had taken limited actions to  address the recommendation, to ones where NMB had made substantial  progress in addressing the recommendation. We interviewed external and  internal stakeholders, including industry groups, rail and air carriers,  unions, and agency ombudsmen to obtain their views on challenges the  agency faces. For railway carrier and union interviews, we selected  carriers and unions that represented a majority of cases in NMB’s rail  arbitration case backlog. We also coordinated with an industry group that  represents railway carriers. For airline carrier interviews, we selected two  of the top four carriers with the largest number of enplaned passengers  per year, and also coordinated with an industry group that represents  airline carriers. We selected airline unions that collectively represent a  majority of air carrier union members. We also interviewed an NMB  advisory group that represents both the airline and railway industries and  airline and railway unions. The results of these interviews are not  generalizable to all NMB stakeholders.

We conducted this performance audit from February 2019 to February  2020 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.

NMB is headed by a three-member board, with each member appointed  by the President and confirmed by the Senate for a term of 3 years. The  board members provide overall leadership and strategic direction for  NMB, and retain responsibility for key functions such as releasing parties  from the mediation of major disputes if no agreement can be reached. In  May 2018, NMB reorganized various agency components to improve its  management and oversight of agency operations. This resulted in the  creation of three mission areas and three mission support areas. The  Offices of Fiscal Services and Information Services were newly created  as a result of the delegation order (see fig. 1).

In June 2019, NMB hired a Chief Financial Officer (CFO), who serves as  the Director of the Office of Fiscal Services. The CFO has authority over  NMB’s budget, accounting, and financial auditing functions. In January  2019, NMB hired a Chief Information Officer (CIO), who serves as the  Director of the Office of Information Services. The CIO has authority over  NMB’s information technology and related systems, including its  electronic record keeping functions. All offices, along with NMB’s  Designated Agency Ethics Official, report directly to the Board.  Previously, the Offices of Administration, Mediation, and Arbitration  reported to a Chief of Staff, a position that was eliminated in 2018.

NMB’s overall mission is to provide for the independence of air and rail  carriers and employees in matters of self-organization, help prevent  interruption to commerce conducted through the operation of those  carriers, administer adjustment boards, as well as develop  complementary strategies to resolve disputes. NMB has three program  areas to fulfill its mission:

Representation. Rail or air carrier employees select unions for the  purposes of collective bargaining through secret-ballot elections  conducted by NMB. NMB is charged with resolving any questions  concerning representation of a specific craft or class through the  agency’s Office of Legal Affairs, and has sole jurisdiction to decide  these disputes.

Mediation and Alternative Dispute Resolution. The RLA provides  for mediation to help resolve disputes between management and  labor during collective bargaining negotiations. When rail or air  carriers and unions cannot reach agreement on the terms of a new or  revised collective bargaining agreement – such as working conditions  or rates of pay – either party can apply for NMB’s mediation services  to resolve their differences. Additionally, NMB may impose mediation  if it finds that resolving the dispute is in the public’s interest. NMB also  offers grievance mediation to parties as an alternative way to resolve  disputes filed for grievance arbitration. Although mediation is  voluntary, it is a less expensive approach to resolving grievances,  using NMB’s existing mediation staff rather than outsourcing—and  paying—external arbitrators.

Arbitration. The RLA also offers grievance arbitration to help resolve  disagreements between carriers and unions over how to interpret and  apply provisions of existing collective bargaining agreements. NMB  does not directly provide arbitration services, but rather maintains a  list of registered arbitrators from which the parties can select someone  to review and decide their case. In the airline industry, the parties pay  the costs of arbitration. In the railroad industry, however, consistent  with the requirements of the RLA, NMB pays the fee and travel  expenses of the arbitrator.

The Office of Management and Budget (OMB) and the Office of  Personnel Management (OPM) have key oversight responsibilities for all  federal agencies, including NMB. OMB is responsible for the oversight  of NMB’s management and information technology. OPM is the central  personnel management agency of the federal government charged with  administering and enforcing civil service laws, regulations, and rules.  OPM annually administers surveys to federal employees across the  government, including NMB, to solicit their views on their agencies  including agency leadership, collaboration, and other issues. OPM also  offers various services to agencies to evaluate organizational climate.

Federal law does not establish an Inspector General (IG) for NMB.  However, the agency signed a Memorandum of Understanding (MOU) in  2018 with the National Labor Relations Board’s (NLRB) Office of  Inspector General to provide independent audit and investigative  oversight. In the MOU, the NLRB IG agreed to (1) operate a hotline for  employees to anonymously submit information—via email or telephone  messages—regarding fraud, waste, and abuse involving the NMB’s  programs and operations, and (2) take action to address complaints, such  as inform the appropriate law enforcement agency or the NMB Chairman  or Board Members, as appropriate.

Federal Risk and Authorization Management Program (FedRAMP) Requirements

FedRAMP is a government-wide program that provides authorizations  for use of cloud services. As an executive agency that uses a cloud  service approved through FedRAMP, NMB is subject to related  requirements. Through a December 2011 memorandum, OMB  established requirements for executive agencies to use FedRAMP when  conducting security authorizations for agency use of cloud services. In  addition, the FedRAMP Program Management Office issued guidance in  2017 that specifies authorization requirements, including that an agency  should document the authorization of the agency system supported by a  cloud service approved through FedRAMP and the related cloud service  used by the agency.

GAO has issued three prior reports on NMB and collectively had 13  recommendations. NMB had previously implemented six of those  recommendations, and seven remained in our current review.

We issued our first report in December 2013 with seven  recommendations in key management areas, including strategic  planning, performance measurement, and workforce planning. We  also suggested that Congress consider authorizing an IG at an  appropriate federal agency to provide independent audit and  investigative oversight at NMB.

We issued a second report in February 2016, which found that NMB  needed to take additional actions to implement the seven  recommendations from our December 2013 report. We also made  one additional recommendation related to procurement.

We issued our third report in March 2018, which found that NMB had  taken action to implement four of the recommendations from our  December 2013 report and the recommendation from our February  2016 report. However, additional actions were needed to close the  remaining three recommendations. We also made five additional  recommendations related to the backlog of arbitration cases, outside  employment, organizational climate, and NMB’s travel and telework  policies.

Since 2018, NMB Has Fully Implemented One Open GAO Recommendation, but Additional Actions Are Needed to Fully Address Others and Meet New Information Security Requirements

NMB Has Fully Implemented One of GAO’s Seven Open Recommendations, but Shortcomings Persist in Other Areas

NMB implemented a recommendation from GAO’s 2018 report to create  and monitor requests for outside employment, but has not taken action to  fully implement the remaining six recommendations from GAO’s past  reviews (see table 1). By not fully implementing these recommendations,  NMB remains at risk in several areas key to its mission, including  information privacy and security and organizational climate, among  others.

Ethical Standards for Outside Employment and Activities

GAO 2018 Recommendation: Develop and implement policies for approval and  monitoring of employee requests for outside employment and other outside activities to  prevent violations of ethics rules, consistent with Office of Government Ethics standards  of conduct and federal internal control standards.

Since our 2018 review, we found that NMB has developed and  implemented policies for approving employee requests for outside  employment and the agency monitors these requests. We reported in  2018 that NMB did not have a policy for approving and monitoring  employee requests for outside employment consistent with the Office of  Government Ethics (OGE) standards of conduct and federal internal  controls. NMB also did not systematically track or monitor when  managers or board members approved such activities for an employee.  We recommended that establishing an outside employment policy and a  system to monitor activities would help to prevent violations of ethics  rules.

In our current review, we found that NMB has implemented our  recommendation. NMB worked with OGE to develop a policy on outside  employment that details how employees should submit outside  employment requests, consistent with OGE standards. NMB has  incorporated the policy into annual and new employee ethics training.  Once NMB approves an outside employment request, the agency  monitors outside employment through employees’ annual financial  disclosure forms.

GAO 2018 Recommendation: Develop and execute a plan to address the rail arbitration  case backlog.

Since our 2018 review, we found that NMB has used several strategies to  reduce its backlog by 57 percent; however, without a plan establishing  specific goals and timeframes, it is difficult to track the agency’s progress  against specific measures of success. We reported in 2018 that NMB’s  rail grievance arbitration case backlog had more than tripled since 2011,  and that NMB did not have a specific plan and related processes to  address it. However, identifying and assessing the risks associated with  the backlog and developing a plan to effectively manage it are key to  implementing effective risk management.

In our current review, we found that NMB has implemented several  initiatives to reduce the rail grievance arbitration case backlog, including  removing older cases, using lead cases—cases that have the same  parties and similar fact patterns, allowing a decision from one case to  settle others—and promoting an “Ambassador Program” to move cases  from grievance arbitration to grievance mediation. NMB officials credit  these strategies with reducing the backlog from a height of 8,550 cases at  the end of fiscal year 2017 by 4,852 cases—about 57 percent—to 3,698  cases as of the end of fiscal year 2019 (see table 2).  1.  Removing older cases. NMB officials said that NMB has removed  older arbitration cases that were filed, but had not yet been moved  forward to arbitration. Specifically, officials explained that, in late  summer 2018, NMB removed 400 cases from the backlog that were 3  years or older. NMB officials said that the agency subsequently  removed 1,025 cases that were 2 years or older. NMB officials told us  that parties may choose to re-file a removed case. NMB has not  received objections from unions and carriers regarding the removal of  older cases.  2.  Using lead cases: For lead cases, NMB and the parties agree that  the decision for one case will be used to settle other cases with similar  fact patterns. For example, officials said that a similar fact pattern  would be cases that had the same union and carrier and dealt with the  same underlying issue. In fiscal year 2017, NMB used the decisions  for nine lead cases to settle 4,240 additional claims. In fiscal year  2018, NMB used the decisions for four lead cases to settle 600  additional claims.  3.  Promoting the Ambassador Program. NMB’s Ambassador Program  involves NMB reaching out to parties to encourage them to voluntarily  move cases from arbitration to grievance mediation. NMB has  assigned experienced mediators to carriers and unions as  “ambassadors.” Unions that have disputes with a carrier can raise the  issue through the ambassador in hopes of avoiding the formal  arbitration process; in that way, the Ambassador Program may  proactively decrease the number of arbitration cases filed. NMB is  interested in using the Ambassador Program to resolve multiple  claims regarding the same issue, policy, or employment action. NMB  officials said in fiscal year 2018, NMB had seven cases in the  Ambassador Program and closed six cases. NMB officials said in  fiscal year 2019, NMB had four cases in the Ambassador Program;  none are closed to date. NMB officials said that the Ambassador  Program and the lead case program are related, in that many of the  cases moved through the Ambassador Program are lead cases. For  example, NMB reported that in fiscal year 2018, one grievance  mediation case was used to settle 300 claims. In fiscal year 2017,  NMB heard five cases in the Ambassador Program, and the decisions  on these cases were applied to 1,951 remaining claims to resolve  them.

In addition, NMB officials told us a small number of railway carriers and  unions file the largest percentage of the grievance arbitration cases (see  fig. 2). In fiscal year 2019, four railway carriers represented 72 percent of  the backlog, and four railway unions represented 87 percent of the  backlog. The Office of Arbitration seeks to coordinate with the  organizations with the most arbitration cases to help them move toward  mediation or other techniques to decrease the arbitration backlog.

Another method NMB reported using to reduce the backlog is to direct  otherwise unobligated funding at the end of the fiscal year to fund  arbitration cases, in addition to the amount of funds it had initially  budgeted for arbitration. Specifically, NMB officials said that the agency  allocated at least $1 million in additional funds in fiscal years 2017, 2018,  and 2019 for arbitration cases at the end of each fiscal year, which  allowed NMB to fund arbitration for approximately 4,200 more cases  overall, closing nearly all of those cases. Officials said that these  additional funds came from unfilled full-time equivalent staff position  salaries and contracts that NMB did not award. Officials said they do not  anticipate having similar amounts of funding available for arbitration in the  future, once NMB hires staff and awards the contracts.

While NMB has implemented various strategies to reduce the rail  arbitration case backlog, it has not developed a plan to link the strategies  to specific goals or timeframes. GAO’s Standards for Internal Control in  the Federal Government state that management should define objectives  in specific and measurable terms. Further, federal agencies are required  to develop annual performance plans that measure performance to  reinforce the connection between long-term strategic goals and day-to- day activities of its managers and staff. NMB’s 2018 Annual  Performance and Accountability Report does not link NMB’s efforts to  reduce the backlog to specific and measurable objectives to assess their  effectiveness. By developing specific and measurable objectives to  reduce the overall backlog or any component thereof, NMB and Congress  would be able to more adequately assess NMB’s progress in reducing the  backlog relative to its goals.

GAO 2018 Recommendation: Complete and take actions on the organizational climate  assessment and survey results as a means to address employee concerns.

Since our 2018 review, we found NMB has completed an organizational  climate assessment but has not taken actions to address the results of  that assessment. We reported in 2018 that surveyed NMB employees  expressed concerns about the organizational climate at NMB. In  addition, NMB’s strategic plan called for an organizational climate  assessment to be conducted by the end of calendar year 2015 and every  3 years thereafter. However, at the time of our 2018 report, NMB had not  conducted such an assessment. In addition, NMB officials said that they  did not take action in response to survey results, which had a 59 percent  response rate, because they believed the negative responses were  attributable to a few employees. GAO recommended that NMB conduct  an organizational climate assessment and develop actions to address the  results of that assessment.

In our current review, we found that NMB conducted an organizational  climate assessment and has taken some actions to address the elements  identified in the assessment, but must take additional actions to address  employee concerns. NMB worked with OPM to conduct an organizational  climate assessment in April 2019. The assessment had a response rate  of 95 percent. Several NMB officials said the agency achieved a higher  response rate than prior surveys because the Board held an all staff  meeting to emphasize the importance of taking the assessment. In May  2019, NMB received the results of the organizational climate assessment  from OPM. NMB identified a lack of communication across departmental  staff as an issue. To address this, NMB directed regular interdepartmental  updates, where each quarter a department is given an opportunity to  present the activities within that department. NMB officials said that NMB  held its first interdepartmental update in October 2019, with the Office of  Legal Affairs presenting. The next interdepartmental update is scheduled  for February 2020. NMB has identified some additional potential actions  to address issues raised by the organizational climate assessment,  including directing NMB’s CFO to rewrite the travel policy and to work  with OPM to identify recommended training for supervisors, among  others. However, these potential actions are not finalized and are  generally unlinked to timeframes for implementation. By not taking these  actions, NMB employees may be less engaged, which may lead to  absenteeism or turnover.

GAO 2018 Recommendation: Revise NMB’s Travel Policy and develop appropriate  internal controls to ensure compliance with federal regulations.

Since our 2018 review, we found that NMB has not revised its travel  policy to be consistent with the Federal Travel Regulation (FTR) issued  by the General Services Administration. We reported in 2018 that NMB’s  travel policy was, in some respects, not consistent with the FTR. NMB  management had also granted NMB staff exceptions to the agency travel  policy that were not consistent with the FTR. For example, the FTR  requires employees to rent the least expensive car available, but a former  NMB management official approved the use of a luxury rental car in some  cases. Our 2018 report found that without greater oversight of employee  travel expenses, NMB may be incurring unnecessary additional expenses  for employee travel.

In our current review, we found that NMB has not revised its travel policy  to be consistent with the FTR. However, NMB’s Office of Fiscal Services  plans to rewrite portions of the travel policy, including clarifying roles and  responsibilities of NMB employees and adding a Frequently Asked  Questions portion to the policy. NMB officials said the revised policy is  expected to be completed in 2020, and will be reviewed by the CFO in  consultation with the Office of Legal Affairs prior to its publication. It is  unclear the extent to which these changes will make NMB’s travel policy  consistent with the FTR.

In addition, NMB has taken steps to strengthen its internal controls  related to travel, including:  1.  Replacing the Chief of Staff role in travel policy. In August 2018,  NMB replaced references to the eliminated Chief of Staff position in its  travel policy to make the Board the decision making body for travel- related issues. This clarification strengthened internal controls  because no one individual is singularly responsible for approval.  2.  Updating NMB’s travel charge card program. In 2019, NMB  transitioned to a new travel charge card program run by the General  Services Administration. Both NMB and the Department of Treasury’s  Bureau of Fiscal Services, which provides accounting services to  NMB, routinely monitor the program, including monitoring each  employee’s use of the travel card to ensure only appropriate official  government-related expenses are being charged to the card. The  CFO receives reports from this new program.  3.  Issuing an interim procedure. Separately, NMB has established an  interim procedure for disputed claims that sets timeframes for when  vouchers must be approved to avoid delays in returning vouchers to  travelers. The interim procedure requires travelers to cite the specific  regulatory authority to support their disputed claim. The NMB Board is  determining whether this procedure should be established officially in  the travel policy.

While NMB has made these initial efforts to strengthen internal controls  related to travel, such as increasing oversight from the Board, NMB has  not revised its travel policy to be consistent with the FTR. For example,  NMB has not updated its policy to clarify the use of personal credit cards  as discussed in our 2018 review. Without an updated policy consistent  with the FTR, NMB may be incurring needless additional expenses for  employee travel.

Since our 2018 review, we found that NMB has not yet revised its  telework policy, but the agency has collected telework agreements and  provided training for teleworking employees. We reported in 2018 that  NMB’s telework policy is not consistent with the requirements of the  Telework Enhancement Act of 2010, which requires employees to take  telework training and have signed telework agreements prior to beginning  telework, and NMB did not consistently enforce its policy. NMB’s telework  policy, effective October 2015, did not mention employee telework  training nor did management require employees to complete training  before entering into a telework agreement, as required by federal law. In  addition, management allowed employees to telework without a written  telework agreement, even though this requirement is specified in NMB’s  telework policy. NMB agreed to review its policy and make any revisions  determined to be necessary.

In our current review, we found that NMB now tracks telework training  and agreements to ensure that teleworking employees have telework  agreements and completed telework training prior to engaging in  telework. However, NMB has not updated its telework policy to be  consistent with the requirements of the Telework Enhancement Act of  2010, instead determining after reviewing its policy that a revision was  unnecessary. Despite this determination, the telework policy, last updated  in October 2015, does not reflect the current structure of NMB: for  example, it includes responsibilities for the Chief of Staff, a position that  no longer exists. Further, the policy does not mention employee telework  training. Until NMB updates its policy, it will continue to be outdated  regarding official responsibilities and inconsistent with relevant law.

NMB Has Not Fully Implemented Key Information Privacy and Security Practices, or Met Recent Information Security Requirements

GAO 2013 Recommendation: Establish a privacy program that includes conducting  privacy impact assessments and issuing system of record notices for systems that  contain personally identifiable information.

Since our 2018 review, we found that NMB has not always followed key  information privacy practices to protect personal information federal  agencies collect. In our 2018 review, we found that NMB did not  establish a privacy program that included practices such as conducting  privacy impact assessments and issuing system of records notices for  systems that contain personally identifiable information. For example, in  our 2018 review, we found that while NMB designated a privacy officer,  the agency did not conduct privacy impact assessments for its systems  and those of third-party providers containing the agency’s personally  identifiable information.

In our current review, we found that, of the four key information privacy  practices described in our 2013 report, NMB is still following one, partially  following two, and minimally following one practice. For example, NMB  documented a privacy impact assessment dated July 2018. However, the  assessment did not specify whether a system of records notice would be  developed as required by OMB. For additional details on the extent to  which NMB is following key information privacy practices, see appendix II.

GAO 2013 Recommendation: Develop and fully implement key components of an  information security program in accordance with the Federal Information Security  Management Act of 2002.

Since our 2018 review, we found that NMB continues to only partially  follow the eight key information security practices in accordance with the  Federal Information Security Management Act (FISMA). These  practices include developing and implementing risk-based policies and  procedures to ensure compliance with applicable standards and  guidance, including system configuration requirements. For example, in  our 2018 review, we found that, while NMB had its information security  policy documented in its April 2016 Information Program Plan, which  included risk assessment requirements, NMB had not developed agency- wide policies and procedures on the oversight of its third-party providers  that support the operations and assets of the agency, as required by  FISMA.

In our current review, we found that, while NMB has created a policy to  conduct periodic risk assessments of cyber threats and vulnerabilities, the  agency did not provide risk assessment documentation of its enterprise  network for fiscal year 2019. NMB officials said that the agency had not  fully addressed information security practices due to a lack of resources.

NMB officials stated the agency plans to address several of these  practices with the targeted completion expected in fiscal year 2020. As a  step to further focus on information technology challenges, NMB  established the Office of Information Services and, as noted earlier, hired  a CIO. While hiring a CIO does not directly address the practices  described above, NMB officials said that these actions, along with hiring  more staff and making key acquisitions through contracts, will enable  NMB to fully follow the practices in the future. For additional details on the  extent to which NMB is following key information security practices,  including NMB’s recent engagement of contractors, see appendix II.

In addition to the gaps in key information security practices discussed  above, we found in our current review that NMB has not fully  implemented federal requirements related to authorizing the cloud service  approved through FedRAMP that the agency uses. OMB defines an  authorization to operate as an official management decision where a  federal official or officials authorize the operation of information system(s)  and accept the risk to agency operations and assets, individuals, and  other organizations based on the implementation of security and privacy  controls. OMB requires agencies to use FedRAMP processes when  granting authorizations to operate for their use of cloud services. The  FedRAMP Program Management Office published guidance in 2017 to  describe the process by which agencies can reuse existing  authorizations. According to the FedRAMP guidance, agencies should  document the authorization of 1) the agency system supported by the  cloud service; and 2) the cloud service used by the agency. Additionally,  the agency should provide a copy of its authorization letter for the cloud  service to the FedRAMP Program Management Office so that the office  can verify the agency’s use of the service and keep agencies informed of  any changes to a provider’s authorization status. These steps ensure that  federal agencies have made a determination of whether the cloud service  provider’s risk posture is acceptable for use at that agency.

According to NMB, the agency is using a cloud service that was approved  through FedRAMP to support the agency’s enterprise network. NMB had  documented the authorization of its enterprise network, but NMB had not  documented its authorization of the cloud service to demonstrate that it  had accepted the risk of using the service. In addition, NMB had not  provided the authorization letter for the cloud service to the FedRAMP  Program Management Office. NMB officials stated that the agency’s  internal information security guidance did not include procedures to  address FedRAMP requirements because the officials were unaware of  those requirements. Without taking these steps, the FedRAMP Program  Management Office may not be able to inform NMB, in a timely manner, if  its cloud service provider has experienced a security incident.

NMB Lacks Effective Internal Controls to Manage and Oversee Its Annual Appropriation and Audit Policy

NMB has taken steps to improve its agency management and oversight,  such as reorganizing some agency mission areas and filling key staff  positions; however, it lacks effective internal controls to manage and  oversee its annual appropriation and ensure that its audit policy is  consistently followed. As a result, the agency did not use funding the  Board said is needed to accomplish NMB goals. NMB had about $4  million in unobligated appropriations in expired accounts in the U.S.  Treasury and unavailable to NMB for new obligations from fiscal years  2016 through 2019. In addition, NMB has not taken corrective actions to  address management deficiencies identified during audits.

NMB Lacks Effective Internal Controls to Manage and Oversee Its Annual Appropriations

NMB has not established effective internal controls to assist the agency in  managing and overseeing its annual appropriations. NMB has had  significant unobligated balances remaining for the last 4 fiscal years, even  though officials said they could not accomplish some of the agency’s  goals – such as hiring staff and information technology initiatives – due to  a lack of financial resources (see table 3). For example, from fiscal years  2016 through 2019, NMB had unobligated balances ranging between  approximately $600,000 to over $2 million. These are the remaining funds  from its appropriations received each year from fiscal year 2016 through  2019. In total, over 8 percent of NMB’s appropriations for the last 4  fiscal years went unobligated.

NMB officials noted that hiring challenges and uncertainty regarding the  agency’s final appropriation as a result of continuing resolutions— legislation that continues to fund federal agencies until final agency  appropriations for a fiscal year are made—kept the agency from  obligating funds during those fiscal years to achieve its goals. For  example, NMB officials said that the Board did not pursue certain planned  hiring, as well as other contract actions and travel, because of uncertainty  about the amount of final appropriations that would be available. GAO  has reported that continuing resolutions present challenges for federal  agencies, and that agencies may not have enough time to spend funding  on high-priority needs such as hiring.

However, given the frequency of continuing resolutions, it is even more  important for NMB to develop an effective plan to use its appropriations to  accomplish agency goals. During our review, we found that NMB  struggled to plan effectively for contingencies such as funding under  continuing resolutions, although NMB’s budget request and  appropriations were generally consistent for several years. Additionally,  NMB officials told us they lacked an effective process to reliably forecast  the amount of funding the agency would have remaining at the end of a  fiscal year, and we found NMB did not plan effectively to allow the agency  to obligate its fiscal year appropriations. NMB officials said the agency  waited until the end of the third quarter to assign unobligated funds to  other priorities in order to allow for the option of retaining temporary  services during periods of high demand. Although NMB was able to  reassign at least $1 million to arbitration work in each of the fourth  quarters in 2017, 2018, and 2019, there was insufficient time to use other  available funding in additional areas of need.

The Board has taken steps to improve its budget execution process. In  particular, the Board has implemented new bi-weekly budget reviews with  the CFO meant to help NMB better forecast the agency’s available funds,  including more reliably predicting the amount of unobligated funds and  how to use those funds to meet agency goals. However, these changes  have not been incorporated into a formal, written process to help NMB  manage its appropriations more effectively to achieve agency goals. One  goal under NMB’s Strategic Plan is to provide timely, efficient, and  responsible stewardship of agency fiscal resources. Federal internal  control standards state that internal controls comprise the plans used to  fulfill the goals of the agency, and we have reported that maintaining  written policies and procedures can help ensure that adequate internal  controls are in place. Further, those standards state that management  should obtain reliable financial data on a timely basis to enable effective  monitoring. Until NMB establishes and documents an effective plan to  manage its appropriations, as well as timely, reliable financial data, it may  miss opportunities to achieve its objectives as efficiently and effectively as  possible.

NMB Lacks Effective Internal Controls to Ensure that It Consistently Follows Its Audit Policy to Identify and Address Audit Deficiencies

NMB lacks effective internal controls to ensure that it consistently  addresses deficiencies identified from financial and other audits. For  example, NMB did not follow its own requirements to create corrective  action plans to address findings of financial audits or GAO  recommendations. Under agency policy, those corrective action plans  should detail major steps for NMB to take, estimated completion dates,  and other related information. Although NMB provided its financial  auditors and GAO with general plans to address findings and  recommendations, those plans have not always included major steps or  estimated completion dates, and NMB has not always followed through  with the steps it agreed to take. For instance, NMB’s financial auditor  noted a deficiency in NMB’s internal controls related to financial reporting  in 2017, and noted a similar deficiency in 2018 because NMB still had not  addressed the problem sufficiently. Effective remediation of internal  control deficiencies, like those found by GAO and other audits, is  essential to achieving the objectives of the Federal Managers’ Financial  Integrity Act, as amended (FMFIA). Unless NMB follows its own policy  and federal guidance on corrective action plans, it may not do what is  needed to address the risks associated with any deficiency.

Likewise, NMB did not follow its policy to circulate draft financial audit  findings and provide a draft response to the Board. When NMB received  notice of a 2018 draft management letter from its independent financial  auditors, the letter was not circulated for over 5 months nor was the  Board provided with any draft response to the findings. Moreover,  although NMB’s Board was notified of the letter’s existence in November  2018, the Board did not ask for the letter prior to May 2019, and said  instead that they relied on the official in charge of the audit to follow  procedure. Federal internal control standards state that management  should obtain relevant data, including compliance data, in a timely  manner so that they can be used for monitoring, but NMB officials and the  Board did not obtain such information, putting the agency at risk for  missed opportunities to identify and address audit deficiencies.

Additionally, NMB has not effectively monitored the sufficiency of its  internal controls as required under FMFIA. NMB has also not conducted  its planned fiscal year 2017 internal controls review of its Office of  Mediation or its fiscal year 2018 internal controls review of its Office of  Legal Affairs in order to complete its annual review and report under  FMFIA. Monitoring the effectiveness of internal controls provides the  basis for an agency’s annual assessment and report of internal control, as  required by FMFIA. NMB officials said the agency had not completed  those reviews in a timely manner due to the timing of multiple audits  occurring at NMB. NMB recently scheduled those reviews for 2020.  Without monitoring its internal controls, NMB may not identify and be able  to address significant management problems that can impede the  agency’s ability to achieve its goals.

Although NMB has identified and taken steps to address some of these  audit and internal control deficiencies, it has not established an effective  process to consistently monitor adherence to its audit policy and federal  standards, evaluate the results, and remediate any deficiencies. For  example, NMB has revised its audit policy to assign responsibility for  audits and related follow-up to the CFO, who is tasked with helping NMB  develop appropriate corrective action plans. Additionally, the Board said it  addressed the issue of not circulating the audit management letter with  the responsible official and changed the protocols for circulating letters for  audit findings to include the Board in addition to the CFO. However, these  actions, by themselves, do not establish the monitoring activities required  by NMB’s audit policy and federal internal control standards. Under  NMB’s new audit policy, the Board has responsibility to provide top-level  oversight of NMB’s management activities related to audit coordination  and follow-up; federal internal control standards require management to  establish and operate monitoring activities to monitor the internal control  system, evaluate the results, and remediate identified deficiencies on a  timely basis. Further, FMFIA requires regular evaluation of the  sufficiency of an agency’s internal controls. The failure of NMB to conduct  the necessary reviews to support its annual assertion under FMFIA  hampers the agency’s ability to identify risks in its internal controls and to  correct any associated material weaknesses, as well as deprives  Congress of information necessary to oversee the agency. Further, by not  following its own policies and federal internal control standards, NMB may  miss opportunities to improve its ability to achieve objectives, address  audit deficiencies, and improve management oversight.

NMB has fully implemented one of the seven recommendations still open  from prior GAO reports: creating standards on outside employment, which  will help prevent employee violations of ethics rules. However, while  making varying degrees of progress on the others, NMB still has more  work to implement all six remaining recommendations. NMB has  decreased its backlog of rail arbitration cases, but it has no specific goals  against which to measure its progress toward reducing the backlog and  ensuring NMB and Congress can adequately assess NMB’s resolution of  disputes. Likewise, while the Board’s implementation of the climate  assessment illustrated that it recognizes the need to understand  employee concerns regarding communication across teams, agency  travel, and training for management, among other things, it has not fully  executed plans to address those concerns in order to benefit from that  assessment. Finally, while NMB has improved certain aspects of how it  implements its travel and telework policies, it has not sufficiently changed  the policies themselves to ensure that NMB policies are consistent with  the Federal Travel Regulation and the Telework Enhancement Act of  2010, respectively. Moreover, NMB established the Office of Information  Services and hired a new CIO to assist NMB in addressing information  security and privacy recommendations, but NMB still must change its  underlying information policies and procedures, including updating its  information privacy policy to reflect the current structure of NMB and  perform a review of its system security plans. Additionally, until NMB  complies with the recent FedRAMP requirements, its data may be at  greater risk in the event of a security incident. Without fully implementing  the remaining six recommendations and addressing the recent FedRAMP  requirements, NMB is missing opportunities to mitigate information  security risks and improve its own management and performance.

Moreover, NMB faces challenges in managing and overseeing its annual  appropriation and audit policy as a result of ineffective internal controls.  Specifically, as a result of ineffective internal controls for managing and  overseeing its annual appropriation, NMB has forgone several million  dollars in funding that could have been used to accomplish agency goals.  While continuing resolutions can make it difficult for agencies to achieve  hiring and other goals, until NMB develops a written plan to document  NMB’s process for reviewing and monitoring the agency’s annual  appropriation to effectively manage its budgetary resources and  spending, NMB will likely continue to miss opportunities to accomplish its  goals. Similarly, until NMB establishes a specific process for the Board to  monitor and evaluate NMB’s adherence to audit protocols, NMB will not  be well positioned to address audit recommendations from its financial  auditors and GAO, hindering efforts to improve its operations. While NMB  officials have told us that they did not have the resources for certain  changes that we recommended, such as information security and privacy  improvements, they had more resources than they actually used, as  evidenced by unused appropriations. Given the range of management  issues that have remained unaddressed over the past 6 years, NMB  should ensure their available resources are used effectively.

We are making the following four recommendations to the National  Mediation Board (NMB):  1.  The Chairman of the NMB should document NMB’s authorizations for  its use of cloud services approved through FedRAMP and submit the  authorizations to the FedRAMP Program Management Office.  (Recommendation 1)  2.  The Chairman of the NMB should update NMB’s security policies and  procedures to include FedRAMP’s authorization requirements.  (Recommendation 2)  3.  The Chairman of the NMB should develop a written plan to document  NMB’s process for reviewing and monitoring the agency’s annual  appropriation to ensure that funds are used effectively.  (Recommendation 3)  4.  The Chairman of the NMB should establish a process for the Board to  effectively monitor and evaluate NMB’s adherence to audit protocols  and implementation of actions to address audit recommendations.  (Recommendation 4)

We provided a draft of this report to the National Mediation Board (NMB)  for review and comment. The agency provided written comments, which  are reproduced in their entirety in appendix III. NMB also provided  technical comments, which we incorporated as appropriate. NMB agreed  with our four recommendations, and stated that it would take actions to  address them. With regard to our first two recommendations concerning  the Federal Risk and Authorization Management Program authorizations,  NMB stated that it plans to complete the required actions by the end of  fiscal year 2020. While NMB stated that it would take actions to address  our third and fourth recommendations, concerning improvements to better  monitor its annual appropriations and adhere to audit protocols to  implement audit recommendations, respectively, NMB did not provide a  timeframe for when these actions would be completed. NMB also said  that it is taking actions to fully implement the remaining recommendations  from our prior reports concerning its rail arbitration case backlog,  organizational climate assessment, travel and telework policies, and  information privacy and security.

We are sending copies of this report to the appropriate congressional  committees, NMB, 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) 512-7215 or nguyentt@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.

Appendix I: National Mediation Board Documents Compared with Statutory and Policy Requirements

Appendix II: Status of National Mediation Board Practices in Information Privacy and Security

NMB appointed a senior agency official for privacy in April 2019 and  documented the assignment through a memorandum.

Partially following  NMB established a privacy policy dated October 2017 that includes  procedures for protecting sensitive information, including personally  identifiable information. However, the policy reflects outdated roles and  responsibilities. For example, the policy reflects the role of chief of staff  that no longer exists in the agency. An NMB official stated the agency  engaged a technical writer (contractor) to update the policy by the end of  fiscal year 2020.

Partially following  The NMB documented a privacy impact assessment dated July 2018. assessments for systems  containing personally identifiable  information  4.

However, the assessment did not specify whether a system of records  notice would be developed as required by the Office of Management and  Budget (OMB). An NMB official stated the agency engaged an  information system security officer (contractor) to address this practice by  the end of fiscal year 2020.  NMB did not issue a system of records notice for its enterprise network  and did not provide any documentation that this notice was not required in  the agency’s privacy impact assessment. An NMB official stated the  agency engaged an information system security officer (contractor) to  address this practice by the end of fiscal year 2020.

Partially following  NMB developed an Information Program Plan dated April 2016 that states  the agency annually conduct a risk analysis. NMB had assessments of its  enterprise network conducted on May 2016 and November 2017. NMB  also completed an information system risk assessment dated October  2017 that identifies and describes threats. However, NMB did not provide  any assessment documentation for its network in fiscal year 2019. An  NMB official stated the agency engaged a security assessor (contractor)  to address this practice by the end of fiscal year 2020.

Partially following  NMB has developed an information security policy by documenting its  based policies and procedures to  ensure compliance with  applicable standards and  guidance including system  configuration requirements  existing April 2016 Information Program Plan. While the policy includes  risk assessment requirements, it does not reflect oversight of NMB third- party providers. An NMB official stated that the agency engaged a  technical writer (contractor) to address this practice by the end of fiscal  year 2020.

Partially following  NMB’s current system security plan for its enterprise network has been in  that cover networks, facilities,  and systems or groups of  systems, as appropriate  place since March 2016. However, the plan does not include full  implementation details on operational controls or a rationale on why  controls are not applicable as recommended in National Institute of  Standards and Technology guidance. An NMB official stated that the  agency engaged an information system security officer (contractor) to  address this practice by the end of fiscal year 2020.

Extent NMB is  following  Partially following  NMB has security awareness training guidelines signed April 2016 that  specify agency employees and contractors will receive annual security  awareness training. An NMB official stated that security awareness  training is to be conducted each fiscal year. However, an NMB official  stated the agency did not provide security awareness training in fiscal year  2018. NMB provided that training in fiscal year 2019, and an NMB official  said the agency engaged an information system security officer  (contractor) to address this practice by the end of fiscal year 2020.  In May 2016, the NMB’s enterprise network was independently tested by  the Department of the Treasury’s Bureau of Fiscal Service Division of  Security Services. In addition, an NMB official documented a security  assessment for the network signed November 2017. However, NMB did  not provide us with any additional documentation to show the enterprise  network was assessed in fiscal year 2019. According to an NMB official,  the agency engaged a security assessor (contractor) to address this  practice by the end of fiscal year 2020.

Program Plan dated April 2016. In addition, the agency documented a  plan of actions for its enterprise network dated January 2018. However,  the plan of actions did not fully meet OMB requirements such as planned  completion dates and changes to milestones, among other things. An  NMB official stated that the agency engaged an information system  security officer (contractor) to address this practice by the end of fiscal  year 2020.

Partially following  NMB’s security-incident procedures dated June 2016 include information  procedures for detecting,  reporting, and responding to  incidents   on handling cyber incidents. However, the procedure did not include  required actions specified by the Federal Information Security  Modernization Act of 2014, such as notifying the federal information  security incident center, law enforcement agencies, and relevant offices of  inspector general and general counsel. An NMB official stated the agency  engaged a technical writer (contractor) to address this practice by the end  of fiscal year 2020.

Partially following  NMB documented a continuity of operations plan policy dated March  2016. However, the agency has not documented a contingency plan for its  enterprise network. An NMB official stated the agency engaged an  information system security officer (contractor) to address this practice by  the end of fiscal year 2020. covered by information in a system of records, the category of records that are maintained about the  individuals, and how the information is shared and routinely used by the agency.

Appendix III: Comments from the National Mediation Board

Appendix IV: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Mary Crenshaw (Assistant  Director), Andrew Nelson (Analyst-In-Charge), Cindy Brown Barnes, Larry  Crosland, Mikey Erb, Chelsa Gurkin, John Lack, and Dana Pon made  significant contributions to this report. Also contributing to this report were  Shirley Abel, Amy Anderson, Bill Anderson, J. Howard Arp, Gary Bianchi,  Rachael Chamberlin, Vijay D’Souza, Robert Graves, Carol Henn, Janice  Latimer, Barbara Lewis, Benjamin Licht, Jessica Orr, Monica Perez- Nelson, James Rebbe, Constance Satchell, Monica Savoy, Almeta  Spencer, Sabrina Streagle, Barbara Steel, Amy Sweet, Curtia Taylor,  Candice Wright, and Paul Wright.

The National Mediation Board (NMB) helps airlines and railways and their related unions resolve labor disputes that could disrupt commerce in those industries. We are required by law to review NMB’s programs and activities every 2 years.

NMB implemented our prior recommendation to improve ethical standards for employees seeking outside employment; 6 others remain open.

Also, NMB doesn’t have the tools to effectively manage its appropriations. As a result, NMB has foregone several million dollars in funding that could have been used to accomplish agency goals. Among other things, we recommended NMB improve its monitoring processes in this area.

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The Nation's Fiscal Health: Action Is Needed to Address the Federal Government's Fiscal Future

This testimony summarizes information contained in GAO's March 2020 report, entitled The Nation’s Fiscal Health: Action Is Needed to Address the Federal Government’s Fiscal Future ( GAO-20-403SP ).

Long-term fiscal projections by GAO, the Congressional Budget Office (CBO), and in the 2019 Financial Report of the U.S. Government (2019 Financial Report) all show that, absent policy changes, the federal government continues to face an unsustainable long-term fiscal path. Although the assumptions in each of these projections vary somewhat, all result in the same conclusion: over the long term, the imbalance between spending and revenue that is built into current law and policy will lead to (1) deficits exceeding $1 trillion each year beginning in fiscal year 2020 and (2) both the annual deficit and the cumulative total debt held by the public continuing to grow as shares of gross domestic product (GDP). This situation—in which debt grows faster than GDP—means the current federal fiscal path is unsustainable.

To change the long-term fiscal path, policymakers will need to consider policy changes to the entire range of federal activities, both revenue (including tax expenditures) and spending (entitlement programs, other mandatory spending, and discretionary spending). As Congress considers changes in revenue and spending policies to improve the federal government’s long-term fiscal path, it will also need to consider other approaches for managing the level of debt.

I appreciate the opportunity to be here today to discuss our report on the  fiscal condition and long-term fiscal path of the U.S. government.

Long-term fiscal projections by GAO, the Congressional Budget Office  (CBO), and in the 2019 Financial Report of the U.S. Government (2019  Financial Report) all show that, absent policy changes, the federal  government continues to face an unsustainable long-term fiscal path.  Although the assumptions in each of these projections vary somewhat, all  result in the same conclusion: over the long term, the imbalance between  spending and revenue that is built into current law and policy will lead to  (1) deficits exceeding $1 trillion each year beginning in fiscal year 2020,  and (2) both the annual deficit and the cumulative total debt held by the  public continuing to grow as shares of gross domestic product (GDP).  This situation—in which debt grows faster than GDP—means the current  federal fiscal path is unsustainable.

Decisions in the near term to support economic growth and address the  security and social challenges the nation faces need to be accompanied  by a broader fiscal plan to put the federal government on a sustainable  long-term path. This is essential to ensure that the United States remains  in a strong economic position to meet its security and social needs. It is  also necessary to preserve flexibility to address potentially urgent or  unforeseen events, such as natural disasters, economic downturns,  cyberattacks, and military conflicts.

GAO’s Fiscal Health report provides information on (1) the unsustainable  fiscal path and its primary drivers, (2) growing fiscal pressures that could  further strain the federal budget, (3) why it is important to change the  fiscal path, and (4) the need to take a new approach to managing the  debt.

My statement is based upon our 2020 annual report on the nation’s fiscal  health, which leverages our fiscal year 2019 audit of the U.S.  government’s consolidated financial statements; our work on natural  disasters; 2019 High-Risk List; the 2019 fragmentation, overlap, and  duplication annual report; and other related work. The work upon which  this statement is based was conducted in accordance with generally  accepted government auditing standards.

The Federal Government Is on an Unsustainable Fiscal Path

By the end of fiscal year 2019, the federal debt held by the public had  climbed to 79 percent of GDP. By comparison, such debt has averaged  46 percent of GDP annually since 1946. If current trends continue, debt  as a share of GDP will exceed the historic high 1946 level of 106 percent  of GDP within 11 to 14 years. In 2050, it will be nearly twice that level and  about four times its post-World War II average. Figure 1 shows that in  GAO, CBO, and 2019 Financial Report projections, debt held by the  public as a share of GDP grows substantially over time.

Spending Outlook Is Driven by Health Care and Net Interest on the Debt

Under GAO, CBO, and the 2019 Financial Report projections, spending  for the major health and retirement programs grows more rapidly than  GDP in coming decades. This is a consequence of both an aging  population and projected continued increases in health care costs per  beneficiary. Medicare spending is expected to exceed $1 trillion per year  by fiscal year 2026, and Social Security spending already exceeds $1  trillion per year.

However, according to the projections, these spending categories will  eventually be overtaken by spending on net interest, which primarily  consists of interest costs on the federal government’s debt held by the  public. In recent years, persistently low interest rates have resulted in  lower interest costs for the government than previously projected. Despite  these low interest rates, spending on net interest grew from $263 billion in  2017 to $376 billion in 2019. That $376 billion is 8.4 percent of total  federal spending, which exceeded combined spending on agriculture,  transportation, and veterans’ benefits and services.

Going forward, both interest rates and the debt are projected to grow,  which means spending on net interest is projected to grow faster than any  other component of the budget. In 2032, spending on net interest is  projected to exceed $1 trillion annually. Over the past 50 years, net  interest costs have averaged 2 percent of GDP but these costs are  projected to increase to 7.2 percent by 2049. As figure 2 shows, we  project that as a share of GDP, net interest spending will exceed  Medicare spending in 2041, Social Security spending in 2044, and total  Discretionary spending in 2049.

Interest costs will also depend in part on the outstanding mix of Treasury  securities. The Department of the Treasury issues securities in a wide  range of maturities to appeal to a broad range of investors to support its  goal of borrowing at the lowest cost over time. Treasury refinances  maturing debt by issuing new debt in its place at the prevailing interest  rate. At the end of fiscal year 2019, 61 percent of the outstanding amount  of marketable Treasury securities held by the public (about $9.9 trillion)  was scheduled to mature in the next 4 years. If interest rates are higher,  Treasury will have to refinance these securities at the higher interest  rates, adding to the interest costs of the growing federal debt.

Action Is Needed to Address an Unsustainable Fiscal Path

Impending financial challenges for major programs and fiscal risks are  both straining the federal budget and contributing to the growing debt.  Sustaining key programs will require changes (see fig. 3).

The President’s Budget, CBO, and the Chair of the Board of Governors of  the Federal Reserve System all make it clear that rising federal debt  could have long-term consequences for the economy. For example it  could:  constrain Congress’s ability to support the economy or address other  national priorities,  restrain private investment and thereby reduce productivity and  overall growth, and erode confidence in the U.S. dollar.

In addition, it may increase the risk of a fiscal crisis, in which investors  would lose confidence in the U.S. government’s financial position, and  interest rates on Treasury securities would increase abruptly.

As currently structured, the debt limit is a legal limit on the total amount of  federal debt that can be outstanding at one time. The debt limit does not  restrict Congress’s ability to pass spending and revenue legislation that  affects the level of debt, nor does it otherwise constrain fiscal policy.  Without legislation to suspend or raise the debt limit, Treasury cannot  continue issuing debt to finance the decisions already enacted by  Congress and the President. We have reported on the negative impacts  of uncertainty around the debt limit which include (1) increased Treasury  borrowing costs, (2) decreased demand for Treasury securities, and (3)  constrained Treasury cash management. We have reported numerous  times that the full faith and credit of the United States must be preserved.

We have also recommended that Congress consider other approaches to  the current debt limit to avoid seriously disrupting the Treasury market  and increasing borrowing costs and to allow it to better manage the  federal government’s level of debt. A number of bills have been  introduced in this Congress to address this issue. The Senate Budget  Committee’s proposal to reform the Congressional budget process would  automatically adjust the debt limit to conform to levels established in the  budget resolution.

In contrast to the debt limit, fiscal rules can support efforts to achieve  fiscal sustainability by imposing numerical limits or targets on the budget  to guide fiscal policy. Fiscal rules are intended to influence decisions  about spending and revenue as they are made.

The Senate Budget Committee’s proposal to reform the Congressional  budget process is an example of one such approach. This legislation  would specify target ratios for debt as a share of GDP and track  legislation against that target. As Congress continues to consider options,  two key points should be emphasized.

An agreed-upon goal can help policymakers justify and frame their  choices. With that in mind, a fiscal target that establishes a common  goal for controlling the size of the federal debt relative to the  economy—as well as well-designed rules that put the federal  government on a path to achieve that target—could form part of a  long-term fiscal plan to put the government on a sustainable fiscal  path.

The longer action is delayed, the greater and more drastic the  changes will have to be, placing an additional burden on future  generations.

While changes in spending and revenue to ensure long-term fiscal  sustainability require legislative actions to alter fiscal policies, executive  agencies can also take actions to contribute toward a sustainable fiscal future. Although executive actions alone cannot put the U.S. government  on a sustainable fiscal path, it is important for agencies to act as stewards  of federal resources. These actions include reducing improper payments,  which agencies estimate totaled $175 billion in fiscal year 2019;  addressing the $381 billion annual net tax gap; better managing  fragmentation, overlap, and duplication across the federal government;  and improving information on federal programs and fiscal operations to  aid agency decision-making.

Chairman Enzi, Ranking Member Sanders, and Members of the  Committee, this completes our prepared statement. We would be pleased  to respond to any questions that you may have.

For further information on this testimony, please contact Susan J. Irving,  Senior Advisor to the Comptroller General, Debt and Fiscal Issues, who  may be reached at (202) 512-6806 or IrvingS@gao.gov; Robert F. Dacey,  Chief Accountant, who may be reached at (202) 512-3406 or  daceyr@gao.gov; or Dawn B. Simpson, Director, Financial Management  and Assurance, who may be reached at (202) 512-3406 or  simpsondb@gao.gov. Contact points for our Congressional Relations and  Public Affairs offices may be found on the last page of this statement.

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.

We testified about the federal government’s fiscal condition at the end of FY 2019 and the unsustainable path it is on if policies don’t change.

Publicly held debt rose to 79% of GDP. The Congressional Budget Office and our new report both project it will continue to grow

Interest on the debt is the fastest growing item in the budget; it is projected to be the largest spending category by 2049

The longer action is delayed, the more drastic changes will have to be